Friday, November 18, 2011

Andrew Mwenda and the Oil Debate.

As the Parliamentary ad-hoc Committee continues its probe into the Oil Industry that has for long been shrouded in secrecy, public debate and discussion on the oil sector is still spirited as it were in the aftermath of Hon Gerald Karuhanga -Youth MP for western Uganda, tabling documents before parliament alleging bribery and corruption amongst government ministers Hillary Onek, Sam Kahamba Kutesa and PM Amama Mbabazi. Andrew Mwenda - the Strategy and Editorial Director of the Independent Magazine, in the latest issue of the same magazine (November 18-24, 2011), continues to rubbish the “Karuhanga documents”, rebuke Uganda’s elite class on being “shallow” in debate and analysis. He further brings to light the historic perspective on how MPs have abused parliamentary privilege before in 1966 and the current power struggles in NRM for possible succession of President Museveni.

Mwenda has in many forums before decried the state of corruption in this country, demise of functional institutionalism and the blatant abuse of offices by politicians and public servants too. He has indicated before how poorly paid civil servants now own fancy apartments and big businesses in Kampala all through corruption and embezzling tax payers money. It is no secret that President Museveni has presided over this rot and decay in the public service. Instead of comprehensively reforming and re-structuring the civil service towards better service delivery and performance, he has used it to build and keep a strong hold on political power. Mwenda has indicated before that by creating opportunities for the elites and civil servants to profiteer and benefit from corruption through creating unnecessary administrative units like districts, semi-autonomous bodies, President Museveni has co-opted these elites into the eating circle and thus entrenched his political power. It is clear that the President does not have the political will and guts to fight corruption in Uganda. I find it bizarre that Andrew Mwenda, the man who has says and believes that “Corruption is the way the system works not the way it fails”, can be the same man to believe that President Museveni can fight corruption, when it forms the foundation for his plan to build more political power. Andrew has gone on to conclude before that - “President Museveni is not corrupt in the sense of gaining wealth. He is corrupt in a sense of using money to attain his political power interests.” Andrew Mwenda should have known better that he could not get any credible or worthy results with the oil documents the moment he took them to President Museveni.

Another interesting facet in his arguments is insistence to take the documents to President Museveni. This is testimony to the death of institutionalism in this country. Andrew has always condemned the death of institutionalism in this country- where every interest group e.g. women, tomato vendors, cattle herders, market traders, etc. all want to take their grievances to the President. Needless to say, this is an unfortunate precedence that undermines the development of institutions, rule of law and democracy. Andrew, as a preacher of institutionalism, should have probably taken them to Uganda Police or Director of Public Prosecutions or IGG or Parliament. The very practice that Andrew condemns is exactly what he did. It is clear he was not being any different from the Women groups, Market Vendors and Taxi drivers that always want audience with the President on even the most trivial of matters. And that brings us to probably the reason why Andrew sought audience with the President only. He knows well that if these documents had been tabled before Police or IGG, these institutions don’t have capacity to investigate and conclude them. It is a sad irony that we can’t find resources to build capacity for various government agencies to perform better but we can afford to hire international investigation firms to verify documents. Andrew should be condemning this in the strongest terms possible or at least lobby for capacity building in Police, IGG, DPP so that they are able to comprehensively investigate and conclude such cases. Andrew knows that the failure of institutions over the last two decades under the stewardship of President Museveni is the reason why he could not trust Police or IGG’s office to do a good job with the oil documents.

