For over a decade, there has been a raging debate among Ugandans on why the electricity tariffs have still remained high despite the surplus power in the country. Let’s first understand the history, in 1954, the Owen Falls dam was commissioned by the colonial government.
This was the first clear source of electricity in the country built with a capacity of 60mw. In 2001, the Owen Falls dam’s capacity was increased to 180mw and a new dam-Kira dam of 200mw. The two dams were built parallel to each other on River Nile at a combined alleged cost of $280m from the World Bank.
Today, a total of over twenty-five (25) power plants currently dispatch power to the national grid where by the supply now exceeds the demand. Although, the supply and distribution reliability issues have now been largely resolved, the government is yet to set upon solving the pertinent issue of affordability. Whenever the government is developing these big dams, the first clear promise to Ugandans is to reduce power tariffs to atleast US Cents 5 per unit.
During the 2021 State of the Nation address, the President stated that ‘the cost of electricity is distorted by mistakes committed by some of our actors, especially the mistakes of Bujagaali and Umeme, (which) add 55.3% to the cost of electricity per unit.
Otherwise, the cost of power from Kiira would be US cents 1.19per unit, Nalubaale US cents 1.119per unit, Isimba US cents 4.16per unit, Karuma US cents 4.97 per unit; but Bujagaali US cents 8.30 per unit. Bujagaali, at one time, was US cents 13.8 per unit.
I remember in 2023, when the president returned the Income Tax (Amendment) Bill 2023 and asked parliament to insert a clause to grant the Bujagali Energy Limited (BEL) that owns and operates the Bujagali hydropower project another one-year tax waiver. In returning the tax bill, the President claimed that the tax exemption will help in reducing the cost of electricity in Uganda for the benefit of the citizens and promote industrialization.
However, the Bujagali hydropower tariffs remained high despite the government’s intervention of the tax waiver on BEL’s operations and the refinancing of the Bujagali hydropower project. The current power tariff from the dam is US cents 8.3 kWh which remains costly to all consumers small and big. These high and unaffordable tariffs negatively affect the quality of lives and national socio-economic transformation.
In the recent two-day deliberation of the East African Power Pool (EAPP) meeting held in Kampala, the State Minister for Energy, Hon. Opolot Okaasai noted that currently Uganda has installed generation capacity of 2,048mw against the peak demand which is below 1,000mw.
The EAPP is a regional institution established in 2005 to coordinate cross-border power trade and grid interconnection among member countries. This explains that the unused electricity is partly of the costs that the few Ugandans connected to electricity have to meet. For instance, in the FY2022/2023 budget, the government allocated UGX190 billion for deemed electricity.
In addition, some of these big power dams are constructed through borrowed funds. Perhaps this can inform Ugandans why the country’s debt has increased to about UGX 97.638 trillion (USD 25.716 billion) by the end of June 2024. Projects like 600mw Karuma dam and 185mw Isimba dam costed government over $2.2 billion of borrowed funds. Karuma alone was $1.7billion while Isimba dam was $567m. Yet at the moment, there is no market for this generated electricity.
It is also important to note that whether the energy is generated and transmitted or not, there are operational and maintenance costs, and financing costs that have to be paid. These include such inputs as lubricants, insurance, labor, and spares.
These costs tend to be insignificant with size except for financing costs and the agreed return on investment. In addition, factoring in several factors including electricity generation, transmission losses, regulatory challenges and full debt service costs results in a much higher unit cost per KWh on the government and by extension the end-user. What is also not usually articulated in determining the end-user cost is the impact of taxes.
For instance, the Electricity Regulatory Authority (ERA) announced that the July to September 2024 power tariffs for domestic consumers is UGX 803.0 from UGX 819.4, commercial consumers to UGX 606.2 from UGX 615.9, medium-industrial consumers to UGX 452.1 from UGX 459.8, large-industrial consumers to UGX 383.4 from UGX 388.5, and extra-large consumers.
However, if the service fee and Value Added Taxes (VAT) are added to the above prices, the domestic consumers pay about UGX 1000 per unit yet over 30.1% Ugandans live below the poverty line. (People that cannot afford US. $1.77 per day) according to the Uganda Bureau of Statistics report (2021). For the average Ugandan household, the burden of high electricity tariffs is palpable.
With a median monthly income of approximately 200,000 UGX, many Ugandans struggle to meet their basic needs. High electricity bills can consume as much as 30% of a household’s disposable income, leaving little for education, healthcare, and other essential expenditures. This has also made businesses expensive and number of small-scale industries and other businesses have collapsed due unaffordability.
The explains why the recent UBOS report 2020 indicated how Ugandans shunned away from grid-based hydropower from 24% in 2019 to 19% in 2020 and about 38% resorted to using solar power. This is partly due to high power tariffs which has also resulted to over 90% of Ugandans to still depend on charcoal and firewood to meet their energy and cooking needs.
We must admit that some of these challenges in the electricity sector have been brought by the poor negotiation skills of some of these deals in the electricity sector. Many bad decisions have been a result of self-interest rather than national interest.
We have seen this in the Power Purchase Agreements where government continues to pay for deemed power despite the fact that it is not used or transmitted to the consumers. The elephant in the room has always been self-interest for which the protagonists made decisions favoring investors.
Therefore, these high cost of electricity in Uganda, where tariffs can reach nearly double that of neighboring countries, makes it difficult for many to afford basic electricity needs. This is compounded by the inefficiencies in billing systems and disorganized metering processes that lead to inflated bills and further disenfranchise consumers who are already struggling.
And regulatory bodies, like the Uganda Electricity Regulatory Authority (ERA), face challenges in balancing the interests of consumers with those of investors, leading to policies that inadequately protect low-income households while prioritizing profits for private investors.
In my opinion, I think the government must change its energy investment strategy to ensure that Ugandans have access to cheap, reliable and clean power. In addition, electricity sector agreements including power purchase agreements, contracts should be availed to public to hold officials that sign such verge contracts accountable, clauses that oblige government to pay for deemed power should be removed.
Patrick Edema
An Environmental Engineer and Programs at AFIEGO
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