Revisiting Uganda’s first electricity sector reforms

The Electricity Act, which was enacted on November 1, 1999 was borne out of the first power sector reforms—the Power Sector Restructuring and Privatisation Strategy (PSRPS) - undertaken the same year. 

The objective of the reforms included making the power sector financially viable, growing demand and coverage of electricity, and attracting private capital. 

The Act, developed with support of the World Bank and Norwegian Water Resources and Energy Directorate, repealed the one of 1964 and unbundled Uganda Electricity Board (UEB) into three limited liability companies - for generation, transmission and distribution. 

It also provided for other aspects of regulation, sale, export and import of  electricity. 

For the last two decades the Act served as the foundation of the sub-sector structure and a benchmark for several countries on the continent until 2018 when the government mulled a review of the existing power market structure. 

The review started in March 2021 when Cabinet gave the greenlight to restructure and mainstream several ministries, departments and agencies to lower operational costs and heighten efficiency.

While the PERD paved way for restructuring and divestiture of state enterprises, it is the 1996 World Bank Energy Sector Management Assistance Programme (ESMAP) report that painted the impact of the civil wars on Uganda’s vertically integrated power supply sector. 

The report detailed the power industry as weak despite some remedial actions and gains in recovery in the economy at the time. As a result of the ESMAP report, Uganda adopted the PSRPS and also enacted the Electricity Act.

The 1999 Electricity Act provided for the creation of a power sector regulator – ERA in 2000, whose main roles included licensing power supply industry firms, setting standards, enforcing and monitoring compliance and setting and approving supply and user tariffs. 

Markedly, UEB was split and reconstituted into three companies - Uganda Electricity Generation Company Limited (UEGCL), Uganda Electricity Transmission Company Limited (UETCL) and Uganda Electricity Distribution Company Limited (UEDCL).

UEB was retained for about five years to handle residual business that could not be immediately devolved to the new entities including severance pay for staff not absorbed by the reconstituted, other liabilities and old contracts not specific to the new entities.                    

The split

UEGCL majorly retained ownership of all former UEB generation assets and enforcing their efficient use by a concession operator. 

In 2002, Eskom was selected as generation concessioner for 20 years for the Nalubaale and Kiira power plants. UEGCL would also own any thermal plants acquired by government such as Namanve Thermal Plant.  The law did not explicitly prevent UEGCL from installing its own generation plants and subsequently became the natural direct owner of all new publicly owned generation plants, notably Karuma and Isimba.

UETCL was established to oversee transmission of high voltage assets above 33kV, manage the merit order rank dispatch of generators for efficient least cost system operation, and as a single buyer, procure all generated electricity in the country and sell the same to distributors. 

The latter role was intended to provide assurance to private investors (both generators and distributors) that government would underwrite security of their operations through UETCL (through take or pay arrangements) in a then perceived fragile and rather unattractive market. 

Take or pay arrangements, guaranteed that power was paid for, whether consumed or not.

UEDCL took over ownership of the low voltage (below 30kV) distribution network and monitoring and enforcing efficient use by concessioner. 

In 2005, Umeme emerged as the distribution concessioner for 20 years. Additionally, UEDCL would operate any public off-grid systems outside of the main national grid not taken up by Umeme such as Moroto off-grid diesel based generator. 

Government also persuaded the Aga Khan Development Network, through the West Nile Rural Electrification Company – Wenreco - to take over the West Nile power supply off-grid system. 

Moroto has long since been connected to the national grid and handed over to Umeme while Wenreco’s operations have soldiered on with numerous challenges.

It is worth noting that Umeme came on board after the only other serious bidder abandoned the quest to take over UEB’s distribution assets due to among others, the sorry state of the infrastructure and rampant power thefts and technical losses unearthed through due diligence on the UEB grid. 

One could, possibly say, the original owners of Umeme being parastatals in their own countries (South Africa and UK) were doing a favour to a struggling friendly country at the time. 

Mark you, the conclusion of the Umeme concession was preceded by several consultations. The government also hired transaction advisors from US and UK, complemented by a team from the ministries of Finance, Justice and Constitutional Affairs, Energy, and Office of the President. 

