About me.

Andrew M. Mwenda is the founding Managing Editor of The Independent, Uganda’s premier current affairs newsmagazine. One of Foreign Policy magazine 's top 100 Global Thinkers, TED Speaker and Foreign aid Critic

Thursday, August 23, 2012

Who is parliament speaking for?

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.

Only about eight percent of Ugandans are on the electricity grid and these are largely (certainly not entirely) upper and middle class people. Meanwhile, the 92% who are not on the grid are the vast majority of poor Ugandans who rely on kerosene for lighting and firewood for cooking which are not subsidised. So whose interest is parliament serving when it purports to suspend the new tariff increase?

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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