18 February 2008 – Ugandan electricity distributor, Umeme has been directed to reduce electricity losses in an effort to ensure tariff stability for both industrial and domestic users.
"Our view is that Umeme managers need to focus on reduction of losses so that we can take advantage of the savings to invest more in the power sector and bring the tariffs down," said Daudi Migereko, Uganda’s energy minister, adding the tariff increases are unsustainable and could have a negative impact on the economy.
However, Paul Mare, managing director of Umeme, attributed the high tariffs to the high cost of thermal generation.
"We have generation which is a concession to Eskom South Africa, we have transmission which is owned by government of Uganda, and we have got distribution which is a concession run by Umeme," Mr Mare said. "Umeme sells to the final customers."
"In 2005, the industry was split more or less one third to each of these structures in terms of costs. Now, because of the huge cost of thermal generation that dynamic has changed completely .Generation has got a huge component of cost which is consequently passed down to the customer."
Government provides a subsidy of some US$70 million for distribution costs, but Mare says that in order to curb further increase in tariffs, power losses need to be brought down from the current 36% to about 20%. This means that Umeme must spend in the region of US$100 million over a five year period, upgrading and rehabilitating the distribution networks across Uganda.
Industry observers say, however, that it will be impossible to keep tariffs at their current levels for long. Says one observer, "Tariffs are not going to come down soon."
According to sources, "it costs Umeme about 25 US cents for every unit of thermal power or higher depending on the price of oil… When Bujagali I was initiated at $380 million, it was estimated that the total cost to the distributors would be 14 US cents. It is, therefore, unreasonable to think that Bujagali II, budgeted at over $750 million, would have anything lower."
"So where is the price reduction going to come from?"
Mare is, however, confident that prices will stabilise after Bujagali has been completed and commissioned in 2011.