How the president’s criticism of the electricity distributor is likely to undermine investor confidence in Uganda
THE LAST WORD | ANDREW M. MWENDA | President Yoweri Museveni recently repeated his claim that officials of the government of Uganda who negotiated the Umeme concession sold the country. It is a belief common among a large section of the Ugandan elite including many inside government. It is also a belief that is grossly mistaken.
Many Ugandans behave like a man who fell in a deep pit and called on the neighbour for help. The neighbor got a rope and threw it to him for rescue. During the tangle to pull him out, the rope injured the man’s hands, his legs got bruises etc. After the rescue the man keeps complaining against the neighbour because of the wounds inflicted on him during the rescue.
In 2001, Uganda’s electricity distribution network was dilapidated and needed a massive investment. But government did not have money. So it advertised internationally for a company to come take a concession. Six companies replied – two from Spain, one from France, another from UK, another from USA and a sixth from South Africa. All were invited to come and do a due diligence. They found the network and policy environment so bad that all of them just walked away even without the courtesy of informing government of Uganda about their findings – except one.
CDC, a British government parastatal wrote to government of Uganda its findings. They argued the network had gone for 30 years without much investment and was therefore moribund. Technical and commercial losses in the distribution system were 38% and growing. The biggest source of commercial losses were illegal connections and government not paying its bills. It needed a massive investment, but that would require to increase the cost of electricity to recover the investment. Yet the price of electricity had not changed in a decade in spite of inflation and foreign exchange depreciation. Ugandans were accustomed to cheap electricity that had no relationship to the cost of production, transmission and distribution – and believed the price is cheap and does not change.
As part of the reforms, government had put in place a regulator who was supposed to be independent. But when the regulator increased the cost of electricity, Ugandans had demonstrated on the streets. Government had responded by suspending the increase and thereby demonstrating the impotence (as opposed to the independence) of the regulator. Reducing commercial losses would require the company to police illegal connections but that would ruin its relations with the communities in which it operated. And it would require government to pay its bills, yet there was no way to force government to pay if it defaulted.
Government was stunned. Our distribution network was not viable as a business. It sent a delegation to London to literally beg CDC to come to its rescue. CDC was skeptical and insisted it would come and invest only $5m (non-refundable) for three years and begin reforming the management of the system.