Public-private partnerships in Uganda cost the country dearly

Read our 6-page briefing in full: ‘Public-private partnerships and the financial cost to governments: Case study on the power sector in Uganda’

Privatisation of the Ugandan electricity sector, initiated in 1999 as a condition of the debt relief programme, was supposed to mean the end of state support. Yet, by 2013 a special committee of the Ugandan Parliament reported that subsidies were higher than ever before, preventing the government supporting critical development programmes. Between 2005 and 2012 the government had paid out subsidies totalling $600m to the privatised companies, alongside nearly $300m in rebates for ‘losses’ under their deal with the new electricity distribution company.

Kampala, capital of Uganda / Nielsr
Kampala, capital of Uganda / Nielsr

In the early 2000s two major Public Private Partnerships (PPPs) with foreign companies arose from the IMF/World Bank sponsored ‘liberalisation’ of the Ugandan electricity sector: a 20-year concession to run the distribution network, delivering electricity to the end consumer, and a 30-year Build, Operate and Transfer contract for a new hydro-electric plant at Bujagali Falls on the river Nile.

Astonishingly, the ‘private’ company created to run Uganda’s electricity distribution sector, Umeme, was actually owned by the UK government and has been accused of defrauding the Ugandan government of hundreds of millions of dollars by overstating losses, for which it is compensated by the Ugandan government under the PPP deal, as well as massively increasing charges to consumers.

Domestic electricity consumers in Uganda are now burdened with a tariff of 18.5 US cents for 2015, compared to an average in Sub-Saharan African countries of just 13 US cents. In addition, from 2005 to 2012 the Ugandan government was forced to subsidise energy costs to the tune of more than $100m each year.

As a result the Ugandan parliament has voted to support the recommendation of a report from president Museveni’s special advisor that the PPP concession with Umeme be terminated.

The other PPP scheme, at Bujagali Falls, faced stiff opposition from local and international NGOs from the outset and the World Bank’s investigation unit found that its own lending policies had been violated. After spending $150m on the project, it was finally abandoned as the main contractor became implicated in the Enron corruption scandal and World Bank support was withdrawn when fraudulent payments by a subsidiary contractor were uncovered by the US Justice Department.

However the project was resurrected under a further PPP scheme, funded partly through the European Investment Bank. This scheme suffered from similar problems but was nevertheless completed in 2012 by Bujagali Energy Limited (BEL). But spiralling costs have made this one of the most expensive large dam projects in the world, with prices for electricity produced some 80% higher than the globally accepted level for hydro-generation and creating potentially serious financial risks to the Ugandan government.

An independent report has now called for nationalisation of the hydro-plant to bring an end to the damagingly high cost to Ugandan businesses and household consumers. In March this year the East African reported that this proposal was being actively considered by the government owned Ugandan Electricity Generation Company.

Since PPPs were introduced nearly $1 billion in subsidies and compensation for ‘losses’ has been paid out to the private electricity companies and Ugandan consumers have been forced to pay some of the highest charges in Africa. And, if suspicions about even greater cost overruns and overestimated generation capacity at Bujagali prove true, the Ugandan government could be exposed to further big pay outs to cover future losses.

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