The final week of March 2018 has kicked off being consumed by: Will President Museveni right to ruled out the renewal of power distribution giant UMEME’s concession?
Museveni in a letter dated March 13th, tasked Energy Minister Irene Muloni to explain to him how Umeme’s technical losses still remain as high as 17% yet the company claims to have invested up to $500million in distribution infrastructure to address this problem. He wants, ordering the ministry to look for a cheaper alternative.
But kicking out Umeme would set the stage for another long process of seeking an investor to take over power distribution, something that could take more than a year. A short-term measure as government seeks another investor to carry the burden of power distribution is not yet publicly known.
The point, after all, is this: The President is accusing the South African based company of colluding with officials from the Energy ministry to inflate its operation costs, which trickles down to hiked end user prices.
Think about it this way: Let’s say Umeme is not a South African company. It is listed company with majority shareholding (23%) to National Social Security Fund (NSSF). Then there is the messy issue of compensating people who bought shares in Umeme when the company was listed on the Uganda Securities Exchange in November 2012. This would be unprecedented on Uganda’s stock market and could hurt the image of the market.
Would the fact that local news site ChimpReports didn’t research enough about Umeme’s shareholding change anything? Of course it wouldn’t.
The end user tariff breakdown (Generation53%, Transmission 12% and distribution 35%). The cost of Bujagali power at US11 cents is the biggest cost that should be discussed.
That’s what’s important. The sentiment. Not the poor research.
The whole process of terminating the concession could turn out to be burdensome, especially if Umeme decided to take the matter to a court of arbitration outside Uganda’s borders. The concession provides that opportunity should the dispute be worth more than $7m.
Another fact check our writer carried out is about ChimpReport’s claim that Umeme took over power distribution from the Uganda Electricity Distribution Company Ltd (UEDCL) in a concession on March 1st 2005.
They can help their readers by shedding light on the difference between a contract and a concession.
- The 20 year concession, which was condemned by whistle blowers and investigated by Parliament – with recommendations for it’s termination – is due for renewal in March 2025.
Fact Check: This unfortunate investigation by parliament was initiated after a request by Government of Uganda for nearly Shs 90 billion to pay for thermal power generated by Aggreko. This was because Bujagali was delayed and the country had been plunged into darkness. What exactly did Umeme breach in its concession? No one has ever come up to show the breaches, not even ERA.
- Museveni, in a letter dated March 13th, tasked Minister Irene Muloni to explain to him how Umeme’s technical losses still remain as high as 17% yet the company claims to have invested up to $500million in distribution infrastructure to address this problem.
Fact Check: Technical losses refer to the power that get lost in the normal transmission of power. This lost power cannot be eliminated as claimed. A similar example is the amount of fuel needed in the car (usually called cubic capacity cc or displacement). That fuel does not give you mileage. The loading, tire pressure, aero dynamics design of the vehicle are such technical aspects that can improve efficiency.
- In the run up to the concession signing in 2005, the Auditor General had calculated that Umeme’s losses; both technical (dilapidated infrastructure) and commercial (power theft) would be at 28%.
Fact Check: The Auditor General, at the time, and even now does not have competence to accurately measure technical losses. To measure technical losses accurately you must move your grid to a Smart grid, where metering occurs at transformers, and meters. This requires heavy investment, which in turn increases end-user tariffs. It is only Uganda and Seychelles that run on a cost reflective tariff.
- But according to President Museveni, this figure was hiked to 38% following a meeting between the Umeme investors and a delegation from the Energy Ministry in the US. In 2009, government instituted the Interim Review of Electricity Tariffs Committee, which was chaired by Gen Salim Saleh.
The committee, among others called for the re-nationalization of EDCL, terming the Umeme deal as “not well thought after.”
Fact Check: It is not uncommon for landlords to wish to repossess leased businesses once those businesses have been successful. Uganda spent a lot of time to attract investors into the country, Tata India was one unsuccessful one. Umeme came stabilized the industry and listed on the stock exchange so that Stock Exchange. It is already nationalized.
- Following the committee findings, Umeme’s estimated losses somehow mysteriously dropped from 38% to 28%.
Fact Check: Umeme has over the years consistently reduced these losses because of good management and technical expertise. The trend is unrelated whatsoever to a sitting of a committee. Total Losses are even simpler to measure; what was purchased minus what was sold. The unfortunate Saleh report does not demonstrate these calculations (Purchases from UETCL – total Billing). This should be left to Electricity Regulatory Authority to pronounce itself on the matter. Of the 28%, 15% were said to be technical and 13% commercial.
- Currently, thanks to various measures such as the prepaid metering system, media campaigns and others, Umeme says it has reduced it’s commercial losses from 13% to just 1%.
Fact Check: This is just absurd to say that commercial losses (Power theft) is now 1%!. Mbale area alone steals over 45%.
- Yet despite it’s purported half a billion dollars investment in distribution infrastructure, the technical losses have instead grown from 15% to 17.3%.
Fact Check: This is simply diversionary. The total losses have been going down every year, so it’s not correct to say this. No study has been done by ERA to separate technical losses from commercial losses.
- “If they have invested so much money, why do the technical losses not decline?” wondered the President in his letter to minister Muloni.
Fact Check: ERA and Uganda Electricity Distribution Company Limited jointly verify these investments.
