With only 8% access to electricity and 75% of subsidies going to big businesses, why are MPs supporting subsidies?
Last week, a parliament committee passed
a resolution cancelling the increase in electricity tariffs. Many
Ugandans genuinely believe that in many of its actions, the 9th
parliament is driven by a genuine desire to serve the public good. Yet
many of its interventions are driven by ill-informed populism, blatant
ignorance and/or obvious self-interest.
Indeed, 60 percent of electricity in
Uganda is consumed by the top 2,000 large and medium scale enterprises
dominated by high profit earning multinational corporations. These pay
only 18 percent of the electricity price – 82 percent is paid for them
by the government. This means that over 76 percent of the total
subsidies benefit these 2,000 companies. In money terms, of the Shs 560
billion to be paid in subsidies this year, the group of 2,00 companies
will take Shs 430 billion. The remaining 24 percent will be shared by
small enterprises and “domestic” i.e. households (who pay 38 percent of
the electricity tariff).
Over 70 percent of domestic electricity
is consumed by the top 20 percent high income earners who use washing
machines, driers, freezers, garden lighting, water heaters, music
stereos, refrigerators etc. These are the households who can afford to
pay the full tariff. Why do MPs representing rural constituencies with
poor voters with no access to electricity support retention of subsidies
that benefit a few fat money cats in Kampala? Well, the MPs belong to
this class of upper income Ugandans; so they have interests at variance
with those of their constituents.
In 2011, government paid subsidies to
Hima Cement worth Shs 70 billion. Now assume a poor household in Uganda
who consume about 80 units per month and pay an electricity bill of Shs
25,000.The subsidy to Hima was enough to light the homes of 233,000 of
these poor Ugandans. Is Hima more important than these people? Perhaps
yes. However, our MPs must demonstrate this to justify the retention of
the subsidies.
If Hima paid the full tariff and
transferred it to the price of cement, each bag would go up by Shs
4,000. Would that destroy the cement industry in Uganda? Possibly, given
that Kenyan cement arrives in Kampala at Shs 28,000 while that of Hima
is at Shs 27,000. However, are there no efficiencies Hima can create to
compensate for this increase in its price? Are there no alternative
incentives that can be given to Hima to remain price competitive in the
event of such tariff increase? Is it possible that this Shs 70 billion
in electricity subsidies is actually the one that is blinding Hima from
innovating strategies that can make it more competitive?
The above questions need to be debated.
When one company gets subsidies to the tune of Shs 70 billion, more than
the budgets of many ministries in Uganda, then something is badly
wrong. I have demonstrated that most of the companies benefiting from
these subsidies – telecoms, banks, hotels etc do not need or deserve
them. They don’t even need to increase their rates. They can bill the
actual tariff on their profit and loss accounts and still remain highly
profitable with a good rate of return.
Instead of defending the interests of
their poor constituents, MPs defend their own interests and in the
process, let big companies run away with billions. The situation is made
worse by the mass media and civil society in Uganda. Most journalists
and civil society pundits who write in the newspapers or feature in
radio and television debates are beneficiaries of these tariffs. They
earn more than Shs 1.5m per month – so they are not poor. They have
appropriated their access to the platforms of popular expression to
defend their privileges – and that is what these subsidies are;
privileges.
Public debate has thus been consumed by
the condemnation of Umeme, the company that distributes electricity.
Consumers may be rightly angry with it because of its complicated
billing system and customer relations. Yet I find most of the
allegations against Umeme illogical. For example, many Ugandans think
electricity subsidies are paid to Umeme. Yet actually they are paid to
those who generate thermal electricity but the ultimate beneficiary is
the consumer.
Many Ugandans blame Umeme for
load-shading. Yet the utility does not produce electricity. It only
distributes it to our homes and businesses and gets paid a percentage on
each unit of electricity it sells. Load-shading is caused by the
mismatch between the electricity Uganda produces and the amount Ugandans
are able to buy at existing prices. Every time Umeme load-shades
someone’s factory, office or home, it loses income; so load-shading is
not in its interest.
There are two ways to end load-shading.
In the short term, government can remove regulation of tariffs and allow
prices to sky rocket. Under this free market system, only those who can
afford it at an exorbitant price will remain on the grid. Apparently,
this may not be politically tolerable or socially desirable. So the
second option is to remove subsidies and allow the tariff to reflect the
actual cost of producing electricity i.e. Shs 1,000 per unit. This may
force many people to use power sparingly and/or invest in alternative
sources of electricity like solar.
Yet the real issue behind the current
hullabaloo about Umeme is that it has been planning to list on the stock
market. I know a company with powerful political backers that wants to
take over Umeme at below basement prices. Then it would list on the
stock exchange and make billions on the cheap. The ambitions of this
company are currently being helped by Umeme’s disastrous public
relations, media and parliamentary ignorance and self interest, and a
distorted system of democratic expression that panders to the interests
of elites.
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