With only 8% access to electricity and 75% of subsidies going to big businesses, why are MPs supporting subsidies?

Last week, a parliament committee passed a resolution cancelling the increase in electricity tariffs. Many Ugandans genuinely believe that in many of its actions, the 9th parliament is driven by a genuine desire to serve the public good. Yet many of its interventions are driven by ill-informed populism, blatant ignorance and/or obvious self-interest.

Only about eight percent of Ugandans are on the electricity grid and these are largely (certainly not entirely) upper and middle class people. Meanwhile, the 92% who are not on the grid are the vast majority of poor Ugandans who rely on kerosene for lighting and firewood for cooking which are not subsidised. So whose interest is parliament serving when it purports to suspend the new tariff increase?

Indeed, 60 percent of electricity in Uganda is consumed by the top 2,000 large and medium scale enterprises dominated by high profit earning multinational corporations. These pay only 18 percent of the electricity price – 82 percent is paid for them by the government. This means that over 76 percent of the total subsidies benefit these 2,000 companies. In money terms, of the Shs 560 billion to be paid in subsidies this year, the group of 2,00 companies will take Shs 430 billion. The remaining 24 percent will be shared by small enterprises and “domestic” i.e. households (who pay 38 percent of the electricity tariff).

Over 70 percent of domestic electricity is consumed by the top 20 percent high income earners who use washing machines, driers, freezers, garden lighting, water heaters, music stereos, refrigerators etc. These are the households who can afford to pay the full tariff. Why do MPs representing rural constituencies with poor voters with no access to electricity support retention of subsidies that benefit a few fat money cats in Kampala? Well, the MPs belong to this class of upper income Ugandans; so they have interests at variance with those of their constituents.

In 2011, government paid subsidies to Hima Cement worth Shs 70 billion. Now assume a poor household in Uganda who consume about 80 units per month and pay an electricity bill of Shs 25,000.The subsidy to Hima was enough to light the homes of 233,000 of these poor Ugandans. Is Hima more important than these people? Perhaps yes. However, our MPs must demonstrate this to justify the retention of the subsidies.

If Hima paid the full tariff and transferred it to the price of cement, each bag would go up by Shs 4,000. Would that destroy the cement industry in Uganda? Possibly, given that Kenyan cement arrives in Kampala at Shs 28,000 while that of Hima is at Shs 27,000. However, are there no efficiencies Hima can create to compensate for this increase in its price? Are there no alternative incentives that can be given to Hima to remain price competitive in the event of such tariff increase? Is it possible that this Shs 70 billion in electricity subsidies is actually the one that is blinding Hima from innovating strategies that can make it more competitive?

The above questions need to be debated. When one company gets subsidies to the tune of Shs 70 billion, more than the budgets of many ministries in Uganda, then something is badly wrong. I have demonstrated that most of the companies benefiting from these subsidies – telecoms, banks, hotels etc do not need or deserve them. They don’t even need to increase their rates. They can bill the actual tariff on their profit and loss accounts and still remain highly profitable with a good rate of return.

Instead of defending the interests of their poor constituents, MPs defend their own interests and in the process, let big companies run away with billions. The situation is made worse by the mass media and civil society in Uganda. Most journalists and civil society pundits who write in the newspapers or feature in radio and television debates are beneficiaries of these tariffs. They earn more than Shs 1.5m per month – so they are not poor. They have appropriated their access to the platforms of popular expression to defend their privileges – and that is what these subsidies are; privileges.

Public debate has thus been consumed by the condemnation of Umeme, the company that distributes electricity. Consumers may be rightly angry with it because of its complicated billing system and customer relations. Yet I find most of the allegations against Umeme illogical. For example, many Ugandans think electricity subsidies are paid to Umeme. Yet actually they are paid to those who generate thermal electricity but the ultimate beneficiary is the consumer.

Many Ugandans blame Umeme for load-shading. Yet the utility does not produce electricity. It only distributes it to our homes and businesses and gets paid a percentage on each unit of electricity it sells. Load-shading is caused by the mismatch between the electricity Uganda produces and the amount Ugandans are able to buy at existing prices. Every time Umeme load-shades someone’s factory, office or home, it loses income; so load-shading is not in its interest.

There are two ways to end load-shading. In the short term, government can remove regulation of tariffs and allow prices to sky rocket. Under this free market system, only those who can afford it at an exorbitant price will remain on the grid. Apparently, this may not be politically tolerable or socially desirable. So the second option is to remove subsidies and allow the tariff to reflect the actual cost of producing electricity i.e. Shs 1,000 per unit. This may force many people to use power sparingly and/or invest in alternative sources of electricity like solar.

