Uganda Power subsidies jump to sh300b

Friday May 27, 2011

POWER subsidies will jump three-fold in the next financial year ahead of the commissioning of the first 50MW from the 250MW Bujagali hydro-power project.

However, the Government has allocated only sh92b as diesel power subsidy.

According to the national budget framework paper for the financial years 2011 to 2016, this means there will be a sh208b funding gap in the next budget.

“Additional subsidy requirements to meet the national power demand is sh299.5b,” the document states.

International fuel prices, the foreign exchange rate and inflation determine the unit cost of thermal-generated electricity.

Of late, crude oil prices on the global market have been souring due to events in the Middle East and North Africa.

This has majorly influenced the runaway inflation rate now standing at 14.1%, as of April.

This year alone, the shilling’s depreciation against the dollar averaged sh2,400 compared to the budgetary rate of sh1,874.

This has forced the Central Bank to intervene more often on the selling side in the forex market.

The past few years have also been difficult for electricity consumers in the country. The long drought of 2004/2007 meant that 60% of electricity supply depended on diesel generators.

The continued weakening of the shilling against the major foreign currencies, especially the dollar and the euro, has had a huge impact on the diesel-generated electricity.

Thermal power makes up 170MW of Uganda’s electricity needs. Aggreko in Jinja produces 50MW, the Mutundwe and Namanve thermal plants, 50MW and Tororo power producer, Electromaxx, outs 20MW.

This means that diesel-powered thermal generators contribute over 60% of our power, which leads to high power prices, and rising the cost of doing business.

However, electricity generation capacity will expand by 30% this year due to increased investment into the sector. The Electricity Regulatory Authority (ERA) estimates that Uganda will be producing 747MW by the end of this year, up from last year’s 576MW.

“We expect 50MW to be commissioned from Bujagali by November, but the deadline for the entire plant to come online is April next year,” Benon Mutambi, the ERA acting chief executive, said.

Mutambi said when the 250MW Bujagali hydro-power dam starts operating next April, it would allow Uganda to decommission two thermal power plants, which he said use expensive fuel, leading to higher consumer tariffs.

In the next financial year, Uganda plans to kick-start construction of the proposed 600MW hydro-power project at Karuma.

Already, sh828.6b from the oil tax and the Energy Fund savings has been allocated to the project.

Energy shortfalls coupled with expensive petroleum and diesel rise the cost of doing business, reducing our competitiveness.

The key constraints to the energy sector are limited generation capacity, a poor power transmission and distribution network, high power losses and investment cost.

Uganda aims to increase access to affordable sources of energy through enhanced generation capacity and distribution in the next five years.

By Ibrahim Kasita: The New Vision Newspaper