Unfair Clauses: Gov’t To Painfully Pay Shs110bn For Unconsumed Electricity

Uganda’s  cumulative outstanding amount of deemed energy (unconsumed electricity) stands at Shs110.79bn as at 30th June, 2020, the Auditor General has revealed.

In his February 2021 report to Parliament, the Auditor General,  John Muwanga warns that the debt is unsustainable and may cause a significant strain on government resources if not passed through the tariff system.

The report notes  that deemed energy charged through the tariff negatively impacts consumer prices, which may be a hindrance to electricity demand.

Government signed several Power Purchase Agreements (PPAs) between the Independent Power Producers (IPPs), GOU, and Uganda Electricity Transmission Company Limited (UETCL), where Government committed to construct power evacuation infrastructure from the IPPs generation facilities to the distribution network upon commencement of generation of power by IPPs.

In the said agreements,  UETCL has  to make payments to IPPs for the unconsumed Energy. 

The Auditor General has blamed Government for the increasing unconsumed electricity bill, noting that the Regulator has not allowed these payments to pass through the tariff system nor has it pronounced itself on their settlement.

Government however attributed the cause of deemed energy  to lack of demand in the local areas and weak distribution infrastructure to evacuate the excess energy from the embedded power generators to load centers.

UETCL told Auditors that the issue will be dealt with upon Government’s move to extend power to the national grid to some of the areas like Mbale, Kabale, Northern Uganda and Western Uganda to stimulate demand and also evacuate excess energy from the existing and upcoming mini-hydro power plants;

They also added that there is a policy direction to stop the inclusion of deemed energy clauses in the new Power Purchase Agreements.

 “I await the outcome of these interventions. In the meantime, I advised Management at Ministry of Energy and UETCL to liaise with the relevant stakeholders such as Ministry of Finance and Development Partners to ensure that adequate funds are provided for construction of appropriate transmission infrastructure to evacuate any amount of power generated. In addition, the deemed energy liability incurred should be settled without further delay,” Muwanga said.

 The audit report cited deemed energy payments to Achwa River Energy Project that hit Shs64.69bn for which, only Shs10.33bn was released by Ministry of Finance leaving unpaid claims of Shs54.36bn.

These claims from the Aswa project are also as a result of the inadequate transmission infrastructure to evacuate the power from the dam because the evacuation lines, though financed under the project, have not been completed due to delayed payments of Project Affected persons due to either inadequate funding or unsettled compensation disputes in court.

The Audit report further revealed that UETCL incurred deemed energy payments amounting to USD.5,964,592.18 about Shs22.2bn and USD.6,425,017.89 equivalent to Shs23.9bn in 2019 and 2020, respectively.

These payments were attributed to inadequate transmission infrastructure, line outages and insufficient demand in some instances.

“The deemed energy liabilities/payments amounting to Shs46.1bn at UETCL as at 30th June, 2020 are unsustainable and cause a significant strain on Government resources. In addition, deemed energy charged through the tariff negatively impacts on consumer electricity prices, which may be a hindrance to electricity demand, thus slowing economic growth,” Muwanga said.

According to Government, the deemed energy clause in power purchase agreements was initiated when Government had no sufficient power generation capacity to meet the demand.

The initiative was intended to attract investors in the electricity sub sector. However, Government has since transitioned from generation deficit to generation surplus, and therefore, the deemed energy clause has been removed from new power purchase agreements signed between UETCL and Power generation developers.

It should be recalled that in September 2020, Parliament rejected Government’s proposal to construct a 360MW hydro-power dam at Uhuru Falls in Murchison Falls National Park, saying Uganda is already paying for unconsumed electricity generated, so there is no need to endanger the tourism site for another hydro-dam.