Yet the real issue behind the current hullabaloo about Umeme is that it has been planning to list on the stock market. I know a company with powerful political backers that wants to take over Umeme at below basement prices. Then it would list on the stock exchange and make billions on the cheap. The ambitions of this company are currently being helped by Umeme’s disastrous public relations, media and parliamentary ignorance and self interest, and a distorted system of democratic expression that panders to the interests of elites.

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Comments (38)

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written by Lt Col Adam Kifaliso, January 28, 2012

2,000 large and medium scale enterprises dominated by high profit earning multinational corporations. .........reminds me of south Korea......!
Umeme eh how on earth signed to distribute what it doesn't cook or manufacture ?
It is easy to distinguish domestic and industrial power consumption on the grid , Andrew I guess you that, OK ....? Paving roads and electricity in homes is a right and sign of civilisation......its not a luxury Mr Andrew......lots small dams have been built in western Uganda , NRM has set up many fake businesees to steal tax payers money , soon it will all be public domain

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Who do you speak for Mwenda?
written by Rajab Kakyama, January 28, 2012

It is against strong common sense for one to accuse the other without their self reflection. When Mwenda accuses the MPs for speaking for the minority 8%, what percentage is he speaking for when he defends UMEME? Mwenda, there is a subsidy on ARVs, should government also scrap those off because it is a small percentage of the population that benefit? If the MPs heeded to your advice and okayed UMEME's tariff increase, how would that benefit the majority of Ugandans? After amassing abnormal profits, would UMEME then refocus and consider bringing the majority poor on grid?

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written by Rajab Kakyama, January 28, 2012

Load-shading is not a mismatch between power production and power demand as you so much want to wish. Load shading is mainly due to the innefficiency in the billing system. Most of he power being used is not billed. And this only calls for the stream-lining of the billing process than the increase in the electricity tariffs.

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Stop your rumors Mwenda.
written by kato, January 28, 2012

Mwenda here is engaged in rumors which he pretends to hate. In the last paragraph he claims with out subtantiating that some company is plotting to kick Umeme out and the MPs and powerful government people are backing it. Mwenda should(or even compelled to) present his evidence to the nation so we can go after those whose intention may amount to economic crimes against Uganda.

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Your argument and what ou use to support it leave totally un-respectable.
written by kato, January 28, 2012

The billing system of Umeme is not complicated Mr. Mwenda, it outright fraudulent. You labor to use speculation and take cheap shots at those who are on the grid and the MPs who have the audacity to ask the tough questions. Much as on its face your argument is so pedestrian to be taken seriously i am compelled to also wonder what your motive is and whose side you are on.

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Please Listen and learn
written by Ggomba, January 28, 2012

Everyone who is tired of M7's government please listen to www.radiomunansi.com on Sat/Sundays. Check out the site for your local times. Listen and Learn. Ugandans to the resque, on the way no turning back.

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written by Rigosong, January 28, 2012

Readers, do we know the reasons why even in very developed countries public utilities remain in the hands of the gov't or their municipalities? I have heard of a book wriiten by someone and kind of detailing or questioning who exactly owns UMEME etc. anyone remembers how the national carrier was sold off, despite the Mutyaba group expressing interest? NSCW's bubble has been burst and next we'll hear about new vision and group... fundamental change.

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raise the bar for parliamentary candidates
written by katamba mutyaba, January 28, 2012

the bar for parliamentarians should be raised much higher than it is today. with due respect to the current crop of parliamentarians, candidates to the august house must have proven critical and effective thinking skills; should have not only a well-rounded educational base but also be able to show proven competence in one area of expertise that is crucial to a country e.g. public health; the environment; strategic economics; governance. that way parliament would be more able effectively handle the issues we are struggling with as a country. democracy means anyone with the means can run for parliament, but the question is - beyond popularity with the masses, are you really competent enough to move the country forward, or are you in it just for your ego and so-called "cv enhancement" ?

