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Why demand for diesel is surging

By Vision Reporter

Added 27th November 2006 03:00 AM

EXECUTIVE TALK

Imports of diesel are rising faster than any other kind of fuel - even charcoal. And it’s not surprising: diesel generators are now Uganda’s preferred substitute for Umeme’s hydro-electric power.

EXECUTIVE TALK

Imports of diesel are rising faster than any other kind of fuel - even charcoal. And it’s not surprising: diesel generators are now Uganda’s preferred substitute for Umeme’s hydro-electric power.

EXECUTIVE TALK

By Craddock Williams

Imports of diesel are rising faster than any other kind of fuel - even charcoal. And it’s not surprising: diesel generators are now Uganda’s preferred substitute for Umeme’s hydro-electric power.

The surging demand for diesel is not coming from transport.

Uganda’s fleet of large diesel powered 4X4s, tractors and commercial vehicles is constrained by the higher licence cost, now at sh250 per cubic centimetre (cc). Diesel engines are usually at least 2,000ccs in size.

A 2500cc Pajero owner must pay URA sh625,000 a year to be on the road.

Diesel owners also get less travel per litre - only about 8kms for a Pajero, against 9.5kms for a well-maintained 200cc Benz, though this is offset by a lower depreciation rate, and lower pump price per litre - currently at sh1,830 against sh2,100 - for petrol.

URA promotes diesel use by its lower tax rate per litre - currently sh450 against sh720 for petrol. Every driver is discouraged from vehicle use by pump prices, poor roads and traffic jams.

Many park their cars, and use matatu or bodaboda to reach their destinations.

Uganda’s diesel imports rose from 353.3 million litres in 2004 to 441.3 m litres in 2005 - an increase of nearly 25%.

Petrol imports increased only by 1.36%. This relative rate of increase is expected to continue until other energy sources become cheaper and as accessible, or until Uganda’s own diesel refined from Lake Albert crude becomes available in 2012.

No fuel dealer can tell how much diesel fuel is for vehicles, and how much for electricity generation.

Shell’s bulk purchases enable it to sell at a discount to bulk users like AGREKO.

What is not generally known to household users of Umeme power is that renewable energy is cheaper per kilowatt hour -by a long margin.

Umeme is now charging domestic users at sh298.20 per kwh for any use above 15kwhs a month.

To offset loadshedding, households may install a generator usually powered by a low cc petrol engine.

This is unlikely to deliver more than 4kilowatts an hour - consuming about 1.8 litres to do so.

At sh2100 a litre, this costs the householder sh945- a kwh -worth it to keep the lights, TV and computer working - but three times more than Umeme’s prices.

The main alternative energy source for this kind of use is the PVC solar panel.

A standard installation to deliver 5kws at peak use costs about sh2.5m.

But running costs are close to zero - just enough to pay a worker to wipe the panels clear of dust and keep the batteries topped up.

The front end cost of solar PVC inhibits many from this alternative source of electric power, but companies selling solar panels say there is a rising market for them, and the amortised cost per kwh is lower than sh298 after nine years’ use.

The other renewable sources of electric power for the millions of small and household consumers are not yet tapped or widely known. After five years of World Bank subsidy, Uganda’s Energy for Rural Transformation programme, has still not disseminated the pico and micro hydropower that would enable rural households to tap the energy in flowing streams and rivers.

From its use in other countries, micro- hydropower is rated at five times cheaper than diesel generation -a rate that can only increase as diesel prices inflate, and renewable technology costs decline.

The same logic applies to macro-hydropower. When Bugagali and Karume come on stream in 2015 with a further 600 megawatts, large economies of scale and properly governed economic use of the Nile’s water power kick in.

Umeme will then be able to charge domestic and small business users less than sh150 per kwh.

Umeme’s higher prices have been a boon for charcoal. Any boon for charcoal is a blow for forests.

With loadshedding, traders say truck loads of charcoal have increased by over 50% or more increase in the past year.

Prices are also up 90% from sh8,000 in 2005, to sh15,000 a bag - still cheaper per hour of cooking than Umeme’s electricity.

You don’t need to fly over Uganda and look down to see the depletion of the forest cover. Every district shows it.

The writer is economic director at Tricontinental Development

Why demand for diesel is surging

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