Queries hang over State House-backed power firm

By John Njoroge

UETCL says company is not competent But State House, Migereko want deal done

In November 2008, a public hearing was held at Sunset Hotel in Jinja. Its purpose was to get feedback from stakeholders over an application for a licence to generate and sell electricity. The application had been submitted to the Electricity Transmission Authority (ERA) earlier in March by Invespro Uganda Ltd.

The licence being sought by Invespro was for a 50MW Heavy Fuel Oil (HFO) plant it said it intended to construct at Kimaka in Jinja. In attendance were officials from ERA, Jinja district council, Uganda Electricity Transmission Company Ltd (UETCL), Uganda Electricity Generation Company (UEGCL), representatives from the Senior Command and Staff College Kimaka, the project developers Invespro, and a cross section of residents of Jinja.

High on the agenda were environmental concerns from the residents given the nature of the generation equipment Invespro intended to use ‘” generators. Invespro said it would use eight CM32 generators since they have a low fuel consumption rate and meet the country’s emission regulations. The generators would have a net output of 7.3 megawatts each to generate the planned output of 58.4 MW and would use HFO instead of diesel since it is 60% cheaper.

According to them, the discovery of oil in Hoima had guaranteed them an easy, cheap and steady supply of such fuel. To most of the residents at the meeting, Invespro was just coming into the market. Little was known that since 2007 Invespro had been trying to do business with government.

In August 2007, Invespro attempted to get the licence for power generation. The Power Purchase Agreement negotiations (PPA) hit a snag when UETCL asked Invespro to provide the mandatory10% performance security. The capacity price for the project had been set at US$43.95 per megawatt hour. This price was higher than that of other already licensed companies like Aggreko and Namanve Jacobsen. Invespro was required to deposit an abandonment bond which was equivalent to 10% of their project cost.

According to minutes of a meeting between Invespro, UETCL and ERA on September 11, 2007 Invespro had asked to be given 120 days to bring the money. UETCL thought the period was too long and demanded a shorter delivery time frame. They were also reminded to submit the specification of the CM32 generators they had said they intended to use for the power generation. In its initial presentations to ERA and UETCL, Invespro had stated that its mode of financing the project would be equity. This meant that the financiers were investing their own money in the Invespro project instead of borrowed loans. UETCL thus demanded proof of availability of the funds with a shorter period in security delivery.

However, 15 days after the meeting Invespro had not fulfilled the requirements of UETCL yet it was still seeking the licence through other channels. In a letter dated September 26, 2007 to the Permanent Secretary of Ministry of Energy, the ERA chief executive officer, Frank Sebbowa, said: ‘It would seem you have not progressed these discussions as per the agreement at the meeting held in our offices almost a month ago. Given the power supply crisis in the country and the fact that Invespro wish to use private financing to develop the IPP, we wish to urge you to act expeditiously on this matter.’

UETCL was not convinced that Invespro had the money it claimed to have. Sources inside UETCL say that at the time of the negotiations, UETCL discovered that the so-called financiers actually did not have the money and that it appeared the Invespro was looking at accessing government subsidies into energy generation before the Bujagali project is completed in 2011. According to a source in ERA, pressure was mounting to give a go-ahead to Invespro. The source however declined to name who this pressure was coming from.

By December, Invespro had not concluded the PPA negotiations with UETCL. In his letter on December 6, 2007 under the title ‘˜Negotiations with Invespro (U) Ltd’, the then minister of Energy Daudi Migereko wrote to the board chairman UETCL imploring him to expedite the process.

‘My view is that the negotiations are taking too long and should be concluded before the end of the year. If there are issues over which you need the guidance of government, let us know them so that we can provide our input,’ his letter reads in part.

In the letter, Migereko reiterates Invespro’s position. ‘We need to phase out the expensive diesel based power supply in favour of Heavy Fuel Oils (HFO) and cheaper renewable. I have heard arguments regarding the possibility of having too much power supply in our country once Bujagali and Karuma come on board after 2011. At the rate at which the economy is growing; added to the implications of oil discovery on demand for power and the requests we are getting for power from neigbouring countries; given the effect of climate change on our hydro generation capacity I do not see the possibility of you being stranded with surplus power.’

Was Migereko trying to influence UETCL and ERA?

On December 20, 2007 UETCL issued a statement on the matter. In their statement, they outlined what their requirements were, what was agreed with Invespro and what Invespro was required to do and had not done.

‘Clearly UETCL does not have the mandate nor the authority to change the present GOU [government of Uganda] policy regarding upper limit of subsidy to the energy sector by the MOFPED [ministry of finance, planning and economic development]. This upper limit means that UETCL cannot meet the requests made by Invespro.’

In effect UETCL was telling ERA and Migereko that Invespro needed to revise its demands to fit within government specifications and prove the availability of funds.

Invespro had intended to institute a 100MW generation plant but because of the thermal plants policy which prohibits UETCL from entering into an agreement with a company for more than 50MW, ERA revised the project to 50MW.

