Energy’s top spot leaves concerns

By peter nyanzi

With an allocation of more than Shs 850 billion for construction of the Karuma hydro power dam and other projects, the energy sector emerged one of the main winners of the 2011/2011 budget, but a reduction in power tariffs and electrification of rural areas, looks increasingly unlikely in the short term.

New Finance Minister Maria Kiwanuka said government was ready to start construction of the 600 MW dam with financing from the Energy Fund.

President Yoweri Museveni also said that without energy, it is impossible to attract large scale investment, create jobs, add value to produce and earn foreign exchange. Access to electricity, he said, has been linked to improved human life and higher rates of industrialisation.

“We need to concentrate our resources on sectors that will produce a higher threshold for our economy,” the President said in his post-budget remarks to Parliament.

Less than 5 per cent of Ugandan households have access to electricity, according to official statistics. With growing demand for power estimated at 9 per cent annually since 2009, supply shortage has been a growing bottleneck around the country’s wild ambitions to graduate from low-income to middle-income status by 2015. The private sector has also complained that high power tariffs and rationing raise the cost of doing business.

With a growing population (3.5%) and widening economy (about 6% GDP growth), average demand is growing at the rate of 30MW per annum. Yet total average supply stands at just 380MW, more than half of which is from expensive thermal plants and cannot support large scale industries like steel and textile mills and aluminum processing industries.

The President said that Uganda’s per capita power consumption at 61 kwh (kilowatt per hour) is miniscule compared to South Africa’s 4,000 kwh, Ghana’s 234 kwh, the African average of 578kwh and the global average of 2,752kwh, so should not be hard to satisfy.

Currently, of Uganda’s generation capacity of 380MW is only 10% of the target of 3800MW set in the National Development Plan. Of current supply, 180MW comes from Nalubaale and 200 MW from Kiira dam, but low water levels of Lake Victoria and drought have kept generation capacity oscillating between 100MW and 200 MW from both dams. The government has been forced to supplement this with four thermal power plants which supply 170MW currently. Another gas and crude oil thermal plant of 53MW is to be constructed at Kabaale in Hoima District.

However thermal power comes at a high cost and while government has substantially subsidized power tariffs to reduce the burden on consumers, the cost of electricity has increased by 206%, from Shs 108.85/kwh in 2005 to Shs 333.2/kwh in 2010.

With Bujagali and other smaller projects coming on board, however, total capacity is expected to rise to 800MW by 2012, which may reduce tariffs by displacing the thermal plants. Bujagali’s first 50MW turbine will be commissioned in October 2011 and full commissioning of the 250 MW plant will be in April 2012. Also, generation capacity has improved with the recent commissioning of renewable power projects at the 18MW Mpanga Power Project, while the 6.5MW Ishasha Power Project is expected to be commissioned this June.

Kiwanuka said government has earmarked money to expedite the completion of the 250 MW Bujagali Hydropower Project and preliminary work on 140MW Isimba hydropower plant, as well as the first phase of the 600MW Ayago hydropower plant, this financial year.

She said most of these projects will be funded through a combination of domestic revenues, public-private partnerships, bi-lateral and multilateral support and non-concessional financing.

With these new projects coming on board, there had been expectation that tariffs would reduce, but industry analysts say the current privatized energy supply system and dilapidated grid network will make lower tariffs impossible in the short term.

A recent ERA report on Umeme’s energy losses, amounting to about 45MW (30% of energy generated), are not reduced, benefits from improved generation will not be realized. Government’s target it to reduce distribution losses to 16% by 2015.

Also, tariff rates are indexed against the foreign exchange rate, local inflation and the price of diesel, all of which continue to rise.

In addition, according to the Africa Energy Research Network, Uganda’s current rural electrification target is too low, so that even if it’s achieved, within the next decade, over 80 percent of the population will still be in the dark.