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Bowing international monopoly capital, all national grids are protected and subsidized
written by Ocheto, January 28, 2012

At this rate and reasoning Uganda should be selling the highway to the airport and the airport itself, both of which are subsidized and used by a minority of wealthy Ugandans. The national power grid carries both private and public interests. There so many institutions that receive subsidies that shouldn’t but the national grid isn’t one of them. UEB should not have been unbundled, if Uganda was governed with independent and nationalistic minded people. The current corrupt easily leaders caved in under pressure from international monopoly capital to privatize all parastatals. Most importantly the confusion and malaise in umeme is just another symptom of what is wrong with Ugandan governance under NRM. The power sector has been privatized enough. It is corruption, stupid.

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Subsidies for micro enteprises
written by chris , January 29, 2012

So bwana Mwenda when power becomes so expensive, how will the poor join the electricity grid! Secondly is it not possible to remove subsidies for medium and large companies but retail subsidies for surviving micro enteprises and domestic users. I think policies do not have to be uniform for all.

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Do you speak for the rural masses?
written by Jimmy Spire Ssentongo, January 29, 2012

So Antoinette Mwenda, if the rural poor can't afford grid electricity let them use solar?

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...
written by Gaga, January 30, 2012

Jimmy - that made me laugh hard!

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engineer
written by nuwe' amanya, January 30, 2012

First of all, i expect Andrew to investigate why power is very expensive per kwhr as some of the power plants are owned by big people in government who know the government has to pay at any cost and they are the ones supplying HFO to some of the power plants at abnormal costs which increases the overall cost. Other wise the cost per unit for thermal power is 14cents which is currently at approximately 330ushs per kwhr.

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Health Information officer
written by Musisi John Bosco, January 30, 2012

Thank you Mwenda for tireless effort to enlighten Ugandans about the true facts in the different articles you write about. Now this one needs to be given big space on the front pages of all major newspapers and also be presented to all televison channels and radio stations. What is also bothering me is, does,nt the ministry of enery, Umeme and the ERA have public relations officers to go out and explain all this stuff, and if they are there, do they know they work or they are simply there being paid for doing nothing. How i wish some of us were near trhose places do them the good work. Otherwise thank you so much for your intellectual insights in all the things you write about.

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written by adam kifaliso, January 30, 2012

in fact the govt can only subsidise thermal-generators and not hydro-power to get facts right .it seems NRM buys water to produce hydro-power at same price as diesel ,NRM must stop stealing public funds,Ugandans are suffering ,m7 must resign if he cant deliver ,he has a price to pay for failure and causing death of Ugandans

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Who is Mwenda speaking for?
written by Steven Nsubuga, January 30, 2012

If I could turn back the question to Mwenda, "Who are you speaking for? Who is Andrew Mwenda speaking for?" I think the answer to that question is even more important than the one Mwenda posed for you have disguised yourself as a serious journalist and for all those low information citizens of Uganda may take you as one. Seriously, you are not a journalist, you have sold your soul to the corrupt rulers, plunderers of people's resources...for a slice of the ill gotten wealth. Yes, the veil Must BE LIFTED.

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Its not a zero sum game!
written by Maceni, January 30, 2012

The government and parliament alike present this as if it can only be a zero sum game!i.e subsides or no subsides. Government can actually institute a system where it can subsidize up to a certain threshoold of usuage i.e only the first 1000units of consumption will be subsidized across the board.Since household use is low anyway -- it shouldn't be a problem at all. The poorest of the poor dont have high consumption so they will be covered- and the high consumers pay more as their consumption increases---- they will be the ones compelled to invest in energy efficiency and alternative sources.Anytime situations are presented as if they are zero-sum -- you cannot rule out an element of corruption.

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Wrong, fake unscurplous and corrupted tainted Andrew Mwenda Research
written by Robert, January 30, 2012

Since Umeme came into Uganda, the government of Uganda has been paying subsidies to Umeme. Trillions of shilling per year have been given to UMEME to cover up the so called losses (clear corruption) the company has been making! What losses? Who determines the losses? Why are Umeme top 15 directors paid over 100M Ush per month salaries? Where are the subsides invested? Why is Uganda maintained a 8% utility and access to power grid since Umeme took over power distribution? Mwenda your artilce is an insult to us! You are corrupt and you must have pocked a big check to write such a shallow ill thought through article.

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written by Robert, January 30, 2012

It is a treason case, for you to use space in your paper, to say that UMEME is not receiving subsidies. Why are you defending UMEME top Managers and insinuations of an imaginary company trying to kick them out of business in Uganda? Yes power generation companies are getting subsidies, too, but why is it that the electricity prices for the final consumers is very high? Electricity prices are high because of the inefficiencies in managing the distribution of electricity by UMEME not because of the subsidies power companies get. For the last 10 years Umeme has been struggling to supply 8% Ugandan population with power. Why have they failed to increase on the converge? The tone of your article is that of puppet, boot licking the UMEME top managers!