Mwenda further intimates that at the heart of this oil debate is a power struggle to succeed President Museveni within the NRM, and it is for that matter that some individuals within the NRM party and parliament are hell bent on bringing down Amama Mbabazi. Whereas this may be true, we don’t do ourselves any favours when we don’t reflect on why this is so. President Museveni has mentioned before how only he has the vision for this country and has not made any effort for his party to openly and freely discuss the issue of succession and change of leadership in the party. There is a widely held view that only President Museveni can deliver the presidency to NRM. If the NRM party made clear its leadership and succession plans, and allow for discussion and agreement with all and sundry, we would have less power struggles in the party. Andrew as an insider should be tipping the President to emulate his (Andrew’s) hero Mandela by engaging a clear and well-articulated succession plan so that the party has less intrigue, bickering and disharmony. It absurd that PM Amama Mbabazi, the man perceived to be President Museveni’s choice for successor is also hesitant to firmly but respectfully express his vision to serve this country if given opportunity. In the latest media reports, PM Amama makes a reserved and cautious expression of interest in top seat. It is clear he doesn’t want to be “misunderstood” by the President.

Finally, Andrew’s constant attack and rebuke of Uganda and Africa’s elite class as being shallow in debate and analysis of issues is reckless and unfair in equal dimension. He divorces the context from his argument and conclusion. Andrew well knows that for the last decade or so, with the liberalization of the education sector, academic excellence in exams and papers has taken precedence and killed off avenues for students to read and learn material outside the examinable curriculum, research and innovate stuff. So this elite class is a product of the education system that was not supported by the NRM government for the last two decades. If the government had extensively extended support to public libraries, youth learning centers, school libraries and laboratories, technical colleges etc. our education system would be churning out better graduates, students and citizens with that are hungry and willing to read, research , learn, innovate and disseminate information. It is well known that research has no audience or respect in this government. I wish to think that for modern society to have an elite class that is well -informed, learned and articulate on matters of economics, environment and sustainable development; it must have the minimum basics i.e. high literacy levels, information technology, internet accessibility and technological advancement. Andrew knows the government’s UPE and USE are more of quantitative than qualitative programs. The government project to lay fiber optic cable to boost access to faster internet has delayed for over two years. Andrew rightfully credits President Kagame for investing heavily in computer/information technology and internet access in Rwanda to the extent that school children in rural areas have access to computers, laptops and internet. This is alien to Uganda even in districts like Iganga that are on a major route connecting us to Mombasa and Nairobi. Only children in Kampala Parents School and other uptown learning centers can access laptops and internet in Uganda. So the government has neglected this integral IT infrastructure that would go a long way in building and informed and articulate society. Mwenda knows that despite Presidents Museveni’s desire and dreams to develop Uganda into a middle income economy characterized by a vibrant business sector, high per capita income, growing middle class all denominated by a performance driven service sector, good infrastructure, institutionalism and rule of law, he is not the man to lead us to this promised land.

Without a doubt, he has done his wonderful contribution to this cause and it is only prudent that at every time that Mwenda gets his audience, he should advise him to allow for stable succession and change of leadership. It is evident that the current oil saga and wanton corruption in both the public and private sector are signs and symptoms of a dysfunctional system that president Museveni continues to preside over. It is futile to call on him to reform, he needs to allow for succession and reforms be implemented by a new team.
Agaba Rugaba

Thursday, November 17, 2011



In the beginning was UEB – Uganda Electricity Board which inherited from the colonial regime. UEB was operational under the Electricity Act of 1964. It was mandated with generation, transmission and distribution of power (mainly hydropower) to all consumers in Uganda. Electricity consumers include domestic consumers like homes, apartments, Commercial consumers like shops, hotels, offices, acardes and the industrial consumers e.g. factories, industries, processing plants etc.

Due to poor service delivery, poor performance and the demands of the IMF – International Monetary fund, the government was forced to privatize UEB under the Privatization program. The Electricity Act of 1964 was repealed and replaced with the Electricity Act 1999. Under this new legislation, UEB was split into three arms- Uganda Electricity Generation Company Limited, Uganda Electricity Transmission Company Limited. And Uganda Electricity Distribution Company Limited to take care of generation, transmission and distribution respectively. The Electricity Act of 1999 also created Electricity Regulatory Authority, ERA which is tasked with regulating and ensuring quality control in the way the three arms conduct business. ERA also acts a link between final consumers/customers and the different industry players the three arms of Generation, Transmission and Regulation.

