Government could, within two years, lose more money than what it has invested in establishing Achwa hydropower station unless the construction of a power transmission line to evacuate the generated power is rushed.
This newspaper has established that government started to pay more than Shs10m per hour for deemed energy to Achwa River Energy Project (ARPE), the dam’s project owner, for energy being generated at the plant without use.
Deemed energy is the power that should have been dispatched but it is not as a result of a non-existent or weak grid.
The energy that could have been generated and sold to Uganda Electricity Transmission Company Limited (UETCL) calculated in accordance with the provisions of the agreement constitute “deemed energy”.
In October last year, the contractor dry-commissioned the plant (in the absence of a power evacuation medium) in the presence of UETCL, Electricity Regulatory Authority (ERA) and Ministry of Energy officials after it completed building it in September.
According to the project’s Power Purchase Agreement (PPA), commissioning the plant without a medium to evacuate the generated power qualifies government to pay money in deemed energy to the contractor (ARPE Ltd) until one is put in place.
In the agreement, government would pay deemed energy if the contractor is prevented from delivering energy to UETCL as a result of breach by UETCL pursuant to the agreement or a failure of government to fulfil its obligation of the implementation agreement.
The power projects
The 42 MW Achwa II hydropower facility is one in a cascade of five power stations set to be developed by the project owner, ARPE Ltd, along Achwa River in Angagura Sub-county, Pader District, boasting of an annual 281 GWh output.
Its construction is estimated at $78.8 million (about Shs290b), funded by loans from African Development Bank ($14.3m or Shs52b) and Delta ($64.4m or Shs236b).
The plant is expected to provide electricity to 35,000 Ugandans and reduce greenhouse gas emissions by more than 109 tonnes annually once it is operational.
A consultant engineer with ARPE, who spoke to this newspaper on condition of anonymity, confirmed that payment for deemed energy started by October 1, 2019.
“The generation plant is already running maximally with all the 42MW produced and the electricity power is idle here, although taxpayers are shouldering that loss since the contractor has to service their loans for building the plant,” the engineer said.
“To bring you to the range of money we are talking about, if the plant is generating 40MW right now, multiply that with the average rate of US cents 9.83 per kilowatt hour charge, that is about Shs13m per hour,” he added.
Under the agreement, UETCL would buy the generated power at the dam from ARPE Ltd for 40 years with a payment schedule of 9.83 US cents per Kilowatt hour in the first year.
The energy charge will later increase to 10.16 US cents/kwh in the second year and 9.97 US cents/Kwh in the third to 15th year.
Because the plant is scheduled to run at full capacity, the implication is that government shall continue to pay for deemed energy for the remaining 30MW until UETCL builds a transmission line to evacuate it.
“The UEDCL line will only take 12MW, meaning the 30MW unused will keep costing government averagely 10 cents/kwh until a line that can evacuate all that power is built,” he said.
Although ARPE Ltd officials earlier admitted that they were receiving the payment and promised to share details with this newspaper, the company’s environmental and social governance manager, Mr Felix Tukairhwa, said on Monday that he was not ready to share the details since the company was undergoing several challenges.
Although the Electricity Regulatory Authority (ERA), in a statement, confirmed that the plant was commissioned and ARPE Ltd was being paid for idle power, Mr Robert Kasande, the Ministry of Energy permanent secretary, disputed the claim, saying the plant was yet to be commissioned.
“That is not true, the plant has not yet been commissioned to officially begin supplying power for consumption. You can only pay for deemed energy when the plant is commissioned,” Mr Kasande said.
But Mr Julius Wandera, ERA’s communication manager, said by October 1 last year, the plant was ready for commercial production, adding that it was the same time when payment to the developer started.
“That payment is going on but unfortunately, the amount is only known to UETCL and the Ministry of Finance. That money is allocated by the Ministry of Finance to UETCL and it pays it to ARPE,” Mr Wandera said.
The northern region, which makes up 20.8 per cent of the country’s population, has since post insurgence languished in darkness stemming from unreliable power, a reason government invested in the dam, whose construction commenced in 2015.
