UEGCL could play a role in developing crucial new generation infrastructure
COMMENT | HARRISON E. MUTIKANGA | In his address to the Nation on September 9, 2018; His Excellency the President stated that we are aiming at generating 17,000MW of electricity in the next 10 years. We at Uganda Electricity Generation Company Limited (UEGCL) could not agree more and here is why.
Electricity access in Uganda is estimated at 22% implying that over 30 million Ugandans have no access to electricity. With an annual average electricity consumption of 80 kWh per capita, this translates into suppressed demand of over 500 MW. If this demand is un-locked through the new government electricity connection policy (2018-2027) with an annual target of providing 300,000 free on-grid connections, it is likely that the whole of Karuma (600MW) could be exhausted by 2028.
In the past few months, the President and Cabinet Ministers have presided over ground-breaking ceremonies and commissioning of several new factories including; Simba and Hima Cement Factories in Tororo; Sukulu Phosphate in Tororo; Sino-Uganda Industrial Park in Mbale; Kapeeka Ceramic and Fruit Processing in Nakaseke; Atiak Sugar Factory in Amuru; Soroti Fruit Factory; and Global Tea Factory in Bushenyi among others. When all these factories are in full operation, they are likely to exhaust the Isimba 183MW. This boom in factories has already created over 20,000 jobs. More job creation and the anticipated revenues from oil exports will enhance per capita income and with it per capita growth in electricity consumption.
From the 2014 National Population Census data, Uganda’s population will be 53.3 million people by 2028, assuming the average annual growth rate of 3.0%. In the event that the National Development Plan (NDP II) goal of middle income status by 2020 is achieved, the average per capita consumption in 2028 could be about 1,874 kWh (World Bank dataset for low middle income). Allowing for 22% energy system losses, and a capacity factor of 70%, Uganda will need not only 17,000MW but 20,505MW in installed generation capacity by 2028.
In the background report to the budget for 2018-2019, the Ministry of Finance reports a 5.8% GDP growth from FY 2013/14 to FY 2017/18. In their 2015 report on Powering Africa, McKinsey reveals that there is a direct correlation between economic growth (GDP per capita) and per capita electricity consumption.
Uganda’s installed electricity generation capacity is a meagre 955 MW with a GDP per capita of about US$615. Wealthy countries have invested heavily in electricity infrastructure. For example, South Africa with a population of about 56 million people has an installed generation capacity of 46,943MW with a per capita GDP of US$6,268 and per capita consumption of 4,198kWh. If Uganda is to sustain GDP growth, we need electricity – and lots of it.
For Uganda to realise an additional 17,000MW of installed generation capacity over the next decade, it will require close to US$51 billion in new investments based on the average unit investment cost of US$3 million per MW of the ongoing and recently developed large hydropower projects in the country. The challenge for the government will be how to mobilise the huge capital investments amidst public debt ceiling constraints and requirements from other priority public sectors like health and education.
The government will certainly need support from the development partners, foreign and domestic private investments, International Financial Institutions like the World Bank, inter-country joint investments, expanding and integrating the regional electricity market and trade, and floating government infrastructure bonds. Innovative ways of securing foreign finance such as securitisation of a portion of future oil revenues should be considered by government to obtain low cost finance and circumvent the debt ceiling.
The government will also need an energy mix to tap into the country’s vast renewable energy potential (hydro, solar, geothermal, wind) and non-renewable sources such as gas and oil fired thermal power plants to ensure energy security and reliability of supply. The government has already signed MOUs with potential investors for a cascade of hydropower plants along River Nile with a total of 1,862MW (Ayago-840, Oriang-392, Kiba-330, and Uhuru-300) which should be fast-tracked.
Investment in electricity generation infrastructure generally calls for an equity investment of 30-40 percent of the total cost – the remaining 60-70 percent being largely financed by long-term debt. According to the World Bank, most successful companies aim to secure internally generated cash surplus at least equivalent to 30-40 percent of the incremental investment needs. With a conducive regulatory framework, UEGCL could play a crucial role in the development of new electricity generation infrastructure. The Electricity Regulator (ERA) should appreciate and support the need for generating surplus cash for meeting the companies’ investment needs.
For example, the Energy Regulatory Commission (ERC) in Kenya has empowered KenGen, a similar government company to UEGCL, to execute infrastructure investment projects. KenGen posted a profit of US$ 90 million (KShs. 9,057 million) in the year ended June 2017 according to the 2017 annual report. In the past 10 years KenGen has executed investments worth US$2.2 billion from internally generated cash flows, and added over 700MW new capacity bringing their total installed capacity to 1,631MW. All this has been achieved while ensuring competitive tariffs within the region. KenGen’s good financial health has enabled the company to list on the stock exchange, thus making it easy to mobilise infrastructure investment funds.
UEGCL is prepared for this growth challenge and has committed through its 2018-2023 strategic plan to deliver 1,300MW. In order to keep the unit cost of generation low, UEGCL has recruited young engineers and technicians for operations and maintenance who are currently undergoing intensive training to ensure efficient operations.
The electricity sector is currently vibrant and busy executing several infrastructure expansion and renewal projects to ensure efficient electricity evacuation (UETCL) and delivery to the end users (UMEME, REA, & UEDCL). In his seminal article on closing, merging public agencies in the Independent of September 21-27, 2018, Andrew Mwenda states that “Uganda has sustained an impressive rate of economic growth for over 30 years” and partly attributes it to the good performance in the energy sector. Therefore, the recent proposed mergers of the electricity companies by government should be implemented with caution to minimise disruption of the good progress being made towards improving operational efficiency for effective service delivery.
Dr. Eng. Harrison E. Mutikanga is the Chief Executive Officer, Uganda Electricity Generation Company Limited (UEGCL).