Wednesday, February 18, 2009

A nation in the dark

The history of Uganda's power sector is short and uneventful. In 1954 the British dammed the Nile just out of Lake Victoria and built the Owen Falls hydro power plant and a transmission grid stretching to the main population centers. Half a century later the only major addition to the power net is a few additional turbines in the Owen Falls dam and a couple of small scale hydro plants, but mostly the utilities infrastructure remains much the same – what does not remain the same is Uganda's population: It was 5.7 million in 1954 and it's now 31.5 million!

Uganda's total power production in 2006 was a measly 1.2 billion kWh, or 38 kWh per person. Norway's in contrast was 135 bn kWh, or 28,723 KWh per person – or 754 times that of Uganda! Needless to say there are a couple of implications of this obvious shortage of power.

(The Owen Falls dam on the Nile)

Power cuts – the cost of doing business

The frequent power cuts and power shortage is often referred to as one part of "the cost of doing business" [in Uganda]. Say you operated a factory for 10 hours a day with machines running on external electricity. If power is out 2 hours a day on average – then your production will be down 20% on average. In reality it's more than that, as the timing and length of the cuts will vary, not allowing you to plan properly; staff will be out drinking tea and will need time to get back in position; etc. Those are the direct problems. The indirect ones includes everything that hits you through other services – banks, telecom companies suppliers and customers are all affected by power cuts – so your transfers will be late, your calls will be cut off, your customers will not get their emails. The total cost to your business is incalculable.

Most factories, hotels and serious business cannot afford daily power cuts; hence they all have on-site diesel generators, as a consequence Kampala is full of humming and exhausts spewing generators of various sizes. Indeed, a full blown diesel fired power plant has recently been commissioned – at 50 MW and consuming thousands of barrels a day it makes Eastern European dirty coal plants look like a Greenpeace invention. In fairness though, the people of Uganda produces very low emissions per capita.

So with the enormous problems created by the lack of power, why hasn’t more been installed? The cost to the economy is surely astronomical. From an investor point of view, putting up power plants involves very high upfront construction costs followed by a steady stream of cash flows over the next 15-20 from the buyer of your power - usually the government. Unless you know with near certainty that the government will continue purchasing the power you are producing in the long term, the investment is ludicrous. Uganda as a sovereign entity is defacto bankrupt with 40% of its annual national government budget coming from direct aid transfers from the Nordic countries, the UK, Ireland and the World Bank. Put another way, there is no reliable buyer of power. Uganda's struggling businesses will remain in the dark until one shows up.
Peder Hanssen

No comments:

Post a Comment