With this done, Invespro also wanted to put in place a ’24- hours a day’ generation project with a fuel consumption rate of 0.2035 litres per kilowatt hour (KWH). ERA and UETCL are bound at 18 hours only a day. Invespro argued that turning on and off their generators would have a negative impact on the lifespan of equipment and insisted that they have a 24-hour project.

According to a highly placed source in government, Invespro had State House backing. The source intimated to The Independent that State House in 2007 wrote to a top expert in the energy industry urging him to expedite licensing of the Invespro power generation project.

Probably, aware of State House’s position on the Invespro project, the then Energy Minister Daudi Migereko threw his weight behind the venture.

In January 2008, Migereko wrote to then minister of Finance Ezra Suruma expressing Invespro’s initial desire to negotiate with government. In the letter Migereko told Suruma: ‘Aggreko I and Aggreko II contract will be expiring in the course of this year while the Mutundwe plant is cushioned with IDA funding. The Jacobsen Namanve heavy fuel oil power plant to be commissioned around August 2008 and the Kaiso/Tonya heavy fuel oil plant coming in during 2010 will come in at tariffs about half the diesel fuel power plant. This means that by 2011 there will be some considerable savings realised on the overall government subsidy toward the thermal power.’

Migereko further states: ‘Therefore to spread the burden of recovering the capital investment cost and also to avoid a repeat of the experience of 2005 and 2006 when power supply drastically fell due to poor hydrological conditions, I wish to recommend that M/S Invespro be granted a six-year contract expiring in 2014. UETCL and Invespro should work out the capacity payment rate corresponding to a six-year contract term as opposed to a three-year one.’

This suggests that Migereko was supporting Invespro for government funding yet UETCL had found it wanting in requirements just nine months earlier.

Suruma wrote back to Migereko. ‘Let me state at the outset that our responsibility is to spell out policy so that individual procurements follow the guidelines set by policy. You will also need to recall the issue raised in the letter from my PS to yours dated November 9, 2007 regarding financing of the energy sector in the medium term. This letter, for which no response has been received from your ministry, laid forth clearly that thermal power generation is a stop gap measure in the short and medium term to address the acute electricity supply deficit the country has experienced since 2006.’

Suruma further states: ‘This letter is therefore to urge you to place whatever procurement options you may have within the context of an overall sector strategy that provides relatively cheaper hydropower electricity in the medium term. Continued reliance on thermal power in the medium term, except when government actually owns a plant is therefore not good use of limited resources.’

This implied that government was not willing to fund any thermal power plant unless it owned it. Migereko’s pursuit of funding for Invespro had been blocked. Invespro changed strategy and reapplied for a licence with the specifications of UETCL but still could not satisfy the financial obligations. At the public hearing in Jinja, Invespro said the project would chiefly employ the residents of Jinja, increase the revenues to hotels and houses due to an increase in demand for accommodation and the construction of a new parking yard to the benefit of the district.

In terms of Social Corporate Responsibility (SCR) they would build boreholes, carry out environmental cleaning exercises, support orphaned children, build clinics and improve existing facilities in schools. The private road to the site would be maintained by Investpro. In case of any damage to the public highway leading to the private road, Invespro would repair the affected positions in conjunction with Aggreko International that also uses part of the road.

All this was exciting to the participating residents but more queries were yet to come. ‘How did they get that land for the project?’ a curious participant asked. ‘Have you paid the ground rent and royalties?’ Invespro representatives responded that all land for the project was acquired legally in form of a lease from the land owner. ‘Who is the owner?’ another participant asked. Somehow, that question was never answered.

The land in question is positioned between two water lines, like an island. It is one kilometre away from the Senior Command and Staff College at Kimaka. It was not purchased by Invespro but is being used as a joint venture between the owner and Invespro directors. It had no structures and the same situation prevails today. The area is bushy with no apparent sign of ongoing work.

According to another source in UETCL, Invespro plans to build a plant to entice government to buy them off since they have failed to secure funding.

A search for particulars of Invespro at the Registry of Companies yielded nothing as its documents could not be found. The company was reported recently to be under receivership. According to a newspaper advert on October 30, 2009, Invespro is to be taken over by Coronet Consult Ltd. What is the link between these two companies?

Interestingly, some of Investpro’s directors ‘” Perez Bukumunhe and Dr Muyanja Mbabaali ‘” were part of the recent commission of inquiry into Umeme activities headed by Gen. Salim Saleh. The committee investigated the high electricity tariffs charged by Umeme. Bukumunhe sits at the Invespro offices in Bugolobi where he runs Invespro business. Sources inside ERA alleged that Mbabaali is an interested party in the power sector having bidded for and lost the Mutundwe project, now run by Jacobsen.

According to the Energy PS Fred Kabagambe Kaliisa, the Saleh committee was biased and doctored most of the information it presented in its report. He described them as malicious, inexperienced and lacking knowledge of the energy sector.

As the technocrats and investors fight to find common ground, the Uganda electricity consumer continues to suffer the burden of load-shedding and high power tariffs.