Tuesday, July 4, 2017

On Uganda’s Electricity Supply and Economy.

Dr. Fred K Muhumuza’s Open Letter to the President on “Uganda’s weak and sick economy” in the Daily Monitor of Friday 23rd June 2017 highlighted the structural challenges related to Uganda’s recent slow economic growth and low demand for electricity. (http://www.monitor.co.ug/OpEd/Editorial/Letter-to-President--The-economy-is-actually-weak-and-quite-sick/689360-3983062-6dmq0iz/index.html) 

I will not purport to be a spokesperson or representative of the President’s Office, but since the letter was an open one, I felt I should add my two cents to the debate on Uganda’s electricity supply and economy at large. Does Uganda have excess capacity today? No. Total available capacity of generation plants in Uganda was 715MW in 2015 according to the Performance Report of the Electricity Regulatory Authority for 2010 – 2015. This available capacity comprises 250MW Bujagali, 265MW Nalubale/Kira Complex and many other licensed independent power producers, small hydro projects e.g 3.5MW WENRECO in West Nile. Apart from the 10MW solar project in Soroti that was commissioned late last year, there isn’t a substantial amount of generation capacity that has been commissioned in the last 24 months. Uganda’s total available capacity is slightly over 750MW. So do we have excess capacity today? No, we don’t. Shall we have excess capacity in the next one or two years when Isimba and Karuma projects are fully commissioned? I guess that is the issue Dr Fred Muhumuza is raising. 

For starters, he posits that we are paying a high opportunity cost for investment in these energy projects. Opportunity cost is the alternative forgone when a choice is a made. If i buy a bottle of beer at Ugx 5,000, the alternative I have foregone is a basket of mangoes or a pack of maize seed, which i could have bought with the same Ugx 5,000. So the question that economists need to help us answer is, the funds invested in the energy projects, if invested in another venture, for example buying meals and milk for all school children in public schools, would Uganda earn better returns on investments and higher multiplier effects compared to investment in Isimba HPP and Karuma HPP? Or to put it clearly, would we prefer government stimulus spending to be on public capital assets like energy projects or on re-current budget expenditure that may create aggregate demand for imports not necessarily locally produced goods? I believe the public infrastructure investment option is a better deal in the medium and long term term. I gather Keynesians (followers of John Maynard Keynes, the famed grandfather of macroeconomics) also believe that when governments choose to spend to stimulate the economy, the efficiency of allocation of these resources in the short term is not the main agenda. The main issue is to get the economy moving, and efficiency is sorted out in the medium and long term. 
The public investment in energy projects has also had strong local content linkages for example the bulk purchases of cement on the local market, transportation and logistics contracts, employment of skilled and semi-skilled personnel on construction works etc. Can we do more as far as local content is concerned? Yes we can. The Buy Uganda and Build Uganda strategy and the implementation of the Local Content Policy can only take us to better places. In this regard, I am convinced that public infrastructure investment is bound to improve productivity and efficiency in the wider economy in the medium and long term despite the minimal turbulence in the short term.

Where will the demand for this electricity come from? Some may ask. Uganda’s population is surging. One million babies are born in Uganda every year, in tandem with our 3% annual population growth rate. Total population is projected to rise to 50 million and 100 million in 2020 and 2050 respectively. This creates more demand for food, medical care, educational services, public facilities etc. This demand is a strong incentive for private firms (milk processors, maize millers, commodity factories etc.) and traders to produce more, increase their production capacity, increase their trade stocks etc. to meet this ever growing demand for milk, cereal, pampers, clothing, corn, shelter, water etc. All these private firms and traders need and or will need more electricity to expand their production capacity to meet production targets, in line with population growth and increased demand. 
The mining industry, industrial parks and regional power pools are strong potential demand centers for this electricity. For perspective, 183MW (Mega Watts) is equivalent to 183 million watts. A watt is a unit of power. The bulb in your bedroom is rated in watts, indicating for example 30 watts or 100 watts. If you run the 183MW Isimba HPP you should be able to switch on 4 million bulbs/lights each rated below 50 watts. Do we believe in the next decade, we won’t have enough households, business premises, street lights, offices etc. to consume this electricity? UMEME, the electricity distribution company indicated 19% growth in customer numbers for FY 2016. The projection is that they will cross the 1,000,000 customers mark in 2017. Year on year growth was 13% in 2014. The demand for electricity is there, and seems to be growing. 
The other key issue around energy projects is their turnaround time! How long, on average, does it take to deliver an infrastructure project, from pre-feasibility, through feasibility and design stages, to construction and commissioning? Industry practice is that depending on size and complexity, this ranges from 4 to 10 years!  This is premised on the assumption that the financing is readily available and the contracting firms are doing an excellent job! With this potential electricity demand, it is only prudent that government runs ahead of the pack, to invest massively in energy and other infrastructure projects. Failure to do so, would indeed create fertile ground for the economy to get sick and weak in the medium and long term.
Agaba Rugaba

Twitter; RugabaAgaba

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