Inside the Shs1.7Tn power companies’ applications to ERA to Set End-User Tariffs

by Christopher Kiiza
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Power regulator, the Electricity Regulatory Authority (ERA) which is mandated to establish electricity tariff structure, investigate tariff charges, approve rates of charges and terms and conditions of electricity services, has received tariff applications for the year 2024 from the licensed four power companies; Uganda Electricity Generation Company Limited (UEGCL), Uganda Electricity Distribution Company Limited (UEDCL), Uganda Electricity Transmission Company Limited (UETCL) and Umeme for review.

The power companies’ tariff applications which contain revenue requirements for 2024 totaling over 1.77 trillion shillings, will among others be considered by ERA to set the electricity end-user tariffs for 2024.

The companies are responsible for generation, transmission, distribution, and sell of Uganda’s electricity.

For UEGCL, the application is for generation, operation, maintenance costs (GOMC) amounting to 30.312 billion shillings, and 80.4 billion for capital investment.

UEGCL’s Chief Finance Officer, Susan Taffumba Isubikalu breaks down the 30.312 billion shillings for GOMC costs which she says has already been approved by the regulator.

“In terms of budget estimates for Nalubaale – Kiira [hydropower complex], we have a budget for the GOMC costs. This was already approved by ERA. The initial approval we had was 27.7 billion, and then we had a request for a modification of 2.14 billion giving us a total request of 29.9 billion. The modification has already been approved by ERA, so, we consider that already a done deal. We had additional requests on top of the 2.14 billion for the ICT licenses to a tune of 200.1 million. The focus is going to be on automation in terms of digitization. So, we want to try and improve our processes and ensure that they are also ably paid for in terms of licenses. The other issue that we had applied for is the performance incentive totaling to about 172.8 million thereby giving our total GOMC costs in terms of what ERA has approve, being 30.312 billion,” she explains.

On the other hand, the key drivers in the UEGCL’s 80.4 billion capital investment application, is to acquire a floating boom and a weed harvester to prevent the disruptive effects and impacts of floating islands on the operations of Nalubaale – Kiira power generation complex that was operated by Eskom Uganda Limited for 20 years until early this year when Eskom handed the complex to UEGCL Following the end of its concession.

“For the focus on investments, we made an initial request of 13.7 billion shillings, but we went ahead to make an additional request for two components; one of them being that we had challenges when we went to the market to do the assessments in terms of what we need to incur to procure these investments, we realized that there were price variations. What we had budgeted for initially would not be sufficient to cover these costs.

So, we had to make additional request of USD478,401 purely surrounding around the variations in price. We had an additional 7.2-million-dollar request. This came in later because of the challenges, the major one being the fact that we need to consider procuring a floating boom and weed harvester because of the floating islands arising out of the rising water levels. This was not envisaged at the time we were making initial application, but with this growing challenge, we realized that we need to have this onboard to have a permanent solution to be able to mitigate the challenge. So, the total of our investment plan comes to 21.4 million dollars (80.4 billion shillings).” Says Taffumba.

It is noteworthy that in 2020, a floating island invaded Nalubaale – Kiira power generation complex causing power blackouts across the country.

For UETCL, the application is for a revenue requirement for energy purchase costs of 1.43 trillion shillings, 96 billion for investments, and the consultancy budget of 6.1 billion shillings, and a proposed Bulk Supply Tariff (BST) of 248.66 shillings per kWh.

UETCL’s key drivers include; the need to increase grid coverage and reinforce the existing grid, meeting increase demand which necessitates the construction of new lines, upgrade of the existing infrastructure, and increasing the transformation capacity, reduction of transmission losses, and implementation of various interventions to curb vandalism.

UETCL’s acting head, commercial, Jenkins Miiro says the company’s key focus areas in its application include; leveraging technology to curb vandalism, safety and security of UETCL installation, improving supply reliability, reducing losses and organizational and operational efficiency.

UETCL looks forward to piloting tower protection systems to curb vandalism, install mono poles in vandalism prone areas, procure emergency restoration towers to quicken the response time in case of tower collapse among others.

Vandalism of electricity infrastructure especially transmission towers remains a major impediment to delivering quality and reliable power supply, increases power project development costs, frustrates efforts to expand the grid and accelerate access to electricity services for all Ugandans, and has overall effects on the economy. This, among other reasons, compelled government to amend the electricity law to hand severe penalties to electricity vandals.

The Electricity (Amendment) Act 2022 prescribes a 12-year jail sentence or a fine of 50,000 currency points (Shs 1 billion) for a vandal or anyone who receives vandalized electricity equipment, and 15 years of imprisonment or 100,000 currency points (Shs 2 billion) or both for repeated violations.

Some of the recent transmission lines that were vandalized causing extensive power blackouts include; the 132Kv Owen Falls – Lugogo transmission line. The blackouts heavily affected businesses whose power is supplied by the affected line.

On average, UETCL spends over 2 billion shillings annually to replace vandalized power lines.

Vandalism necessitates repairs and replacements of damaged equipment, significantly increasing operational costs for utilities. These costs can be passed on to the consumers through higher electricity tariffs.

Deemed Energy

UETCL – a fully owned government company, is mandated to purchase electricity in bulk from generation companies and sell it to distribution companies across Uganda.

However, the company has been criticized for failure to transmit generated power leading to deemed energy and huge costs incurred by the tax payer.

Deemed energy refers to electricity that is generated but cannot be delivered to consumers due to various limitations, including; nonexistent or inadequate grid infrastructure (no transmission lines).

For instance, government pays a significant amount for deemed energy generated by the Achwa hydropower plant due to insufficient grid infrastructure to evacuate the electricity.

It has been reported that government has been paying 24 million dollars in deemed energy annually since 2019 until November 2023 when a transmission line from the Achwa hydropower plant was commissioned.

In response, Miiro says that in some situations, the investor moves faster than UETCL, and completes the project before completion of the evacuation lines.

He adds that UETCL takes a lot of time to settle compensation of the project affected persons causing the delay in completion of the evacuation lines.

“But the good news is that, that power [from Achwa hydropower plant is now evacuated],” said Miiro.

Meanwhile, for UEDCL, the overall budget application is 49.9 billion shillings, and the key drivers for this are; provision for 11 additional staff, impacting on all staff direct and direct costs, concession monitoring (the scope is expected to increase in readiness for the expiry of Umeme concession), ICT enhancement to improve operational efficiency among others.

For Umeme Limited, the overall, revenue requirement is 85.5 billion shillings. This is to recover costs of operating and investing in the distribution system.

The proposed distribution price is ugx 203.9 kWh. The Umeme Managing Director Selestino Babungi says the key drivers for this is that the distribution requirement is meant to ensure adequacy in resources for Umeme to execute its mandate while meeting its obligations to various stakeholders.

Umeme also emphasizes that its under legal obligation to continue executing and delivering on its obligations under the licenses and other agreements until the last day of the concession.

The tariff applications submitted to ERA for review by all the four power companies will help the Authority in determining the electricity end-user tariffs for 2024.

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