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UGANDA: China likely to take over electricity generation, distribution for Uganda

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Power. An Umeme technician carries out maintenance works on a power distribution line in Kampala. Two Chinese companies are looking to dislodge Umeme from the power distribution whose concession ends in 2025. FILE PHOTO

Chinese competition to Umeme revealed

DAILY MONITOR – The names of the two Chinese companies looking to dislodge Umeme from the power distribution function have been revealed. The companies are State Grid and Sinohydro. Sunday Monitor has learnt that they have been working behind the scenes to scoop the job when Umeme’s contract expires in 2025.

According to a source in the Energy ministry, the State Grid Corporation of China has even been to State House to meet with President Museveni over the matter.

Another account has it that Sinohydro Corporation approached Uganda Electricity Distribution Company Limited (UEDCL), which in 2005 leased the electricity distribution network to Umeme. A UEDCL official this reporter spoke with said the “investors” were merely introducing themselves.
The official added that the parties did not discuss any details on financing. He said they could formally engage the investors only if a support agreement is inked. A support agreement would ease UEDCL’s access to loans.

The money factor
The official seemed to respond to a claim that it is only Umeme that international financial institutions can lend money to, to invest in Uganda’s distribution segment.
“Getting money is not a big [deal]. You can get the amount of money that you need on the market,” the official said.
“What matters is do you have the right governance in place? Do you have the ability to invest? Yes, we – UEDCL – do.”

According to the official, if the Chinese were to come on board, it would be to ease UEDCL’s access to cheap loans from the Export Import Bank of China.
On March 12, President Museveni wrote to the Energy minister, Irene Muloni, telling her not to consider renewing Umeme’s concession. He blamed Umeme for the high distribution energy losses and higher retail power tariffs.
He said it was largely because of the high rate of energy losses and Umeme’s 20 per cent Return on Investment (ROI) that consumers are paying high end-user tariffs.

Whereas Mr Museveni said the concession, which is due to expire in 2025, should not be renewed, he did not say whether UEDCL would take over.
All he said was Uganda should ‘look for a cheaper way of modernising and expanding the transmission and distribution lines’. Within 24 hours of the news about him blocking the renewal of the concession, he met with Umeme officials at State House.

Effort to get Umeme’s account of what was actually discussed and resolved failed. A press statement State House mailed to newsrooms after the meeting was general.
It stated that the President met Umeme’s board chairman Patrick Bitature, the company’s managing director, Selestino Babungi, the chief operating officer, Florence Nsubuga and director Gerald Sendaula.
They discussed the high distribution energy losses – now at 17. 2 per cent, down from 19 per cent two years back, Umeme’s 20 per cent ROI and high end-user tariffs.

UEDCL’s officials, the Energy minister Irene Muloni and the Electricity Regulatory Authority’s chief executive officer, Ziria Tibaalwa Waako, was not in the meeting.
UEDCL is the owner of the distribution network whereas the Energy ministry is in charge of policy for the electricity sector.

ERA regulates the sector and sets the retail tariff, which it does after considering the tariff review applications by the electricity generation, transmission and distribution utilities.
Back to the concession, unlike the case with leases on land, in this concession, UEDCL is under no obligation to consider the current lessee ahead of other entities interested in the same.
If UEDCL is to have its way, indications are that it is unlikely to renew Umeme’s contract.

Already, it has written to the Finance ministry – under which all the companies created after the government split the Uganda Electricity Board (UEB) into three – to interest the State in investing public money in the distribution network.
That way, less and less of Umeme’s money would be invested.
That would mean by the time the concession expires, the amount Umeme might not have recovered through the tariff would be less than it would be had the company been allowed to invest, say, up to $1.2 billion (Shs3.6 trillion) it said it needs to invest now and 2025.

Rather than kick out Umeme, the Finance ministry, according to an article in The Independent news weekly, favours a renewal of Umeme’s contract.
The ministry though would, according to the weekly, want Umeme’s ROI reduced from 20 per cent to 12 per cent thereabouts.
Regarding losses, ERA is in the course of reviewing the performance targets for Umeme for the years remaining to 2025.
Though the regulator is yet to give specifics, some pundits in the know say they are likely to be stringent.

But regardless of whether the performance targets are stringent or not, Andrew Baryayanga, the Kabale Municipality Member of Parliament, said UEDCL should manage the network after Umeme’s concession expires.
“Foreign companies come to make profit,” Mr Baryayanga said in response to the Sunday Monitor’s request for comment. “A government agency would care about Ugandans.”
It is not true that all public companies are run according in the interests of Ugandans. Press reports suggest some public officials strip parastatals of assets – or squirrel money from their coffers.

Mr Baryayanga said it is unwise to have strategic sectors such as energy managed by foreign entities.
“If a foreign company were to work with a hostile foreign country, it could break Uganda down,” Mr Baryayanga said.
He added that even if the Chinese get the concession and are granted a lower a return on investment, it would be a rate that is above 10 per cent.
“They would get less, but it would still be a lot of money,” Mr Baryayanga, who closes follows the electricity sector, said.

For now
Between now and 2022, when Umeme can officially express interest in continuing operating the network, it remains to be seen how UEDCL will conduct itself. It would not want to appear to be working against Umeme – because that could pose some legal challenges.

As for President Museveni, who appears to have been testing the waters, 2023 will be just one year ahead of the next general election – should voters approve the extension of his current term by two years to align the presidential election with the parliamentary election.
Then, the number of Umeme’s customers will probably have increased from the current 1.2 million.
If Umeme does not do anything between now and then to win over Ugandans who pay electricity bills, but are displeased by unreliable power supply, it will be unpopular.
Like happened in September 2005 when President Museveni vetoed a plan by the cabinet to introduce a Shs20, 000 annual television tax, he could try to convert the anti-Umeme sentiment into votes.

In favour. Rather than kick out Umeme, the Finance ministry, according to an article in The Independent news weekly, favours a renewal of Umeme’s contract.
The ministry though would, according to the weekly, want Umeme’s ROI reduced from 20 per cent to 12 per cent thereabouts.

AUTO – GENERATED; Published (Halifax Canada Time AST) on: April 08, 2018 at 06:41PM

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