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The coming electricity disaster

END OF ROAD: The Company has formally received written communication from the Government
of the Republic of Uganda, notifying it that the current Concession will continue to run until its natural end in March, 2025 as stipulated in the Concession Agreements after which, there will be no renewal.

How the nationalisation of Umeme is going to cause massive disruption in the distribution of electricity

THE LAST WORD | Andrew M. Mwenda |  The decision by the government of Uganda to nationalise Umeme is yet another disaster on the same scale as the one to absorb UNRA into the Ministry of Works. It will bring electricity distribution into the political intrigues and gridlock that NSSF is involved in. The way Uganda’s democratic politics have evolved under the NRM government makes state involvement in the economy as a business owner/manager highly dysfunctional.

Just take the case of NSSF. The decision to renew the contract of its managing director has become a contested political potato. It has caused the IGG to stop all investments by the fund until she completes her investigations, which will take months. It has attracted the interest of our legislators and now parliament has joined in the investigations by setting up its own select committee. I am reliably informed CMI has also investigated and given a report to President Yoweri Museveni. The Auditor General is conducting his own investigation through a forensic audit of NSSF investments.

This is the very challenge state ownership and management of Umeme is going to produce – every investment decision will be contested, thus causing disastrous delays in procurement. Right now, Umeme needs to invest a minimum of $100 million (Shs380 billion) in the network every year to ensure some degree of reliable distribution of electricity. To put the network into an excellent state requires a minimum investment of $1.7 billion (Shs6.4 trillion). Whichever of the two options government decides will invite wheeler dealers in our political system to contest over these lucrative tenders.

Thus, if Umeme, as a government owned and managed utility, sought to purchase transformers worth $40 million, the procurement will generate political contests. Bidders who will lose will run to PPDA seeking administrative review. As soon as PPDA rules one way, the aggrieved party will run to the IGG. The outcome from the IGG’s investigations will make the loser run to parliament. This will set up a select committee to investigate but whatever the outcome from parliament will create winners and losers. The losers here will seek a court injunction. Meanwhile, whatever the court decision, police’s CID may be dragged into the wrangle and not to miss the opportunity, the President will weigh in.

These contests over a small or big procurement will take over three to four years. Meanwhile the network will be rapidly deteriorating for lack of rehabilitation or refurbishment. The distribution of electricity will become erratic and unreliable. Ugandans will now become nostalgic about Umeme. But once the state has owned something, it becomes ever more difficult to take it back to the private sector. This is because vested interests that profit from state dysfunctions will form an important lobby to perpetuate their control. And since most of them will be located within powerful positions of state, any re-privatisation will be thwarted.

This is the reality of government procurement in Uganda. Bujagali dam took 14 years to bring electricity on the grid. Karuma Dam was supposed to be commissioned in 2019. We are now in the fourth year without it being done. Kampala Jinja Expressway was supposed to commence construction in 2018. Contestations over procurement of a contractor and manager have held it at bay. AfDB gave us $300 million to do 16 roads in Kampala. Contracts were awarded in 2020 but construction has not begun because there are investigations taking place. The list is endless.

Older Ugandans forget so easily the costs of state control over the economy. Meanwhile many are too young to know or remember. In the 1990s, it used to take two years for UEB to bring electricity to your house, and that is after you had paid a bribe. Today Umeme does it in a week, and no bribes. It used to take two years and a bribe for Uganda Posts and Telecommunications to install a line in your house. Today MTN and Airtel do it in one day. We have some state enterprises that function well like NWSC, Housing Finance Bank, Post Bank,

Pride Microfinance, NSSF, New Vision etc. But this is because they are few and have had many years of life and developed strong institutional capacities.

But look at our new creations like Uganda Airlines. It is a disaster that will take decades to stand on her own feet. Yet I don’t think we have the psychological and political patience to sustain huge losses by, and therefore huge subsidies into, an airline which is in the

press all the time with cases of corruption, fraud, incompetence, nepotism etc. In fact, most public debate against Umeme is ill-informed or malicious. It is accused of transgressions that are not its own making. One reason is because it is the interface with the electricity consuming public. The other is misinformation.

For instance, there are many times electricity supply fails because those who generate it have a fault at their power stations. But the consumer thinks it is Umeme being incompetent. Sometimes transmission lines of UETCL collapse, thereby denying Umeme ability to distribute electricity to its consumers. People get angry thinking the distributor is incompetent. In many parts of Uganda, the distribution lines are poor or transformers are old and malfunctioning. Umeme would install new ones but its investment plans are approved by the electricity regulator, ERA. However, ERA is always concerned such investments increase the tariff. It rejects them.

Today, the government of Uganda has run out of money. It has been cutting down expenditure by ministries and other government agencies. UNRA, KCCA and districts have not been getting much money for road maintenance, leave alone construction. Roads are deteriorating across the country. Many functions of government have come to a halt. This is most expressed in hospitals where supplies of drugs and other essentials are not being financed. Yet the same government is planning to take over Umeme, where it will need to raise hundreds of millions of dollars every year to sustain investment in the distribution of electricity.

