African Continent in the Dark

Continent in the Dark

The Monitor (Kampala)
NEWS
29 January 2008
Posted to the web 28 January 2008
Kampala
THE signing of a 92 million euro ($136 million) loan from the European Investment Bank (EIB), last week, to finance the construction of the 250 megawatt Bujagali hydro-electric power project is a shot in the arm for Uganda’s efforts to attract increased direct foreign investments.

This project, slated for completion in 2011, gives Uganda an edge over Africa’s economic powerhouse, South Africa, which is reeling from continued daily power cuts following generation and other operational problems at Eskom, the country’s power company. Eskom generates 95 per cent of the electricity used in South Africa.

(shortage of) power to neighbouring countries because of acute domestic shortages. Zimbabwe, which imports about 40 per cent of its electricity from South Africa, and Mozambique are the worst affected.

Eskom Enterprises has operations on the African continent with its head office being located in Johannesburg, South Africa, and other offices in Uganda, Nigeria and Mali.

Although the power cuts have affected the whole country, the commercial capital, Johannesburg, has been worst hit and Eskom says it would be foolhardy to attract major industrial projects until the situation has been resolved by the middle of next decade.

Eskom’s finance director, Bongani Nqwababa, was quoted by Business Day last week as saying “it is a question of supply and demand. It would be irresponsible now to aggressively pursue energy-intensive businesses.”

Investments

Though these may not be the kind of businesses that the Ugandan Investment Authority (UIA) is gunning for at the present stage of the country’s industrial development, there can be little doubt that there are plenty of other related investments that UIA can pick up as a result of the crisis in South Africa.

Small and Medium sized businesses (SMEs) have been hit hardest by the power cuts with dozens forced to shut and more closures expected if the crisis continues, says South Africa’s black business umbrella body, the National African Federated Chamber of Commerce and Industry (NAFCOC).

Nafcoc President Buhie Mthethwa says the body, which has 300000 members, will approach the government soon with requests for compensation for small enterprises which had lost perishable goods during the blackouts and cannot afford to buy generators to protect their remaining stocks.

Dozens of Nafcoc members, who represent black, coloured and Indian enterprises, are forced out of business by the chronic power outages which add to problems they already face from rising interest rates and restricted access to credit.

Growth in the economy has steadily accelerated since democracy was introduced in 1994 and the government wants to boost the pace to a sustainable rate of 6 per cent from 5.4 per cent in 2006 -a 25-year peak. It also aims to halve unemployment and poverty by 2014.

But now, there is mounting concern that power shortages will put more constraints on a growth rate hampered by a global slow-down as well as higher interest rates.

Credit Guarantee economist Luke Doig says the impact of the power cuts will lead to an escalation in liquidations and debt insolvencies. It will hit Small and Medium-scale Enterprises (SMEs) hard as they didn’t have many resources.

Jeff Osborne, the chief executive officer of Retail Motor Industry Organisation, says power shortages were hitting used car dealers, petrol stations, motor mechanics and panel beaters, which were mainly SME).

These are the same mid-term, long-term knock-on problems Uganda is attempting to avoid or mitigate with the construction of the Bujagali power project; problems that its detractors seem oblivious to.

According to an economic and financial evaluation study carried out three years ago by an independent consulting firm Power Planning Associates Limited (UK), Uganda’s electricity demand is expected to grow by 7.6 per cent per year on average between 2005 and 2020.

To help meet this demand, between 2006 and 2010, Uganda is expected to lease and commission 150 MW of oil fueled power generation as well as some generation from bagasse, a sugar-cane derivative used for renewable power generation, and from small hydro-power plants.

Private generation

Last week’s announcement that Electro- Maxx, an indigenous private power company, will start producing 10 megawatts (MW) of thermal power by June this year is part of the planned exercise to add capacity to Uganda’s power sector.

Electro-Maxx was granted a power generating licence from the Uganda Electricity Authority (ERA). ERA’s decision was communicated in a letter to the company dated January 21 following public hearings last December in Tororo where local leaders and the community gave the project the go ahead.

The $32 million project to be erected at the Tororo power substation will use Heavy Fuel Oil (HFO). And is expected to feed into the national grid.

A power purchase agreement has been executed between Electro-Maxx and the Uganda Electricity Transmission Company to supply power for 18 hours daily.

According to ERA, heavy-fuel oil is much cheaper than light diesel oil and Electro-Maxx will not require additional subsidies.

The government currently pays out billions of shillings in subsidizing expensive power to consumers.

Uganda’s current power demand is estimated at 380 MW while the maximum supply capacity stands at 251MW leaving a gap of about 129 MW.

“The 10 MW heavy-fuel project by Electro-Maxx is therefore highly needed to contribute towards reduction of the current deficit,” ERA said.

Currently, Uganda has a thermal installed capacity of 100 MW but it’s all generated through burning of diesel whose price has continued to rise.

Electro-Maxx chairman Patrick Bitature said the company would later apply to double or triple its capacity.

The plant was originally planned to be built in Mbarara but was shifted to Tororo to lower the cost of fuel transportation through Kenya.

Bujagali

The power supply generated from Bujagali would also enable 50-100 MW of expensive oil fueled thermal generation capacity to be retired. It is also expected that the commissioning of Bujagali in 2011 would help reduce the average cost of supply to end-users by up to 10 per cent compared to prevailing prices in constant terms.

The study found that the commissioning of Bujagali will have a small but positive impact on economic growth, balance of payments and the fiscal balance.

Uganda’s workforce is expected to double over the next 15 years, making the creation of jobs through expanded industry, tourism, and commercial services critical.