Eskom fails to invest $100million

Why Natural Resources Committee Members of Parliament wants Eskom contract terminated

Kampala, Uganda | JULIUS BUSINGE | Eskom Uganda Limited, a subsidiary of Eskom Holdings of South Africa could be in trouble. The company has failed to invest the mandatory US$100 million in rehabilitating the 380MW Nalubaale-Kiira Dam located in Jinja, Eastern Uganda.

This is one of the key terms and conditions stated in its 20 years contract, according to sources privy to this matter. The contract has three years to expire and it is widely believed that the company will not invest the said amount.

The investment is critical because the ‘cracking dam’, built in 1950, is ageing and its lifespan left only with 10 years.

Speaking to the visiting Members of Parliament attached to the Natural Resources Committee in Jinja on March 01, Thozama Gangi, the company’s managing director, said Eskom has invested in the dams though not enough.

“…we have invested but not as much as we should have done,” Gangi told the MPs. She, however, did not give clear reasons for the underperformance.

Instead, she said that they have invested US$29 million in routine maintenance of the facility since 2002 when they got the contract.

This investment has partly gone into rehabilitating the Nalubaale switch yard (US$10m) and in upgrading some electrical components of the plant (US$15m).

In addition, she said that they have equipped several young engineers with skills of operation and maintenance of the plant.

Speaking during the visit to the plant, Eng. Harrison Mutikanga, the chief executive officer of Uganda Electricity Generation Company Limited that is mandated to supervise the plant, said the failure to invest the required US$100million has left the “civil works collapsing”.

“That worries us a lot,” he said. “The plant is very fragile.”

“Our expectation was that they work on the cracks…but instead they are conducting studies after studies and no action. We have contacted the solicitor general to give us guidance on how to proceed with this matter.”

In the mean time, he said that UEGCL is in the process of conducting a study with support from the German based development partner, KfW on the possibility of rehabilitating the plant to have it operational for the next 30 years.

During the visit of the dam, mainly Nalubaale dam, cracks on the walls in the power house were visible and two units were temporarily shut down requiring maintenance. Eskom executives, however, said they are in the process of rehabilitating them.

Mutikanga said sinking money in the dam is vital as it generates the least cost of electricity recorded at 1.5 US cents, lower than the average of 8 US cents charged by other plants.

He said UEGCL has built and continues to carry out capacity building of its engineers for better maintenance of the power plants including taking over from Eskom Uganda Limited if the latter’s contract is not renewed.

Regrettably, termination of the Eskom contract may not be easy because it would involve compensating the company with hefty sums of money.

In addition, there are no clear, specific penalties for underperformance in the Eskom contract. Yet it is guaranteed a 12% return on investment every year.

The MPs are worried that the company will not meet the required investment obligations given that its parent company in South Africa is undergoing what officials describe as ‘a debt-reliant liquidity situation’ as a result of low tariffs, limited growth in sales, increased costs, and the rising capital investment programme.

“Whoever prepared the concession agreement [for Eskom] did a disservice for this country; my recommendation would be ‘immediately terminate the contract,” said Margaret Komuhangi (Nakasongola District Woman Representative). “I am leaving this place but worried for the people working in that area.”

Solomon Silwanyi (Bukooli Central legislator) said: “We support immediate termination of Eskom contract. They are brokers. They are looking for money.”

Ruhinda North MP, Thomas Tayebwa said that they will write a report in support of government terminating the contract and giving UEGCL a mandate to manage and operate the plant. “It is an asset that we cannot afford to leave in the hands of Eskom,” Tayebwa said.

Facts about Nalubaale-Kiira dam

• It was formerly known as Owen Falls Dam built by the British
• It is a hydroelectric power station across the White Nile near to its source at Lake Victoria in Jinja district
• It is the oldest hydropower station in Uganda commissioned in 1954
• It was renamed Nalubaale by President Museveni in 2001
• In the 1990s, the station was refurbished to repair the accumulated wear
• During the repairs, the output power of the generators was increased, bringing the Nalubaale Power Complex’s generating capacity to 180 megawatts
• As part of the privatisation process of the Uganda Power Sector, the Uganda Government, through UEGCL signed a 20-year operational, management and maintenance concession to Eskom Uganda Limited
• The concession agreement commenced in 2002
• The electricity generated is sold to the Uganda Electricity Transmission Company Limited (UETCL)
• UETCL in turn sells the power to Uganda Electricity Distribution company Limited UEDCL, who also concessioned out to Umeme
• The Nalubaale-Kiira complex supplies about 67% of the country’s electrical energy and remains the assets of the Uganda Government