By Joan Akello
Expiry of operator Jacobsen’s contract sparks scramble
Before their Operations & Maintenance license expired in September last year, the operators of one of Uganda’s two remaining thermal electricity generation plants at Namanve, near Kampala, applied for a renewal. The operators, Jacobsen Elektro AS of Norway, acted because they have an Implementation Agreement with the government which runs up to the year 2021 when repayment of a Euros 53 million loan that set up the plant, officially called the Jacobsen Uganda Power Plant Company Ltd (JUPPCL), will have been completed.
But the government, or at least officials at the Ministry of Energy and at the Electricity Regulatory Authority (ERA), had other plans. They informed Jacobsen that the government is taking over the plant and renewed their license for only six months; up to March 2015.
John Julius Wandera, the principal communications officer at ERA confirmed this. He told The Independent that the regulatory authority and key stakeholders are holding discussions to ensure that the takeover happens as scheduled.
Information available to The Independent shows that a firm owned and run by highly connected individuals in government want to take over the plant. Under the plan, this group wants the Ministry of Finance to raid the Consolidated Fund and pay off the pending Jacobsen debt immediately and hand them the debt-free plant.
But the takeover plan is already attracting heated opposition.
Beatrice Anywar, a member of the Parliamentary Sessional Committee on Natural Resources has called the group planning the takeover “mafias”.
“They want to own the plant but I will vehemently oppose them,” Anywar said.
The Acting Permanent Secretary in the Ministry of Energy, Paul Mubiru, says his ministry, the Ministry of Finance, and key technocrats are working out modalities to clear the outstanding loan and prepare the necessary documents to facilitate the transfer of ownership from Jacobsen. The operation rights go to the Uganda Electricity Generation Company Ltd (UEGCL).
In letters seen by The Independent, Keith Muhakanizi, Secretary to the Treasury and Permanent Secretary at Ministry of Finance says money is available to clear the loan. But he asks the Ministry of Energy to justify why government should take over the Namanve plant now, by clearing an outstanding loan of about Euros 23 million as of December 2014, instead of paying Shs1, 000 only if the Implementation Agreement with Jacobsen terminates in 2021.
As the debate rages, The Independent has learnt that the group plotting the takeover also intends to sign a new Power Purchase Agreement (PPA) with the government that guarantees a dispatch of at least 50% of the Namanve plant’s installed capacity. That is at least 25MW and US cents 18.
Critics of the deal point out that Uganda does not currently need thermal generated electricity. The group would, therefore be using their connections to sell unnecessary expensive power to the government. Currently, the Namanve plant generates only 7MW. This is not for commercial purposes but to ensure that the plant is maintained for emergency purposes only.
Finally, sources that spoke to The Independent on condition of anonymity say the group which is led by a logistics firm involved in fuel importation wants to use its connections to scheme off the Heavy Fuel Oil (HFO) deal. This is in anticipation of the HFO by-product from Uganda’s upcoming oil refinery.
As a result of these moves, the government officials at ERA and ministry of Energy appear to have taken Jacobsen by surprise. It has also sparked speculation about what and who could be behind the move. Observers fear that this could be another high level corruption racket under which the government is made to spend huge sums of money to benefit private individuals. Sources in the ministry say they know that a whistle-blower went to President Yoweri Museveni and asked that investigations must be undertaken as government stands to lose over $100 million if Jacobsen’s license is converted to a Build-Operate-and- Own (BOO).
The Acting Permanent Secretary in the Ministry of Energy, Paul Mubiru, says that cannot happen.
“For anybody to takeover or own this plant, they must pay government because it was a BOOT (Build-Own-Operate-Transfer).”
On the face of it, there has so far been no wrong doing. Under its agreement with the Uganda government, Jacobsen was to hand over the plant after six years from the time it was launched in September 2008. That six year period ended in September 2014. The agreement with the government of Uganda also has provisions on how the balance of the loan at the takeover time will be handled. Section 6.11 of the agreement reads: “The government shall at any time have the option to acquire the complex and the company interconnection facility upon repayment of the remaining value of the debt.” The Jacobsen plant was financed with debt of Euros 66 million (Approx. US$ 92 million at the time) from the Nordea Bank AB (95%), Stanbic Bank Uganda (3%), and Jacobsen Elektro AS (2%). The Norwegian government additionally gave a Euros 10 million grant to the government of Uganda to finance the plant.
According to all parties, there is agreement that a Euros23 million debt (approx. Shs80 billion) remains. However, some sources told The Independent that the government of Uganda has not been paying VAT on supplies to the plant and this has pushed the pending debt to US$ 55 million (Approx.Shs159 billion). That is huge figure but it would not be a worry as the government can renegotiate with the lenders and Uganda Revenue Authority (URA). The real beef is in the third element of the Namanve plant’s financing; the money spent on fuel to operate the plant. This comprises about 90% of financing.