As we will see later Umeme’s ownership significantly changed, especially when it listed and cross-listed on the Ugandan and Kenyan securities exchanges.

More offshoots

Relatedly, to address some critical electricity industry related issues a few other entities such as the Rural Electrification Fund (and its support entities – the Rural Electrification Board and Rural Electrification Agency) were established out of the need to speed up rural electrification, which then stood way below 5 percent. 

Consequently, a fund was set up in the Ministry of Finance and Rural Electrification Agency (REA), under the Ministry of Energy was established, as the secretariat to speed up electrification for hard to reach populations outside of the Umeme concession foot print.

Given the slow pace of dispute resolution in courts, the Electricity Disputes Tribunal was also established as a dedicated tribunal with powers of a High Court and means of expediting disputes unresolved by ERA among industry participants.

Furthermore, the Uganda Electricity Credit and Capitalization Company (UECCC) was established out of the realisation that many small to medium firms interested in investing, especially, in the distribution end of the market, could not easily access commercial loans because to most of the commercial banks electricity business financing was new and uncharted waters.

What worked well?

A number of scores have been made over the years, but sometimes the public tends to overlook them, dwelling on what hasn’t worked.  Although there was early reluctance, eventually the private sector invested in the generation and distribution spaces.  

The target to attract private sector investment was achieved, especially in the generation sub-sector where more than 20 new hydro power plants, five solar grid-connected plants and three thermal plants have been established. 

Uganda now has almost 1,400 megawatts and will soon hit nearly 2,000 megawatts when Karuma is commissioned, up from 180 megawatts at the time of the unbundling.  

The first private hydro power generation plant, Bujagali, was often maligned but the investor took a very big risk when others waited on the fence.

There is also the notable rehabilitation and maintenance of the Nalubaale and Kiira power stations and associated sub-station in Jinja, which minimised power black outs in the country.

Both the high and low voltage networks have grown under UETCL, which in effect spurred Umeme to invest more in the national grid and a few off-grid distributors as well as some significant effort by REA, which led to more previously unserved areas being connected. 

Today the network has more than 14,000 kilometrers of low voltage lines and 3,000 kilometres of high voltage lines (the national backbone) with a large increase in the number of sub-stations. 

The additions in other transmission and distribution infrastructure have also been significant.

While the electricity sub-sector is not yet a net revenue generator, there has been a reduction of the strain on the national resource envelope. 

It must be conceded that twice, tariff subsidies and capacity payments for thermal plants did draw money from the consolidated fund but these were exceptional cases arising out of ERA attempting to pull tariffs up to cost reflectivity and on account of switching on thermal power plants owing to the drought that affected water levels on River Nile.

Load shedding 

The never-ending load shedding of the 1990s and early 2000s was eventually overcome during the two decades of reform through an increase in generation capacity, intensive investment in the distribution, enhanced maintenance regimes and line extensions across the industry. 

Umeme reduced system losses from more than 30 percent at concession to the current 16 percent while load shedding rarely exceeds an hour, if at all, and even national blackouts (systemic failures) are sorted in under an hour. 

There has also been a notable increase in revenue collection, especially from Umeme’s Yaka pre-payment metre system coupled with ERA’s quarterly self-adjusting tariffs, which has reduced the general discontent of consumers.

However, for other reasons this is yet to translate into low tariffs. But billed consumer revenue collection assumed at below 50 percent at unbundling has improved to 98 percent which covers most of the sectors’ operational costs.

It is also worth noting that solar power continues to find its position in the energy mix.  Standalone solar home systems have taken root through private sector initiatives, thereby increasing access to modern energy for rural communities where the national grid and off-grid supply networks have taken time to reach. Presently this form of energy has raised the country’s access by 38 percent to an overall 58 percent. 

If we add the 50 megawatts, solar farm generation by the grid connected plants in eastern and central Uganda, renewable-based energy has indeed taken root in Uganda.

Dr Frank Sebbowa has more than 40 years of  experience in power supply and also served as the executive director of Uganda Investment Authority between  2012  and 2016.

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