The best way to improve service delivery in Uganda is to concession most of it to the private sector
Since 1995
the government of Uganda has been trying to build a hydro-power dam at
Karuma. Attempts to get a private company to do the work ended in
futile debates with international donors and local politicians. Then
the government decided to build a 600MW hydro electricity dam at Karuma
at a cost of US$ 1.2 billion itself. A committee comprising officials
from the ministries of finance, energy and environment evaluated three
companies; China Water and Electric Corporation (CWEC), Synohydro Corp,
a private Chinese company, and an Iranian company Perlite Construction
out of the six companies that bided for the contract. CWEC won.
There are
many institutions in Uganda with power to directly or indirectly cancel
a contract – IGG, PPDA, Parliament, the press, intelligence organs
etc. Thus when anyone loses a tender, they can petition any of these
institutions and cause a new tendering process. However, because of the
jockeying that follows, interested parties pay bribes across the board
to get a favourable outcome. The result is actually not to resolve the
problem but to cause unnecessary delays and institutional paralysis.
Paralysis is the mechanism through which thieves thrive; but it also
justifies personalised interventions, often by the president himself.
The lesson I learnt is that by decentralising power across many
institutions of accountability, President Yoweri Museveni has
effectively centralised and personalised it – institutional paralysis
justifies and legitimises personalised interventions.
CWEC is
the international arm of China Three Gorges Project Corporation (CTGC)
which is a Chinese government owned corporation. CTGPC was the company
behind the largest hydropower project in the world, Three Gorges Dam.
CTGPC has built Xiluodu, Xiangjiaba, Baihetan and Wodongde dams with
installed capacity of 38,000 MW. CWEC has successfully undertaken
hydropower projects in Ghana, Ethiopia and Sudan. The track record is
good. However, even Jesus Christ, if he tendered to supply anything in
Uganda, would have his contract halted.
The
solution is to this conundrum is to – as far as possible – get the state
out of the business of doing things. In this specific case, the
government of Uganda should not be evaluating bids to contract a company
to build the dam. Rather it should hire a private power producer to
build the dam and give them a Power Power Purchasing Agreement (PPA).
Let the debate be on the way the private producer prices electricity
rather than how a construction company is going to do the job. Five
years ago, government contracted Bujagali Electricity Limited (BEL) to
build Bujagali Dam. BEL hired Salin to do the work. The project is going
to be completed this month without any change in the contract price at
the time of signing.
The
government of Uganda does not have a single construction project where,
over the last ten years, the price agreed in the contract was the same
price at the time of completion. In nearly every major government
project, the price at the time of signing the contract changes along the
way such that by the time of completion, it is 40, sometimes 70
percent higher. This is the story of Gayaza Road, Jinja-Kampala,
Masaka-Mbarara, Kabale-Kisoro, Bugiri Road, Northern Bypass – the list
is endless. When shall we learn?
The worst
you can do to an extremely corrupt state with multiple centres of power
in an ethnically divided society is to give it a bigger role in the
economy. What you actually get is what economists call “the tragedy of
the commons”: A struggle by different groups to grab as much as possible
and as quickly as possible from the common resource pool before anyone
gets their fingers on them. The virulence of the political debate in
Uganda (like on oil last October) may suggest that our country has a
vibrant civic life. But it also underscores a deeply entrenched
political pathology: that lacking an encompassing national vision, our
divided elites come to the state in search of particularistic advantage.
Vibrant debate does not actually reflect struggles over accountability
but the opposite – an anarchical struggle by private interests to grab
public resources for private ends.
Secondly,
someone convinced the President that when government produces
electricity, it will be cheaper. Yet government dams hide many costs. A
private power producer will put a cost – return on equity – to the
amount of capital they invest in the project, price the cost of interest
on loans and add the replacement cost of the dam i.e. depreciation.
All these costs go into the tariff. On the other hand, because
government is not a business, it will not be looking for a return on
equity since it will be using taxpayers’ money. Currently, government
of Uganda does not include the cost of interest payments in the
electricity tariff or factor in depreciation. This makes electricity
cheaper for the consumer. But it means that government is indirectly
actually subsidising it.
If
government wants its citizens and industrialists to get cheaper
electricity, this is certainly not the best way to subsidise it. For
example, by front-loading US$ 1.2 billion to build Karuma, the
government is foregoing many other alternative uses to which such an
amount of money can be deployed. On the other hand, if government wants
to hide the costs of equity, interest on loans and depreciation, it can
contract a private power producer to build the dam and pay him an
annual check to cover these costs. Assuming these costs amount to US$
60 million per year, over 30 years, Bujagali would cost government US$
1.8 billion. Rather than front-load US$ 1.2 billion to build the dam
right now, government can pay a check of US$ 60m per year to a private
power producer for the next 30 years. This is a much cheaper option.
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