Power is generated at a power plant e.g. dam that uses water to run the turbines and generate hydro power. Thermal plants use heavy fuel oils to run generators that generate power. After generation, power is transmitted through high voltage cables to a sub-station that can be used to serve a town, district, municipality, division or any given area. From the sub-station it is distributed through low voltage lines to industries, homes, apartments, offices etc.

So under this new legislation Electricity Act 1999, government procured independent private companies and investors that would invest some money in the different infrastructure, equipment and facilities under the different sectors of generation, transmission and distribution to improve on service delivery, operation capacity and leverage their business capability.
Under this new arrangement, ESKOM was contracted to manage operation and generation at the Owen falls dam complex - Nalubale and Kiira that have a combined capacity of 380MW. Uganda Electricity Transmission Company limited stayed under government control but like any government body, it subcontracts and or procures engineering firms fix, repair and maintain transmission infrastructure and equipment. UMEME a firm owned by ACTIS which is owned by CDC –Common Wealth Development Corporation that is wholly owned by UK – government, was contracted to manage the distribution of power to final consumers both domestic and industrial. So primarily we had ESKOM generating power, UETCL transmitting it, and UMEME distributing it to final consumers.

Until 2004, Uganda’s main source of energy were the hydropower dams in Jinja - Owen Falls dam and Kiira dam that have a capacity of 380MW. There were also few mini-hydro power plants on small rivers all over the country. Due to the long dry season and drought of 2004- 2007, water levels on river Nile and lake victoria went down thus compromising the ability of the dams at Nalubale and Kiira to operate at optimum capacity. These hydrological challenges compromised the ability of these two dams to operate at full capacity. At the height of the prolonged dry season, they could only generate 90 MW. Owing to this shortfall in power and the adverse effect it would have on the economy, (economic growth declined from 6.5% to 4.5%) the Government of Uganda and World Bank explored alternative sources of energy to meet the shortfall in energy supply.

Aggreko was brought on board. Aggreko is a world renowned emergency energy generation firm. In 2005 Aggreko penned a 3-year deal worth $160m to generate 50MW at Lugogo. That translates to over $53m per year to generate 50MW. (Please note - Aggreko recently signed a $37m contract with Tanzania Government to generate 100MW for 12 months.) Aggreko further signed a $206m to generate 50MW at Mutundwe that was commissioned in 2008. Aggreko had earlier also got a deal to generate 50MW at Kiira in Jinja. This deal was shrouded in secrecy and the contract sums could not be established. Other generation players came on board e.g. Electromaxx in Tororo to generate 20MW and Jacobsen in Namanve to generate another 50MW. Aston Kajara, the Minister of State for Energy put it crudely regarding these power deal. “There were only two options, either go for expensive thermal power or plunge the country into darkness”
Because of the high cost involved in power generation and distribution, government subsidizes for both power generated at the hydro plants in Jinja and also the thermal plants in Kiira, Namanve, Lugogo and Mutundwe. A unit of power (1KWh) from the hydro power plants is estimated to cost ugx 1000. The government thus subsidizes both the industrial and domestic consumers that are charged Ugx 150 and Ugx380 respectively. So the government pays the extra ugx 850 and Ugx 620 for every unit consumed by domestic and industrial establishments respectively.
The government subsidizes the Emergency Power Producers EPPs like Aggreko, Jacobsen, Electromaxx, with support from a World Bank /IDA loan of $212m which expired in 2010. Ever since this IDA loan expired and owing to the increase in oil prices on the world market and the depreciation of the Ugandan currency, the government subsidy for generation has ballooned to Ugx 296 billion ($115m) this year. Parliament had approved government to pay ugx 92 billion and ugx 31 billion in April 2011 and June 2011 respectively to pay subsidies to EPPs. When parliament went back in July 2011 with a request for another Ugx 62 billion, parliament raised the red flag and instituted a committee to conduct a forensic audit of our energy sector. If parliament had approved this request, government would have spent Ugx 185 billion in under three months to subsidize power generation firms.

