Ratio Magazine :: The Inside Track to East Africa’s Economies - Uganda: Little Justification for Umeme Tariff Increases

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Uganda: Little Justification for Umeme Tariff Increases

Friday, 13 February 2009

Umeme’s pending application to increase various tariffs begs the question: Why? Is it to reward Umeme for its inefficiency and hopeless customer service, to pay for its flashy corporate offices and fleet of brand new four-wheel drives, or perhaps to pay for its overpaid and archaic management? By Rajesh Advani.

Uganda has gone from having some of the cheapest electricity in the world in the 1990s to some of the most expensive today, and yet there has been little, if any, improvement in customer service since Umeme took over electricity distribution from the Uganda Electricity Board (UEB). This I can safely say from having gone through the convoluted process of getting my electricity reconnected, which included amongst other things, being lied to by Umeme staff, being asked to produce a “blue copy” of a reconnection order that happens to be an internal company document, having to drive a staff member between a “field office” and my residence; all two working days after the issuance of an official “reconnection order”. Talk to people up-country and ask them whether electricity access and services have improved since Umeme took over and the answer is a resounding no! Now an already expensive connection process is about to get infinitely more costly in the wake of exorbitant retail electricity tariffs:

Ugandan domestic consumers pay USD0.22 per KWh of electricity consumed, which is net of a USD0.07 subsidy from government. Kenyans pay USD0.16 inclusive of a variable fuel levy, Tanzanians pay USD0.10, Rwandans USD0.20, South Africans USD0.06, Australians USD0.09, and residents of central London USD0.15. And while it is true that Uganda is faced with an energy crisis that has us burning diesel for electricity, our neighbours Tanzania and Kenya have the same problems due to the same structural reliance on hydropower.

Whether one chooses to look regionally or internationally, Umeme is amongst the costliest energy service providers around. Why then does the company claim to have incurred losses of USD8m in an attempt to justify the price hike? Not surprisingly, this question cannot easily be answered because Umeme does not make its financial or operating information public. Electricity is an essential commodity in any economy, yet the consumer has no choice of service provider, is expected to pay on demand, and Umeme cannot be held accountable.

Some bits of the puzzle can be pieced together by visiting the Electricity Regulatory Authority’s website. Umeme purchases each unit of electricity at between UGX123 and UGX167 and sells it to domestic consumers at three times the price, while a range of discounts are offered to commercial and industrial users that generate returns of between 27% and 168% for the company. The data further suggests that in 2007, Umeme purchased over 1.7m MWh of power and sold just over 1.1m MWh, implying a distribution loss of 35% in a country that is already starved of electricity – a pathetic operating performance by any standard.

We cannot possibly know if the price hikes are justified unless we have access to Umeme’s annual reports; otherwise we could be paying for energy that disappears into thin air or to finances the lifestyle of Umeme’s top brass. Most utilities make annual reports available for download on their websites and there is no reason for Umeme to shroud its financial affairs in secrecy when it has a monopoly over the supply of electricity. In comparison, the government owned National Water and Sewerage Corporation is transparent because it makes its financial and corporate planning data available on its website, has a good social connection policy, and is certainly more operationally efficient than Umeme. Here we see a classic example of a publicly owned utility outperforming a private one, which is why it is management that makes the difference, not ownership.

About the Author

The author is a Business Analyst with an MBA from the University of Melbourne

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