Umeme in $400mn investment

 

Umeme, $400mn, network, investment, uganda, africa, energy, demand, electricity, Bujagali, demand, dollarUmeme to invest over 900 billion shillings (about $400mn) in effort to connect over 550,000 new customers, extend network and improve reliability of electricity.Uganda's power distributor company, Umeme to invest over 900 billion shillings (about $400mn) in effort to connect over 550,000 new customers, extend network and improve reliability of electricity

In its latest review of its operations where it attempts to highlight what it has attained since it was granted the concession by the government in 2005 to distribute electricity, the company notes that the "Umeme distribution concession has created direct and indirect financial benefits to Uganda despite a number of challenges faced by Umeme and the energy sector in general."

"The Umeme distribution concession in the first seven years will have generated benefits to the government and its customers of over 1.35 trillion shillings (over $500mn), " it notes adding that in a few months, the Bujagali hydro power project will start generating electricity expected to eliminate power rationing.

 

Demand grows

The company states in the review that since 2005, the energy demand in Uganda has grown by 10 per cent, per year attributing it to economic growth and connection of new customers who have shot up from 230,000 connections in 2005 to 450,000 in 2011 against energy supply that has not grown fast enough to satisfy rising demand.

"Initially in 2005, the available energy generation from hydro stations dropped due to water levels in Lake Victoria. Severe load shedding ensued which was only reduced with significant deployment of emergency thermal generation by Aggreko.Other thermal projects were added later as well as some hydro and co-generation power plants, " it explains in the review.

The company notes however, that "even with the new plants and strong rains, demand will outstrip supply until the Bujagali hydro power station comes online."

Umeme says thermal power plants currently produce almost half of the electricity in the country and run on imported diesel and heavy oil and this, coupled with the high prices of of oil in recent years, explains the cost of thermal generation, estimated at 2.8 trillion shillings.

 

The dollar

Other challenges affecting the energy sector include the depreciation of the Uganda shilling against the dollar since most of the costs in the electricity sector like fuel, plant and equipment and financing costs are denominated in US dollars.

These challenges, the company notes, have resulted in significant costs which have put pressure on the electricity tariff and this burden has been shared between the government and the consumer.

"Since 2006, the government has subsidized the sector with 1.3 trillion shillings and the World Bank with an additional 465 billion shillings.These funds have been injected into Uganda Electricity Transmission Company(UETCL) which is owned by government."

The company has also made investments in the energy sector totaling 351 billion shillings (about $130mn) while savings due to reduction in in distribution losses have come down to 28 per cent in 2011 and are worth 343 billion shillings. Additionally, it has managed to improve collection rates over the seven years and the value of improved collections amount to 327 billion shillings.

The Uganda government subsdises electricity by up to 60 percent implying that the final consumer only pays 40 percent of the total bill.

ERA executive official, Dr Benon Mutambi told journalists that by removing the subsidies, the government will make the distribution of power efficient and attractive to investors noting that although the removal of subsidies will make power more expensive, it is the best practice since the government was finding it hard to pay up the subsidies.

The official lamented that the depreciation of the shilling and high international oil prices coupled with unchanged electricity tariffs has increased the burden of subsidies to unsustainable levels adding that this will lead to delays in subsidy payments and deterioration in investor confidence and subsequent shut down of power plants by independent power producers.

 

Geoffrey Muleme

Alain Charles Publishing, University House, 11-13 Lower Grosvenor Place, London, SW1W 0EX, UK
T: +44 20 7834 7676, F: +44 20 7973 0076, W: www.alaincharles.com

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