Why merging Uganda’s electrical energy sector businesses is a foul thought

Early in 2021, the federal government of Uganda authorized a two-year plan to streamline state-run businesses for higher effectivity. The primary section of the merger focused 77 businesses underneath 18 ministries. By the point parliament put the programme on maintain months later, 69 of those businesses had been merged.

Parliament stepped in as a result of the federal government sidestepped the legislation and will face court docket challenges. However the programme continues to be on the playing cards as soon as key points are resolved. These embrace amendments to legal guidelines governing vitality businesses and provision of monetary compensation to affected events and employees.

The push to reorganise state-owned enterprises could be traced again to a 2017 overview. A ensuing authorities report advisable “blanket” mergers throughout all ministries, departments and businesses. The intention was to avoid wasting prices and take care of

jurisdictional ambiguities, inefficiencies, obscurity in accountability, efficiency gaps, insufficient manpower and wastage of assets.

The report gave three causes for merging entities within the vitality sector. One was to align coverage and legal guidelines. One other was to deal with photo voltaic vitality quite than pricey hydro-power initiatives. The third was to take a look at utilizing geothermal vitality.

Uganda’s Public Service Ministry recommends merging three separate corporations charged with electrical energy technology, transmission and distribution into one state owned firm. A fourth, the Rural Electrification Company, can be positioned instantly underneath the Ministry of Power.

This is able to set the nation again 20 years to the times of a single entity, the Uganda Electrical energy Board. Again then, the vitality sector was marred by political interference in tariff-setting, funding choices and personnel. The sector was additionally dogged by big unpaid payments. Put merely, the only utility was dysfunctional, ailing, and bancrupt.

The board was damaged up in 2001. The brand new construction sought to take away state subsidies and appeal to non-public funding. This goal has largely been achieved.

Merging electrical energy businesses once more now will probably resurrect previous inefficiencies. It should additionally undo features realised since 2001. The features embrace decreased danger for potential buyers in technology, transmission and distribution.

I’ve studied Uganda’s vitality sector for the previous 10 years. This included analysis for my just lately accomplished PhD analysis underneath the Energy Futures Lab. My analysis sought to grasp structural, governance and regulatory incentives for improved electrical energy utilities in East Africa.

My view is that the merger of electrical energy sector businesses in Uganda needs to be stopped. It’s because it might enhance regulatory and funding dangers. As a substitute, Uganda ought to deal with bettering the administration of state enterprises and incentives for higher efficiencies.

The case for unbundling

The rationale for separating market segments – or unbundling – is that some elements of the electrical energy worth chain are open to competitors. That is true of electrical energy technology. Nonetheless, transmission and distribution are typically a pure monopoly.

The retail side of distribution can also be probably aggressive. That’s, merchants or sellers of electrical energy could compete for patrons.

Separating the market segments guards in opposition to cross-subsidisation between competing and controlled companies. It additionally avoids conflicts of curiosity, which may come up when a single utility has a couple of perform. For instance, a transmission firm that additionally generates energy might give itself entry to the grid forward of competing producers.

Unbundling additionally permits for higher competitors as new gamers are allowed into the market. It may enhance effectivity, innovation and administration of dangers. When corporations compete for shoppers, there’s stress to maintain prices low and enhance service high quality.

Proof additionally reveals that managers in built-in state-owned enterprises may deal with what politicians need, quite than on firm effectivity. Unbundling due to this fact helps to restrict political affect.

New alternatives within the vitality sector are underpinned by low-cost renewables and speedy technological innovation. To develop the sector, Uganda wants each private and non-private sector capital. Combining businesses might put buyers off from financing infrastructure growth.

Enhancements after unbundling

An evaluation of present knowledge from Uganda’s electrical energy distribution firm – in opposition to common reviews from the earlier period – reveals that Uganda’s energy sector is in significantly better form than earlier than. There’s a important enhance in technology capability, the variety of energy producers, monetary viability, shopper connections and relative reliability.

Structural and governance reforms offered house for market-oriented possession, administration, regulation and incentives. This helped to enhance the adequacy, effectivity and monetary sustainability of provide. A current World Financial institution examine recognized Uganda’s electrical energy sector as one in every of solely two in Africa – together with Seychelles – with financially viable distribution utilities. That is key in attracting buyers.

Progress in electrical energy entry, reliability and affordability is disappointing, although. This may be defined by the poor state of infrastructure of the Nineteen Eighties and Nineteen Nineties as a result of civil wars. Added to this are coverage trade-offs made within the 2000s to appeal to funding in technology growth and obtain monetary viability.

Uganda has subsequently been in a position to appeal to the second highest variety of impartial energy producers (38) in sub-Saharan Africa. It is usually on a secure path to making sure vitality safety, with present put in capability of 1,237MW and peak demand of 724MW.

That is partly due to elevated transparency, competitors and monetary viability – which inspired impartial energy producers such because the 250MW Bujjagali and over 16 renewable energy initiatives.

Gaps stay in electrification charges and provide reliability. However these are points that require focused coverage options and incentives quite than structural rebuilding. Entry to electrical energy is a social goal that requires a social coverage. It may solely be funded utilizing a mix of public subsidies and revolutionary non-public funding.

The worldwide energy sector is experiencing a brand new wave of reforms. Improvements in disruptive expertise and enterprise fashions are making it attainable to supply clear, low-cost vitality. At such a time, merging or re-bundling vitality businesses can be disastrous. It will dissuade non-public funding within the sector, the spine of an financial system aspiring to achieve decrease middle-income standing.

Related posts