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ferdsult?
written by abbey, January 31, 2012

Whereas Mwenda's article may hold water, i think the bottom line is to nationalize the enterprise.
all over the work strategic utilities remain the preserve of the govt. look at NWSC!

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I am shocked !
written by Kayumba David, January 31, 2012

Mr. Steven Nsubuga, you are crazy in asking Mwenda for whom he speaks! In this article Mwanda has given facts that should put our so called Honorable MPs to shame and should lead us to question their intentions. They purport to be genuinely speaking for their electorate but in the actual facts they seem to be ether ignorant or seeking cheap popularity. Let Mwenda alone to continue exposing us to facts so that we make informed judgement and choices

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Facing Reality
written by ojfrog, January 31, 2012

I printed out this article and took time to read it over this morning on my way to work, though my journey to work is always annoying with me inside our filthy taxis trying hard not to throw up, this morning was quite different in the sense that i was still angry as always but this time not for the filthy streets and taxis but for the fate of this country's power sector. It is difficult to accept that a decision was right if its outcomes are rubbish. The unbundled UEB was entangled in all sort of in-competences and bureaucracies that hindered it to operate efficiently, but look at what the hyenas at parliament avenue have turned what should have been an efficient liberalized system into a debate about who stole the meat from the cooking pot.

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Facing Reality
written by ojfrog, January 31, 2012

Bottom line is, as long as S.6 dropouts who make it to parliament through all forms of propaganda continue to determine the financial flow in this country, it is not wrong to declare that this country will be left for the vultures. You do not expect a sector that was ignored for decades to be able to meet today's demands for power. For every investor attracted and paid by NRM to invest in Uganda, there should have been a parallel arrangement to invest in the extra electricity they would demand, instead they kept politicking over the issue, now they are all finding something to blame and they worsen it by continuing to hinder progress within the sector by denying it the ability to generate its own income!!! i hate these guyz.

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Price of Electricity
written by Ali Pong, January 31, 2012

Recently, president Museveni stated that the worldwide average price for generating one kWh from hydro is 1.75 US cents. In Uganda, however, the government pays up up to 12 US Cents per unit of electric energy from these hydro and mini-hydro power companies! Secondly, Ugandans would welcome investments in electricity generation, but it is sheer madness to accept that a 250MW Hydro Power Station (Bujagali) should cost $1 billion!

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written by adam kifaliso, January 31, 2012

1 billion dollars loan for Bujagali and yet it will take 30yrs to be turned a public entity...........! has m7 committed treason against the state of Uganda ? that why he is panicking and passing funny deadly laws ,m7 deserves death now to save Uganda he has messed up and needs to be destroyed,m7's economic crimes award him a death penalty and the rest of his family

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Mwenda is spot on!
written by Jon, February 01, 2012

Finally, some objective analysis of the power sector issues in Uganda! These so called pretentious elites who are posting ignorant comments should learn how to use google! at least they will get their facts accurate... how can someone even suggest that load shedding is because of the billing system! this is basic science my friend! and how can u say subsidies are paid to Umeme... have u even read a page of the concession agreement, licence, ERA position papers, tariff guidelines and methodology, electricity act, grid code!!! please do some basic research before you post any more comments on this platform!!

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IT IS NOT ROCKET SCIENCE
written by Rajab Kakyama, February 01, 2012

I thought it would be easy for an average mind to pick up on my statement, however, since we have "google" minds, let me make the chance and break it down. The gov't of Uganda meets part of the cost of electricity (subsidy). So, even when UMEME does not meet its obligation of supplying to the final consumer, it is guaranteed of payment. In fact, in the current arrangement, UMEME makes more profits by supplying less electricity(this is the paradox). Why is this the case? UMEME is more skeptical of realising its profits out of actual revenues since there are weak mechanisms of collecting its revenues from the power users. ARE WE TOGETHER, JON?

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Let us get the economics right
written by Bashir Kagere, February 01, 2012

Mwenda, i think you are getting the economics on this subject upside down. It is true that when government subsidizes the tariffs the multinational companies stand to gain more but its also true that if the tariffs are increased the final consumer pays the burden of this increment (in terms of price increases on the final product/ service). In view of the fact that multinational companies are profit oriented, the final consumer will pay the 76% accruing to the large companies as well as the 24% accruing to them at household level.

