UMEME AND THE IMPORTANCE OF THE RIVER

Last week power distribution company Umeme released its report ahead of its Annual General Meeting (AGM) at the end of this month.

We already know that while Umeme revenues crossed the two trillion shilling mark -- one of only two companies, with telecom company MTN being the other, to ever cross that mark in the history of Uganda, profits were down 92 percent. The plunge in profit was as a result of provisions made ahead of the eventual end of the company’s 20 year concession.

Umeme took over the running of the distribution arm of the former Uganda electricity (UEB), which prior to privatization was split into the distribution, transmission and generation arms.

"At the start of the Umeme concession UEB was generating 180 MW, was losing half that power through technical and commercial losses and barely managed to collect payment for 60 percent of the power billed for, which in 2005 was sh160b...

The major reason UEB was privatized and the sector was liberalized was, to attract new investment into the sector. The government at the time had maxed out on its borrowing limits, revenues were low and yet for the economy, to have a realistic chance of recovering, a more efficient power sector was required yesterday.

I hear some people arguing that the opening up of the power sector has seen foreign interest expropriate millions of dollars during the last 20 years, but they forget to mention that in order to earn those millions of dollars, hundreds of millions of dollars had to be invested in the sector first.

In Umeme’s case the company has invested $832m or about sh3trillion at today’s prices. This investment financed the extension of the grid and has seen Umeme customers grow ten-fold from 200,000 when the concession begun to about two million at the end of last year.

It helps too that generation capacity has jumped similary to 1,847MW, with 700MW of this due to the private sector. It can be argued too that the financing of Karuma and Isimba dams by government would not have been possible if the power tariff had not risen to a point where it made sense for private investment.

Government’s stated reason for winding down the concessions is because the private players are not allowing it to meet its stated aim of selling power at US5cents a unit.

As part of the concession agreements the private investors negotiated a return on investment and for government to pay for power even if it is not consumed, these invariably pushed up the tarriff but was the cost of unlocking the investment needed in the sector.

So government in a bid to force the tariff down have decided to do away with the private players. Which is within its right.

But the situations that led to the unbundling of the UEB – a need for continuous massive investment in the sector still prevail.

"UEB was not unbundled for lack of demand, as the two million customers signed to the grid will attest. UEB was not unbundled because the people running it were incompetent, electrical engineers at least in those days, were the brightest engineers around....

The power sector was privatised primarily because we did not have the funds to invest in it. Has that changed today? No.

The reason there is a cash squeeze in the economy is because we are not collecting enough revenue to finance our budget and the donors who are supposed to carry the deficit seem to be slow or are unwilling to live up to their commitments.

So where will the money come from to continue with the investment program Umeme has been carrying out for the last 20 years?

The naysayers will argue that Umeme is a going concern and therefore should have no problem sourcing more finance for new developments. The ability of Umeme to source new funds was premised among other things, on the credibility of the concession agreement they were working under. Lending to the government will be another story.

And because the investments to the sector are by nature very big, they will increase our debt burden as a country. The same people who have criticized Umeme will be complaining that government is borrowing too much.

As Justice minister Nobert Mao said last week, when people make decisions there are often the stated reason and the real reason. The real reason for not renewing the Umeme concession will be revealed with time.

But in the meantime the importance of the river will not be known until it dries up.

 

TO TAX OR NOT TO TAX, THAT IS THE QUESTION?

The recent Kikuubo strike – Kikuubo because in the suburbs it was barely felt, has put the issue of taxes top of mind in the last few weeks.

When I heard the presentations of the striking shop owners to President Yoweri Museveni, it was clear that the more things change the more things remain the same. It was 1997 all over again d,uring the VAT strike. In very many words the traders were saying please don’t tax us, tax others.

According to National Social Security Fund (NSSF) there are about 11 million in the workforce but only about two million of these contribute to the Fund. And of these less than half or about 800,000 are active members.

These are the tax payers who contribute the highest amount of any single tax head, in all the revenue collected in this country. According to official figures in the six months to January, Pay As You Earn (PAYE) accounted for sh2.7trillion of the sh15.5trillion in revenues collected during the period. The second highest collections were registered in VAT, sh2.6trillion.

"Workers of Uganda paid more than twice in taxes than all the companies paid on their profits – sh1.1trillion.

Is there any wonder there was little sympathy for Kikuubo from from this country’s major tax payers – the workers in formal employment?

Nobody wants to pay taxes and so it was no surprise that some argue that if government put their taxes to better use they would be more willing to pay. Recent revelations of wastage and corruption in public offices helped to further this argument.

While government has made questionable decisions on public expenditure, the fact that too few of us are paying taxes means there is only so much government can do. Also because we are a “democracy” government is running around trying to appease every constituency, in the process doing too little of everything and not enough on anything.

As an example with a planned budget of Sh60 trillion and a population of about 50 million that means government has earmarked sh1.2m per Ugandan. And even then they are stretching, because URA is expected to collect about a half of that with the rest coming from donors.

So this sh1.2m per Ugandan is going to cater for security, infrastructure development, education, health and any number of the hundreds of programs budgeted for.

If you have not realized it already, we are dealing with pitiful sums before you factor in corruption and government running around like a headless chicken appeasing the latest loudmouth of the month.

How do our neighbours and others further afield measure up?

In Kenya with a budget of sh104trillion each citizen’s share of the budget is about sh2m. In South Africa each citizen’s share is sh7.35m, even with their gross inequalities. A more equitable society, Denmark budgets sh9.5m for each of its citizens.

But if you drill down into the nitty gritty of our budget, government has earmarked sh4.5trillion for education, sports and skills or about sh90,000 per Ugandan. For arguments sake let us say there are about 12 million students – 10  million in primary and secondary and the rest in tertiary institutions, who  will benefit from this money, it still comes to sh375,000.  This includes teacher’s salaries and funds for building new classrooms, labs and stadiums.

"In health where there is less guess work, sh4.2trillion are the funds available or sh84,000 per Ugandan!

There is no justification for corruption and even less so in a country with such meagre resources. Corruption in our case is beyond criminal.

While we might harangue government about how it is being wasteful, it is arguable that with even the best intentions, they still wouldn’t be able to do much. But it is also arguable that, if they did the best they could with what they had, we would all feel as if the challenges are shared pain. As it is now when we see public officials living a lifestyle way above their known incomes, the rest of us begin to believe that we are in this alone and that services are inadequate because of our greedy public servants.

It is is not a difficult argument to make that those of us who are paying taxes, there is very little scope if any, for introducing new taxes, however there are a whole multitude out there who are not carrying their weight, that URA needs to ferret out.

Hence the case for widening the tax base rather than squeezing even more, from those who are already paying taxes.

My two cents of how this can be done? Tax all the land and reintroduce graduated tax...

The former will force us all to put our lands to better use or lease/ sell them to those who can. With one sweep, we would increase tax collections and increase national productivity.

The critics of graduated tax complain that it is too costly to collect, we would not be reintroducing it to raise revenues but to ensure all those ludo and pool playing youth in our trading centers can go out and find more meaningful employment.

Donors holding out on their pledges of aid, should be a reminder that we need to make hay while the sun shines. Because we will not always agree with our donor friends, they will be forever tempted to drag us back in line by turning off the taps and force our compliance.

"Any independent nation worth its salt should be working day and night to get out from under the donor’s boot...