UMEME the distributor (distribution contractors) buys power form UETCL (the transmission arm of the chain). UETCL buys the power from ESKOM, Aggreko, Jacobsen, Electro Max and all other independent power producers like Kakira Sugar which produces power using biomass- waste from sugar production which is burnt in large boilers, to generate high pressure steam that runs generators to generate electricity. For example, if UETCL buys 100MW from Eskom. It will be able to sell 96MW to UMEME. It experiences loses of around 4% due to old equipment, thefts, damaged equipment, and normal technical losses. UMEME buys and pays for the 96MW from UETCL but its losses are rated at 28%. UMEME losses are due to illegal connections, poor revenue collection, thefts, bad equipment, and normal technical losses. So UMEME will have bought and paid for 96MW from UETCL but it is only able to sell and account for only 69MW (72%) of the 96MW. The 28% (27MW) is lost as illustrated above.

When UMEME took over the distribution arm, Uganda’s energy losses were at 38%. After UMEME’s heavy investment of over $80m in infrastructure and improving on operational practices, the losses have come down to between 28% and 30%. Under the UMEME contract / agreement Government pays $4m (Ugx 10 billion) for every percentage loss incurred by UMEME. Government pays over Ugx 150 billion to UMEME for these losses. Government of Uganda pays a total of over Ugx 475 billion ($190m) on subsidies in Generation, distribution and Transmission. This is equivalent to a quarter of $750m the total project cost for the 250MW Bujagali Power Plant.

So currently government is chocking with unpaid bills to the Emergency Power Producers – Aggreko and Jacobsen. Furthermore URA is entangled in tax disputes with these Power Producers and it is for these reasons that the power producers like Aggreko have closed down their plants in Mutundwe and Lugogo. Aggreko’s license and contract for Kiira expired. Government had hoped to extend their contact for Mutundwe plant until Bujagali comes on board but Aggreko is adamant due to the unpaid bills and VAT returns.

Sunday, November 13, 2011

Inflation and BoU's CBR

Ever since President Museveni was sworn in after the February polls through to the reading of the National Budget just after his state of nation address, we have seen inflation soar to an all-time high of 30.5% and local currency depreciation against the US dollar to an all-time low of Ugx 2900 for a dollar. The economy has taken a battering and with IMF stewardship the economists at Bank of Uganda and MoFPED have had to revise downwards our economic growth rate projections from 7 % to 5.5%. The Central Bank has adopted an inflation targeting monetary policy – CBR that intends to remove excess liquidity from the economy. It further directly impacts on interest rates charged on loans and credit to individuals, companies etc.

Well, with this intervention, it is clear the BOU is acknowledging that there is excess money in the economy. How did this excess money get into the economy? They are mute on this. The closest we came to getting their take on the real causes of excess liquidity and inflationary pressure was Governor Mutebile’s interview with the Financial Times of UK where he indicated that our fiscal management left a lot to be desired. It is important for us to know how we came to have excess money in the economy chasing few goods and this can form a basis for engaging appropriate economic tools to mop up this excess liquidity and avoid similar mistakes in the future. This is where BOU is strangely quiet. How can the captain charged with regulating and monitoring the amount of money and credit in the domestic economy be clueless on how we came to have excess liquidity in the market?

The popular belief in Uganda’s elite and middle class circles is that the supplementary budgets hastily approved in December 2010, Ugx 20 million wired to MPs personal accounts under the guise of monitoring government programs and the huge sums of money spent by President Museveni and NRM Campaign machinery to win the February polls are at the underlying causes of the excess liquidity in the economy that ultimately triggered off the inflation. Furthermore, the Chief Commanders decision to break into the foreign exchange reserves to buy Russian fighter jets, depleted our foreign exchange reserves and thus impended the Central Bank’s capacity to intervene in the foreign exchange markets thus providing fertile ground for speculators and shrewd foreign currency traders to ripple up the foreign exchange markets. This ultimately affected importers of essential goods like oil and commercial foods, production inputs etc. Considering that Uganda’s foreign exchange reserves had fallen to $2.2bn in June 2011, compared to $2.5bn and $2.4 bn in June 2010 and June 2009 respectively, it was clear the Central Bank would be strained in its effort s to intervene in the foreign exchange markets and also keep a minimum of 6 months of import cover.

