There are good reasons for Uganda to celebrate the current excess electricity.
Uganda is producing estimated 850MW. During peak demand, consumption can shoot up to 580MW rendering 270MW redundant. Speaking at the National budget day, President Museveni noted that the country has capacity to handle heavy manufacturing industries that are primarily dependant on electricity. But also, it signals that Uganda has opened her ways to other countries in the region that wish to import electricity. Uganda can earn some little foreign exchange.
By 2020, Uganda expects to be producing 2500MW. However, there is a grimy picture on the faces of consumers. Uganda is generating more than what her citizens can consume. Government had anticipated demand to grow after coming up with the Power Sector Investment Plan in 2010. This did not happen. In fact, in some cases the demand is declining. Exports to Tanzania were anticipated to increase from 10MW in 2008 to 16MW in 2012, increasing by 3% per year. On the other hand export to Kenya would remain stable at around 6 MW. Considering the actual outcome from 2008 to 2015, export to Tanzania remained at around 12MW. A short fall of 4MW.
Quarterly electricity prices for the period Jan. 2014 and Oct. 2016
The Power Sector Investment Plan projected that the total number of customers would increase from 10,000; 5,000; 15,000 for Base Case, Low Case and High Case respectively in 2008 to 250,000; 456,668 and 618,290 in 2012. This forecast was based on the 2002-2012 Rural Electrification Plan. However, this number of connections was not achieved. This leaves the few consumers having to pay higher tariffs for the electricity generated. This brings us to the most important aspect for the high tariffs.
“Uganda is disadvantaged by the nature of contracts it entered into with the generating companies. Uganda has to pay for whatever is generated. It is like having a 62 passenger bus with 20 people on board but you have to pay for the 42 vacant seats. The owner of the bus shifts the burden to the person hiring it.” Noted Dr. Fred Muhumuza. It is capacity charge not seats occupied! This is the same instance in the electricity sector.
With big manufacturers set to exist Ugandan market, the talk about excess electricity may not come to an end in the short time. Uganda risks producing electricity for which is not consumed locally but can’t even export the surplus. The electricity being exported to the neighbouring countries is sold at a cheaper price.
By 2020, domestic demand is estimated at 60%. The remaining 40% will not be utilised. This means this should be a catalyst for government to stimulate more investments through attracting Direct Foreign Investments. If government intends to export surplus electricity, that is wrong. It might not get the returns it wishes. The only way is make electricity affordable and stimulate private sector investments.
Government has for long given tax incentives to companies. It is not tax incentives that drive industrialisation, it is the cost of doing business that attract investments. If even you gave a tax incentive for a 20 years period and the investor is not realising profits, he is not motivated to commit resources into such economy. Uganda currently is said to be the giving more tax incentives than any other country in the East African region, but it is a least destination for investors. There is high costs of doing business in Uganda aggregated more by high electricity prices and soaring interest rates.
Even if government is committed to infrastructure, the country needs to address the issue of public finance management inefficiencies characterised by high levels of corruption. The government should implement the Anti-corruption law.