However, due to delays in construction of the 132kv transmission line to evacuate power from the dam, government in January allocated Shs30b to Uganda Electricity Distribution Company Limited (UEDCL) to construct a 33kv distribution line as an interim solution.
To expedite the process, UEDCL hired Segken -Power Africa and International Energy Technik (IET) in a joint venture to build the 33kV Achwa-Layibi and a 33kV Achwa-Kitgum line to evacuate power to Gulu and Kitgum towns, respectively.
The new evacuation lines cost UEDCL a total of Shs15.3b, with the 33kV Achwa-Layibi line taking Shs6.6b, and the 33kV Achwa-Kitgum line costing Shs8.7b.
Although the two lines were meant to be complete by August before the project commissioning in October, failure to acquire right of way from the land owners pushed its completion to December 2019.
The failure was attributed to resistance by the project-affected communities, who demanded expeditious compensation for damages resulting from the project on their properties.
“Like any other government infrastructure project today, land ownership and compensation was really delicate,” Jonan Kiiza, UEDCL’s spokesperson, said.
In November 2019, Gulu High Court deputy registrar Rosemary Bareebe granted a temporary injunction to Joseph Abonga and 75 other project-affected persons, who dragged UEDCL to court over delayed compensation and forceful acquisition of land to build the power line.
The injunction restrained UEDCL from further erection of poles, carrying out evictions or making any other developments on land in suit located in the villages of Deng A, Lacede, Libi, Lo Boto, Bur Lobo, Lalem and Ongom.
Plans by UETCL three years ago to engage the landowners to acquire a corridor to build a transmission line to Lira sub-station hit a dead end when land owners demanded that they should be compensated before the works can commence.
Ms Pamela Byoruganda, UETCL’s principal public relations officer, said the failures compelled government to engage their counterparts, UEDCL, to build alternative evacuation lines.
“Bringing in UEDCL was a quick way to have a power line in place since ours is yet to be built. They only needed where to put the poles and then they can evacuate but with us, we first have to buy the 5-metre corridor from the landowners since this is a high voltage line (132Kv line),” Ms Byoruganda said.
She also noted that UETCL works failed to match the pace of those building the generation plant the moment their financier (KFW) delayed to sign their tender documents for procurement.
“Most funders do not want to sign off a loan before they know you have the true right of way to do the plant. This is why they took long to sign our document for tendering and it affected procurement for it,” she added.
Uganda’s power sector
In December, Secretary to the Treasury Keith Muhakanizi reportedly told economists during a meeting in Kampala that Uganda was among some African countries whose governments had been pushed to sign power-purchase agreements with investors to produce more power than can be consumed.
He said the country has not prioritised network investment to evacuate power from where it is generated to factories and people’s homes, adding that Uganda must now reserve money to pay for generated but unconsumed power for the next five years.
Without disclosing the amount of funds Uganda is spending annually to compensate for unconsumed power (deemed energy), Mr Muhakanizi said the burden of paying for idle power has started to pinch government in recent months.
A lack of integrated power-sector planning and a dysfunctional financial ecosystem restrict the country’s power sector, according to the 2018 UK Aid Energy and Economic Growth Research Programme report.
The situation of Achwa dam has been considered one of the ‘technical gambling’ by the Energy ministry that has resulted into government bleeding a lot of taxpayers’ money due to a miscalculation over UETCL’s timely acquisition of a transmission corridor.
The report gave examples of ERA’s 2011 Power Sector Investment Plan 2009-2030 and UETCL’s Grid Development Plan, 2015–2030 of 2015 that are currently in use but lacks legal regulatory standings and were not approved by the Energy ministry.
“…it has no formal legal or regulatory standing, and does not seem to be used when investment decisions are being made. In 2013, ERA produced an update to the plan – the Least Cost Generation Plan, 2016–2030 (ERA, 2016), this time, the plan was not formally approved by the Energy ministry….,” the report reads in part.
Although UETCL, power distributer Umeme, and Rural Electrification Agency (REA) produced investment plans, it stated that none of the plans were being coordinated by either ERA or the Energy ministry.