Uganda needs $4.5billion for power transmission, distribution networks

Uganda requires $4.5 billion (Shs17 trillion) to invest in the transmission and distribution electricity networks over the next ten years, according to the Finance ministry.

Of that, the transmission segment needs $3.5 billion (Shs13trillion); money the government will look for in its balance sheet.

Much of the money will go to constructing new substations and upgrading some old ones, transformers, cables, poles or pylons, standby generators, assorted spare parts and extending the network’s length.

Currently, sections of the network are aged or do not reach many areas, meaning public programmes such as rural electrification are impacted on.
The financing gap – $1 billion (Shs3.8 trillion) – for the distribution network will be borne by private financing, according to communication seen by this newspaper.

“Private finance for distribution [is] premised either on the renegotiation of the Umeme concession (including extension of its term and lowering its RoI [Return on Investment]) or replacing Umeme with another [company],” the communication said.

“Concession that provides government assurance that investment in the magnitude required will be made at reasonable RoI.”

It is on these that the ministry is expected to, through a memorandum, seek the Cabinet’s approval.

Earlier communication seemed to suggest the government was cogitating on whether China’s State Grid, which has expressed interest in upgrading and expanding Uganda’s transmission and distribution networks, should invest in them.

The government though ruled out borrowing money for engineering, procurement and construction work in the distribution segment.

“The option we agreed is to evaluate whether State Grid or Umeme are the one’s investing. Any EPC [Engineering, Procurement and Construction] + Financing implies government borrowing, which is not an option for distribution,” the communication then said.

Due to the power rationing Uganda endured between 2005 and 2011, President Museveni’s government has, over the years, been promoting investment in power generation plants.

As a result, installed generation capacity has increased from 180MW in the mid-90s to 932 Mega Watts (MW), according to the Electricity Regulatory Authority (ERA).

Next year, Karuma and Isimba dams, which will add 783MW to the grid will be commissioned. This means Uganda’s installed generation capacity will increase to 1,715MW.

On the other hand, peak demand is 639MW while mean growth in demand is by about 10 per cent annually, according to the Uganda Electricity Distribution Company Limited (UETCL), which buys power from the generation plants and sells it to distribution companies.

To ensure that the power generated is consumed, the government wants it wheeled from the generation points to distributors’ utilities on to the users.

In case Uganda fails to wheel the power, UETCL would have to pay for the energy not dispatched, which in Electricity Supply Industry jargon is called deemed energy.

Aware that whereas Uganda’s power generation capacity is high, but transmission and distribution either short or partly archaic; China’s State Grid in June introduced its subsidiary, China Electric Power Equipment and Technology Company Ltd (CET), to Uganda’s policymakers.

CET offered to expand the networks and deploy Smart technology to improve reliability of power supply.

It said it would reduce the energy losses in the power transmission and the distribution segments.

To finance the effort, it said it is open to discussions on whether the funding should be concessional loans or supplier’s credit.

Concessional loans
Concessional loans, according to Boston University’s Global Development Policy Center, are characterised by fixed interest rates of between two to three per cent.

Additionally, concessional loans’ maturity period is between 15 and 20 years and its repayment is divided into a grace period and repayment.

The grace period is where the loan recipients pay the interest while repayment is where the recipient pays tranches of the principal every half year.

Supplier’s credit, according to UBS Switzerland AG, is where a supplier offers the buyer its goods, including financing. The supplier sells its claim under the supplier’s credit to its bank to raise liquidity.

At this point, it is not clear what impact CET’s offer of $3 billion (Shs11 trillion) would have on the retail tariff. That will be known once government gets to know the interest rate, grace period and maturity of CET’s loan.

On March 12, President Museveni through a letter to the Energy minister, Irene Muloni, said Uganda should look for a cheaper way of modernising and expanding the transmission and distribution lines.

In September, the State minister for Energy, Simon D’Ujanga, while appearing before Parliament’s Committee on Natural Resources, said the ministry would act on President Museveni’s letter.

“That was a directive,” D’Ujanga said in response to a request by Mr Thomas Tayebwa, the Ruhinda North Member of Parliament, for an update.
The goal of the government is to have adequate and reliable power supply. It also wants low retail tariffs to encourage consumption.

Retail tariff
As of the second quarter of this year, the weighted average of the retail tariff was comprised of Shs200.8 for BEL, Shs181 for Umeme, Shs67.1 for cogeneration, thermal and other generators.

UETCL accounted for Shs29.4, Eskom Uganda Limited Shs19.3, Rural Electrification Levy Shs17.1, Uganda Electricity Generation Company Limited Shs3.6 while the Uganda Electricity Distribution Company Limited accounted for Shs2.