There has been a great advantage with Umeme. It can raise money on the equity market by selling stock. It can borrow on its own without seeking a government sovereign guarantee.  And because it is a private company, its procurement processes/procedures are not characterised by the kinds of political buccaneering that cripple government procurement. It is sad that a government that is currently failing to manage the responsibilities it has is seeking to add on itself a burden it has little wherewithal to manage. ■

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amwenda@independent.co.ug

 

6 comments

  1. Naye kati…I am puzzled… where is the “miracle” you’ve been chanting about this government…if now you’re lamenting that everything is in a sorry state?

  2. Even parliament is just there.

  3. LoL! Andrew, you have been the leading minstrel piping NRM and its “progress” for years. To be fair, privatization was a step in the right direction, but it was not an idea of M7; The World Bank and IMF forced his hand although he took all the credit when the program started paying dividends. Even then the sale of state enterprises was rife with corruption, nepotism, and inefficiencies. Today GOU is running out of money; M7 has been duped into thinking that by taking over these “lucrative” enterprises, he can control their profits and fund his failing government.
    I agree with your assessment that taking over umeme along with NRM government managing any private enterprise is a disaster waiting to happen. Not because people will complain about the award process but because NRM has built a system that nobody trusts; hence, even when things are done right, there is still an air of suspicion.

  4. You are spot.on though you didn’t mention the fact that in the 1990s we used to use electricity to cook even dry beans!
    The biggest misfortune is for a government that seems to always make the wrong investment decisions and that knack to shield and promote those that make those costly .is takes .Am.certain the peddlers of the Umeme deal are now rich men and still advising government on other strategic economic moves. Yet if government could strike a better deal with Umeme and forego its unreasonable taxes , the consumers would be better off.The body language of the politicians pushing for the government takeover conveys the who message of their dishonest intentions.-/It is their turn to eat.

  5. Among the top most legacies of Museveni will be undoing the achievements that he had assisted Uganda to attain in the first 20 years of his rule. From 2006 onwards, most of his work has largely concentrated on weakening the institutions and reversing the achievements. Main reason for doing so is; strong institutions limit Museveni excesses and continuity in power. The other core reason is economic. Museveni wants his family to own most of the major economic assets of Uganda, he understands that with money comes power and control. Museveni cannot settle until his family owns most of the economic pillars of Uganda. This largely explains why we see new companies replacing the old ones e.g to do national IDS and passports, controlling coffee, and obviously his plan is to take UMEME back to government and after, Museveni will look for a company that he has deals/shares with to do exactly what UMEME has been doing. We will see many of such in the next chapter of Museveni.

  6. 1.I read about the cause of the electricity crisis in South Africa;it was partly attributed to illegal power connections,theft, poor maintenance of the energy infrastructure and underestimation of power consumption.They are trying to control the crisis by engaging the private sector to assist them manage the crsis.Its like the government of S.Africa xeroxed all the energy solutions from M7 when Uganda was also in the same mess.
    2.Dont be surprised when Uganda begins supplying electricity to S.Africa.
    3.No doubt that Ugandans have learnt alot from the private sector when you are invited for parties in peoples’ home you notice that the finishing ,installation of lights decor,swimming pools,tiles,food are perfect and done by Ugandans may be such perfect works are making Ugandans feel so confident that they can manage everything on their own For the energy sector;i support my darling Andrew that the private sector should be one of the key participants there is no point in proving to world that we are in charge yet we are not sure;for the energy sector one mistake can take years to be resolved.
    4.UMEME could be in this mess because Bitature screwed up.Now how does a foreign money lender lend you money then you take cover under the Ugandan law that the deal was not done in Uganda the same goes to Ham Kiggundu with his DTB Kenya/Uganda deal.I really applaud the judge for ruling that the two have a case to answer.To me its the biggest fraud i suspect some foreign money lenders are suffering the same fate with Ugandan investors .Money lent should be paid back provided there is contract and consent between the two.Perhaps for government if Bitature could blander this much with such small monies;it means that his UMEME deals also have issues that could actually be the cracks of the matter.
    5.The structure of the energy sector is unique no doubt there should be different departments to handle.for an ordinary Ugandan we only know YAKA although there are the behind the scence service providers like ERA and UTECL.
    6.NSSF’s Richard is handsome and confident just like Andrew but concerning NSSF;he is lucky that he served over 2 terms let others also serve.By the way managing NSSF is over rated;who can not make a business investment in Uganda of today?Collecting workers’ money is not complicated there is a % that is automatically deducted from workers’ salary its just a matter of waiting for your time to access the money.thirdly;all those investment plans that NSSF is involved that eventually increases the amount of savings we earn is just a favor there is no law that states that NSSF should pay workers with interest what if all the investment plans don’t generate profits?There is no guarantee that NSSF will invest in a project that will make profits and share it with workers perhaps there is where all the mystery lies. The share price for some companies on the stock exchange in E.Africa are not doing well except for Treasury bills and bonds whose yields are good.

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