Monday September 24 2018

Ghosts of UEB: Rebundling of the electricity sector in Uganda

 

By Alan Baguma

Following the press statement on Cabinet decisions taken during the meeting held on September 10, 2018 at State House, Entebbe, it was revealed that a decision had been made approving the recommendations and implementation plan for the “rationalisation of Agencies, Commissions and Authorities.”

This made mention of the merging of Uganda Electricity Generation Company Limited (“UEGCL”), Uganda Electricity Distribution Company Limited (“UEDCL”), Uganda Electricity Transmission Company Limited (“UETCL”) and Rural Electrification Agency (“REA”), under the Ministry of Energy and Mineral Development. Several questions come to mind.

Much as the statement cited the motives behind the move as, in summary, including the alignment of functions, structures, plans and budgets of government institutions for better efficiency, elimination of overlaps and duplications, elimination of wasteful expenditure and harmonisation of wages, among others, it is imperative to recall the drivers behind the power sector reforms which, pursuant to the Public Enterprises Reform and Divestiture Act, 1993, led to the unbundling of the Uganda Electricity Board (“UEB”) from which these successor companies emerged in accordance with the Electricity Act, 1999.

These drivers included the need for financial self-sufficiency of the enterprises, inducement of Ugandan and foreign investment and participation, improved performance, strict compliance with the budget and financial discipline, etc.

The general image of UEB was one characterised by inefficiencies and lack of adequate capacity to manage its large generation, transmission and distribution portfolio, with low numbers of household connections to power and unreliable and poor quality power supply being the norm.

The unbundling of UEB to create the three bodies (UEGCL, UETCL and UEDCL) resulted in better focus on their particular designated roles plus the creation of a regulatory body to oversee their activities, and created room for investment into the power sector.

This was also complemented by better corporate governance as well as management by adequately qualified technocrats who were instrumental in transforming the highly technical sector.

UEDCL and UEGCL have capitalised on private investment through concessions to Umeme Limited and Eskom Limited respectively, which have seen improvement in household connections and efficient management of the Nalubaale and Kiira Complexes.

Serious inquiry must, therefore, be made as to whether it is prudent to revert to what resembles the old monopoly system which proved inefficient.

If at all there are any glitches in the current setup, all available measures must first be exhausted to plug the loopholes as the immediate option, with bundling up the sector being a last resort.

It remains to be seen the format that the bundling shall adopt, ie whether the three shall become departments under the Ministry of Energy or be bundled into one company.

The latter may be the preferable option for purposes of, to an extent, maintaining the general contractual structure that independent power producers and financiers have grown accustomed to ie contracting with one purchaser under a Power Purchase Agreement, with guarantees provided by government under an Implementation Agreement.
It also remains to be seen whether the new set up shall have the technical capacity to effectively take over the roles of the three parties for a smooth transition.

It is imperative that the views of various stakeholders such independent power producers and financiers be sought, as the move may potentially shake investor confidence. Delicate legal reform and matters regarding existing contractual obligations of the three also have to be carefully considered.

Whereas the reasons for the proposed move may be understandable, a delicate balance must be struck between pushing through the reform and guarding against the risks. Attention shall be on measures the government shall adopt to mitigate against the “ghosts of UEB”.

The parting question to government remains: Do the potential benefits of bundling the three companies outweigh the benefits that have been achieved since the reform?

Mr Baguma is an Energy & Infrastructure lawyer practicing with Shonubi, Musoke & Co Advocates

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