Currently, the government pays Shs29.7billion (8.7 million Euros) to Namanve thermal plant. Another Shs29.8 billion is currently paid to Elektro-Maxx (U) Ltd of Uganda Investment Authority Chairman Patrick Bitature and is based in Tororo. The 50MW Namanve thermal plant and 50MW plant run by Elektro- Maxx were installed to save the economy from blackouts during an energy crisis that hit Uganda in 2006. In a recent statement, ERA says the government will continue to pay the Shs 59.5 billion. These debt payment arrangements are not factored in the basic tariffs but are deducted from the Consolidated Fund, according to officials from the Uganda Electricity Transmission Company Ltd (UETCL) in charge of the project. They say the government pays for energy generated or dispatched and debt servicing or capacity.
Although power generation payments for the thermal plants have been declining over the years as the contribution of hydro to the energy mix has increased, the debt or capacity payments remain constant.
But the real problem is what happens to the Namanve plant once the government has taken it over. Under the plan, officially, the plant will be operated by the Uganda Electricity Generation Company Ltd (UEGCL). This appears to be in line with the government’s recent shift from total privatisation of the energy sector of a Public Private Partnership model.
During the launch of its strategic plan recently, UEGCL Board Chairman Robert Isabalija said his team is readying to operate the plant starting April this year.
The UEGCL Chief Executive Officer, Harrison E. Mutikanga, says his team has submitted a takeover proposal to the board to be discussed and approved. Under its plan, UEGCL wants to retain Wärtsilä, the original equipment manufacturer to operate the plant for a maximum of three years.
Observers have noted that a return to government directly running power plants could reverse the gains made since the Uganda electricity sector was privatised in 1999. At the time, it was argued that the Uganda Electricity Board, a government-owned monopoly was inefficient, allowed up to 40% power losses, and was killing business as it was unable to supply reliable power. The UEGCL already is a loss making entity which recorded a loss of Shs11 billion last year. The company has undergone restructuring of mainly its management team. Isabalija has told staff to perform or face the sack. However, under the new plan, this is the body which will manage all the new government-owned power projects being built. It is for the reason that UEGCL’s takeover of the plant is being seen as a cover for a takeover by some private individuals.
Fights over fuel money
When the cancellation of the Jacobsen licence first became imminent, a few days after it applied for a renewal and its Power Purchase Agreement (PPA) from ERA and Uganda Electricity Transmission Company Ltd (UETCL) respectively in August last year, the Permanent Secretary in the Ministry of Energy, Kabagambe Kaliisa appears to have also been caught by surprise.
On September 19, Kabagambe wrote to ERA and UETCL that removing the thermal power plant would change Uganda’s energy mix and was, therefore unacceptable. He directed that ERA and UETCL grant Jacobsen a six months license and PPA.
He also noted that he was aware that ERA and UETCL failed to agree because ERA had dropped 5% fuel handling fees and lubrication costs from Jacobsen’s extended license. Under the current arrangement, Jacobsen charges a 5% levy on the fuel and lubrications supplied to the Namanve plant. A meeting called on October 8, 2014 failed to resolve the issue and the JUPPCL Director, Roar Millehaugen, wrote to the ERA Chief Executive Officer, Benon Mutambi, a day later in protest.
“It is not economically viable for JUPPCL to remove the 5% fuel handling fee as is and has always been an integrated part of the tariff structure from the time we presented our bid for the license and was included in the original license,” Millehaugen wrote.
He queried why ERA had rejected the costs yet it had reviewed its total tariff structure end of 2012 and early 2013.
Benon Mutambi told The Independent the fuel levy was removed because regulation was finally catching up with Jacobsen’s game. “Regulation is a catching up game,” he said, “You are never smarter than an operator. So reviewing JUPPCL’s license is because it is suspected of double accounting; its lubrication costs are outside the normal operation and maintenance costs.”
Mutambi said Jacobsen had also run afoul of ERA when it refused to submit its contract with its Operation and Maintenance operator, a sub-contracted firm called Wärtsilä Corporation. Mutambi says this escalated tension. “They (JUPPCL) told us that they can never disclose it because it was a commercial deal… this was honestly about their profitability because the project was financed almost 100 percent by GIEK with a sovereign guarantee from Government,” Mutambi said. Giek is the Norwegian Guarantee Institute for Export Credits, a government agency which issued guarantees for the Jacobsen loans.
Mutambi says Jacobsen should also only be selling its management services and not expect any return on investment and profit for being on the project. He says, therefore, Jacobsen should “declare the fuel handling fee transparently as management fee”.
“I don’t want to appear as speculative but I suspect there are people who are questioning the six months license yet they would want to operate the plant,” he said. “As for JUPPCL or those who feel aggrieved by my decision, they should appeal to the Electricity Disputes Tribunal, not run to the president, minister or rally,” he added.
Mutambi says he is not bothered about who owns or operates the Namanve plant. Instead, he says, he is more concerned about its ability to generate electricity as and when needed. “We do not have to starve Ugandans of electricity because people are haggling over ownership,” he says
He says he is looking at the effect of Namanve plant not generating 50MW when the current maximum demand of 500MW is not met in the peak hours of 6pm to 12am. He says this shortfall can arise when other generation units are under maintenance and not supplying as much as they should. Currently, Uganda has an installed capacity of 850 MW but per capita demand is growing at between a 10 to 12 percent annually. The Jacobsen directors could not be reached for comment by press time.