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