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Umeme Vs ERA: Protecting electricity users or corporate greed?

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By NELSON WESONGA & ISAAC IMAKA

Posted  Tuesday, March 18   2014 at  09:46

In Summary

Tug of war. The management of revenue accruing from the sale of excess power has pitted power distributor Umeme against the Electricity Regulatory Authority. In this article, the Daily Monitor dissects the issue, showing the impact on the final power consumer.

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There was once a man named Ananias, who, with his wife Sapphira, sold their property.

But with his wife’s permission, he kept part of the proceeds for himself and handed the rest to the apostles.
Peter said to him, “Ananias, why did you let Satan take control of you and make you lie to the Holy Spirit by keeping part of the money you received for the property?”

So goes the story of Ananias and Sapphira according to Acts 5:1 – 3.
It is a story that in away captures what is happening between Uganda’s power distributor Umeme and the Electricity Regulatory Authority (ERA).
At the beginning of every year, ERA makes a projection of how much electricity Umeme will buy from the transmission company and sell to the power consumers.

It is based on the previous year’s energy purchases and sales.
Many times, however, Umeme sells more power than had been envisaged. And it keeps the free extra cash.
Now ERA has started reconciling Umeme’s sales projections with the actual sales.

ERA argues that since Umeme is having a bumper power supply, it should reduce the cost of the tariff because it is not investing a penny in the ensuring enough power generation. That same spirit was used when there was low power generation and the government stepped in with subsidies to Umeme to prevent the tariff cost from skyrocketing.

The money, which is between Shs16 billion and Shs37 billion that Umeme makes from excess power sales, is, according to ERA, supposed to be ploughed back to the Ugandan electricity user through reduced power costs, instead of being taken by the power distributor as an incentive.

The reconciliation is a result of the ERA’s amendment in 2012 of Umeme’s Power Supply License. Uganda’s 1999 Electricity Act gives the regulator the power to amend the license.

For 2012, though ERA had projected Umeme would sell 1, 735 giga watt-hours (GWh) of electricity; which is what Umeme sold in 2011, the company actually sold 1, 937 GWh - according to the utility’s 2012 Annual Report.

Umeme attributed the increase in the units sold to the commissioning of the Bujagali Hydroelectric power plant in October 2012, which “eliminated power supply deficits and increased electricity supply by 10 per cent during the year”.

Partly because of the reconciliation, power consumers now pay between Shs2.4 and Shs13.2, less for each unit of electricity they use.

Umeme cries foul
However, much as ERA’s decision to reconcile Umeme’s actual energy sales with the sales projections led to the reduction of end-user tariffs, it has led to Shs37.8 billion-reduction in Umeme’s revenues.

This, Umeme says, has deprived it of cash to pay for either the connection of 50,000 customers to prepayment or the upgrade of three sub-stations.
“ A total 70, 000 to 80, 000 customers will be affected,” Mr Sam Zimbe, Umeme’s general manager for Corporate and Regulatory Affairs, told the Daily Monitor recently.

Mr Zimbe said the company has had to borrow from the International Finance Corporation (IFC) and Stanbic Bank, among other financial institutions, to bridge the shortfall.

He did not say how much it had borrowed. With the free cash flows gone, it would affect Umeme’s ability to pay its debts.
But the reason Umeme, a private distributor, was hired is because Uganda wanted a company that would operate efficiently and would be capable of funding its operations without looking to government for subsidies.

Mr Zimbe further said the reconciliation would undermine investor confidence in Uganda by marking out Uganda as a place where contracts are changed anyhow.

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