Politicking in energy sector

By Nicholas Opiyo

WENRECo needs government support in West Nile electrification plans

Recently, West Nile Rural Electrification Company (WENRECo) applied for a tariff review to the Electricity Regulatory Authority (ERA). This follows earlier attempts in 2008 and 2010 to increase the tariffs both of which were deferred by the power regulator till after WENRECo had completed the construction of Nyagak Dam.

This year, following the official commissioning of the much awaited 3.5MW Nyagak dam in September 2012, WENRECo formally expressed intentions to increase their tariff. As as expected, this move has drawn the wrath of West Nilers, especially the Members of Parliament from the region.

They argue that increasing the tariff will put electricity out of reach of many people and that since electricity is a major input in the production process, the cost of goods will go up.

WENRECo on the other hand argues that it also desperately needs the tariff increment to stay in business- reverse its losses, get a decent return on their investments, and continue delivering on its promises and regulatory obligations to the people of West Nile.

WENREco has invested US$3.05 million and accumulated losses of Shs9 billion over the last six years. It is not difficult to see that should it continue making losses, it will eventually close, spelling even further doom for the energy sector in West Nile.

Our politicians can choose to go for what appears to be a ‘pro-people’ option and prevail upon ERA not to allow WENRECo increase their tariffs and thereby score a temporary win.  But I believe the more logical option lies in letting the forces of demand and supply take over.

To create a sustainable energy sector, the price of electricity needs to be kept close to the cost of producing it. Subsidies can only come in on a short-term basis when deemed necessary because, at the end of the day, government subsidies constitute a tax on another entity.

For example it does not make a lot of sense for the government to increase business taxes, which will also affect the people of West Nile and bring back the same money in form of energy subsidies.

Rural electrification has its own challenges such as accessibility, low demand, and sparse populations. All these make it unattractive to capital injection. This is for example why WENRECo in 2003 was the only bidder for the West Nile power concession.

Indeed this has been confirmed by the company making losses year on year in the hope that the customer base is going to one day grow. The last thing such an investor needs is signals that the politicians do not care about their plight. What signal are we sending to the other investors we want to co-invest with government in the ailing power sector?

As a power company setting up in an area that is far from the capital and in a new market, WENRECo could have made mistakes but we need to stand with them, and accept a slightly higher price, so they can recoup their investment and have the stability needed to invest for future growth.

No one wants to imagine life before 24/7 power supply in West Nile yet again. But that is surely what is likely to happen should the people of West Nile shun WENRECo’s efforts to grow a robust electricity network and get the capacity to meet their operational costs through a tariff increment.

After all, power companies elsewhere, including those connected to the national grid, with more clients, have tariffs way much higher than WENRECo’s.

Let us accept it; power generation like many other infrastructure projects is an expensive affair. As such, priority should be given to those who can afford to pay for it, such that when there are economies of scale, the rest of the masses can benefit from cheaper prices. It is illogical and does not make economic sense to prioritise those who can hardly afford it.

Let us objectively look at the issues at hand, observe the journey we have travelled so far and how far we have to go, and this may just be the right step we need to take if all gains made in West Nile are to be consolidated.

Lastly, given the intricacy and the importance of the energy sector to the development of a nation and its people, the issue of electricity in West Nile should be a joint project for everyone- the government, the energy producers, the consumers and everybody else who cares about West Nile.

What we need is a sustainable solution that keeps everyone in business and happy. Politicking can only get short term wins but may in the end hurt those very same people that we are trying to protect.

Nicholas Opiyo is a Kampala based Advocate