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Lets get the economics right
written by Bashir Kagere, February 01, 2012

I agree there could be political conspiracies and in some cases ignorance, but let us not miss the gist of the matter. It is true that most Ugandans use electricity for lighting, reason being:- it is expensive. If your recommendation of letting the price reflect the market value at Shs. 1000, were to stand, how many new connections to the national grid would you have in a year (for the next 30 years - recall that Ugandans have to pay for the costs of Bujagali) and how many new investors will you get if the production costs are high? And finally, don't you think crime will increase as a result of darkness?

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written by adam kifaliso, February 01, 2012

Bujagali is a suspect business and for that reason , we will set up many alternative power generating plants to compete with Bujagali ,If Bujagali will fail to comply with lowest grid prices it will be declared solvent and sold off to public at the loss of its ''ghost''' investors , simple way to protect Ugandans from M7's insatiable greed and blood-thirst. 1 billion dollars in credit and 30yrs of non-ownership seems to be some kind of a dondolo deal , like someone selling his children's home after the death of their mother and even worse still is Amama commissioning the new dam , what a curse befell on Ugandans .......?

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with no subsidies no need for rural electrification
written by Robert, February 02, 2012

i like your in depth research on the subject especially using figures to drive your point home. with no subsidies we should scrap off projects such as rural electrification, its a wasted investment to give rural people electric poles when they won't use them.

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written by Robert, February 02, 2012

The likes of Jon, I wonder whether they have capacity to even read and conceptualize issues. He claims how is an expert in googling. If your an expert in googling, and you can not locate any document that indicates how UMEME is paid Billions every year for losses, then am sorry to say that your retarded. My QNs are, who determines the losses? (Ans UMEME, {broad day thuggery}), Who verifies the losses? (UMEME {corruption tainted} ). The Billions paid at least for two years can construct a Much bigger Dam than Bujagali Dam! Issues to eradaicate subsidies are complicated and need to be handled with care, because if subsidies are removed, then govt must have plan B, that satisfies all stakeholders.

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Poll answer
written by Musinguzi, February 02, 2012

Dear Andrew, let me use this platform to answer the poll question. I do not think that Uganda needs 2000 musisis to defeat corruption because of the blank check and protection M7 has given to the corrupt. if Uganda has 35 million people, having 2000 musisi's will leave 34, 998,000 free to swindle. To curb this, since we are using personalities, we need one Kagame in M7's seat to create a force of 35 million Musisis (all Ugandans) strong fighting and defeating corruption because of examplary leadership. You cannot preach water and drink wine and expect students to listen and take you seriously the next day.

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written by Rajab Kakyama, February 02, 2012

Are you condemning Jesus's miracle of turning water into wine?

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written by rodgers, February 03, 2012

i think the subsidies should be retained and here is why
1) A direct subsidy on electricity is an indirect subsidy on other forms of energy that benefit the 88%, if you raise electricity prices, the price of substitue products will rise because of the substitution effect, kerosene and firewood prices have to rise. We are not sure about cross price elasticities so it may be difficult to measure the effect on other fuel sources
2) what will the government of uganda do with the money saved? what are the chances that the taxpayer benefits from the savings, if this was Rwanda i would buy the argument but given that this money could end up subsidising bassajabalaba, i would rather we subsidised hima cement directly (and my grandmother indirectly).

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m7 must be retired and prosecuted for crimes against the state of Uganda
written by Lt .Col Adam kifaliso, February 03, 2012

Amama has hijacked the presidency of Uganda commissioning major projects when he is under investigation for corruption , this signals a weak and demented m7 who has to be trialed in courts of law for being incompetent and stupid

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Opportunity
written by Bakashabaruhanga, February 05, 2012

So electricity is expensive and there is not enough of it. Let's get together form a company and produce it! Any one interested?

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Politics and Capitalism don't mix
written by Tekakwo Alex, February 06, 2012

Andrew, The facts presented in your article are true. It is also true that subsidies are both socially undisireable and economically unsustainable. What is true is also the fact that whenever politics meets capitalism at the hip something goes terribly wrong at the head. The points you mentioned are purely capitalistic; forgeting that politicians need to gain popular support among the elites who have the capacity to influence debates. In order to score these points they need support among the midle class who benefit from these subsidies. Remember you cannot change the power structure without generating resistance form those who have vested ineterest. That is what is happening in the Uganda parliament today.

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