Earlier at the start of inflationary pressures, the BOU Deputy Governor Louis Kasekende said inflation was due to supply side shortages, meaning we probably had an acceptable amount of money in the economy but the low food supplies were the cause of prices increases and inflation. The president seemed to agree with this argument and in his addresses; he suggested that food shortages were due to the drought and long dry season that had affected agricultural production. He went on to suggest that food prices would come down with onset of rainfall in most regions of the country thus boost food production. Despite the relentless rains in most parts of the country since May 2011, we haven’t seen any decrease in prices for stable foods kike maize, matooke, beans, rice, cassava, vegetables etc.

Hon Maria Kiwanuka, the new minister for Finance, Planning and Economic Development in her budget speech in June 2011 alluded to the same analysis like the BOU boss and President Museveni. She claimed the price surges and inflation were due to constraints in food supply. She added that low/poor rainfall and drought in the last two seasons of the financial year had caused the poor agriculture production thus poor yields. She further noted that one of the key challenges to agricultural production was inadequate availability of improved seeds, planting materials and animal breeds. She acknowledged that use of irrigation and fertilizers in agriculture production could indeed boost yields. However, rather disappointingly the government did not allocate any big budgets to address this. A meager Ugx 30billion Agriculture Credit Facility with Commercial banks was meant to fund construction of warehouses and silos to improve food storage and mitigate risk of supply shocks in times of shortages. Ugx 133 billion was also allocated to the NAADS program to increase commercialization of improved seeds and other planting materials, develop better animal breeds and thus improve milk and beef production in the animal husbandry sector. A paltry ugx 2 billion was allocated to renovating of small ware houses at all sub-counties country wide. Four months into the fiscal year and we don’t see these interventions taking root in the rural communities or if they are, then the government is not bringing these success stories to the media. It is clear that our leadership, both in parliament and the executive are not focusing their efforts on issues that will mitigate risks of low food supply and improve welfare of the citizenry.

The other cause of inflation fronted by the government was the rise in oil prices on the world market owing to the instability in the oil producing countries especially in North Africa and Middle East that were the center of pro-democracy protests that defined the Arab Spring. We were made to believe that as a land locked country and importer of oil, we’d face risks of imported inflation due to high oil and commodity prices on the world market. High Oil prices on the world market would translate to high fuel prices on the gas pump here in Uganda and ultimately high transport and production costs which would indeed force producers and middle men in the commodity markets to transfer these costs to final consumers. BOU technocrats also suggested that the shilling had depreciated due to a weak current account or balance of payments – difference between money earned from exports vis avis money spent on imports. Our trade deficit increased from $1.7bn for the F09/10 to $2.1bn in F10/11. Uganda Imports stood at $4.5bn in June 2011 compared to $4bn the previous year 2009/2010. This coupled with the fact that our cash crop production fell by 16 % compared to the financial year 2009/2010 meant that our foreign exchange earnings outlook was not favorable.

I thought the technocrats both in government and BOU would be reading from the same script on the causes of our economic woes and thus put in place mechanisms to address these issues. It is clear that BoU and the two other arms of government (Parliament and Executive) tasked with bringing down inflation, boosting production and fostering better economic performance and approval of the national budget have not been honest with us on the causes of the current economic situation and haven’t indeed put in place the desired intervention to improve the situation. BoU’s CBR strategy does not address inflation that is caused by supply shocks, just like the current contest on Parliament Avenue have nothing to do with improving the plight of the general population.