Journal of Internet Banking and Commerce ISSN: 1204-5357
ISSN: 1204-5357
+44-175-271-2024| Ezendu Ariwa Postal Address: London Metropolitan Business School, London Metropolitan University, United Kingdom Email: e.ariwa@londonmet.ac.uk Ezendu Ariwa is Chair of IEEE Consumer Electronics Chapter, UKRI (United Kingdom & Republic of Ireland) and Senior Lecturer in Strategic Information Systems at London Metropolitan University, United Kingdom. He holds the position of Visiting Professor in Management Sciences and Computer Science at the Karakurum International University, Pakistan; Visiting Professor, University of Lagos, Nigeria. Visiting Professor, Gulf University, Bahrain. Visiting Professor in ICT and Visiting Resource Expert at the Islamic University of Technology, Bangladesh; Visiting Affiliate of the Green IT Observatory, RIMT University, Australia and Visiting Affiliate of ICT University, USA. |
| Ezendu is a Chartered FELLOW of the British Computer Society (CITP, FBCS) and a Fellow of the Institute of Information Technology Training (FIITT). He is also a Fellow of the Higher Education Academy of United Kingdom (FHEA), member of the Elite Group of The British Computer Society (BCS), member of British Institute of Facilities Management and Fellow of Global Strategic Management, Inc., Michigan, USA. Ezendu is Chair of Consumer Electronics Chapter, UKRI and Chair of Broadcast Technology Chapter, United Kingdom & Republic of Ireland (UKRI), Member of Institute of Electrical & Electronic Engineers (MIEEE), Member of the IEEE Consumer Electronics Society/Chapter UK&RI, member of IEEE Computer Society, member of the Association of Computing Machinery (MACM) and Council member of UK Council for Healthcare Informatics Profession (UKCHIP). |
| Isaac Wasswa Katono Postal Address: Faculty of Business and Administration, Uganda Christian University, Mukono Uganda Email: ikatono@ucu.ac.ug |
| Isaac holds the MBA from Makerere University, Uganda and is the Associate Dean of the Faculty of Business and Administration, Uganda Christian University. He is also the Research Coordinator of this faculty, and Chair Marketing and Entrepreneurship. Isaac has expertise in a number of areas, particularly marketing, entrepreneurship, organizational behavior, management, and research methodology. He is a resourceful person as evidenced by his membership of various boards and committees at UCU which include: • The school of Research and Postgraduate Board. • Research and Postgraduate Studies Management Board. • The Graduate Board. |
| He has published in Ugandan and international journals in areas such as marketing, entrepreneurship and management. He spent 10 years as a councilor in Mukono District Local Government, Uganda, which enabled him to understudy the Ugandan local government system. He has consequently published works in international journals in administrative decentralization. |
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Governments across Africa have established regulatory agencies for utilities but these have largely been modeled on those in developed countries and have had limited success. The Electricity Regulatory Authority in Uganda was set up to oversee this important sector but its success has so far been limited as evidenced by the quality, reliability and cost of the service. The Purpose of this study is to examine the factors that influence the performance of ERA, with a view to coming up with mitigation measures. In the first part of the study (presented in this paper), annual reports of the regulatory body, supplemented with press reports, academic papers, and conferences reports are examined. In the second part of the study, the Electricity Governance Toolkit (EGTK) will be used to collect data from relevant electricity laws, rules and regulations developed by the Government of Uganda as well as procedures developed by the regulatory body, and the decisions it has made overtime. In addition, the researchers will conduct interviews with regulatory members and staff, civil society and consumer groups that have filed cases before ERA, as well as a sample of domestic and industrial consumers within Kampala District. Both qualitative (arranging the findings in themes) and quantitative techniques (t tests, frequencies and means) will be utilized to analyze the data.
Keywords |
| green technology; corporate sustainability; assessment; environment, Uganda; electricity regulatory authority (ERA) |
INTRODUCTION |
1.0 Introduction |
| The consistent failure of many African governments to provide services to their populations is well documented in the literature (Harris 2003) and cannot be easily rectified (Farlam 2005). Most of these governments lack the resources to maintain and expand infrastructure, and thus their response to this problem has been privatization and Public Private Partnership (PPPs). The benefits of both privatization and PPPs are also well documented in the literature, although critics (e.g. Dwyer 2004 in Farlam 2005) assert that separating privatization from PPPs is like creating a distinction without a difference. However privatization and PPPs exist on a continuum defined by the extent of service obligations imposed, and the ultimate ownership of assets. PPPs can be successful under the right conditions and in the right sector, for example they have been successful in ports, telecommunications, transport, but not in water and power (Farlam 2005). |
| According to the South African National Treasury Manual (2004), a PPP is a “contract between a public sector institution and a private party, in which the private party assumes substantial financial, technical and operational risk in the design, financing, building and operation of a project” |
| The efficacy of PPPs cannot be taken for granted and hence they must be well thought out by goverments in order to reap benefits from them (Farlam 2005). They operate within a regulated environment that imposes detailed investment obligations and price ceilings. However many of the PPPs run into problems due to poor or inadequate regulation. Many studies e.g. Laffont (2005), Estache and Wrens-Lewis (2009) show that the regulation of PPPs has been problematic in many developing countries. For example, according to the official government daily the New Vision dated 7th December 2010, regulation of the PPPs in Uganda is currently facing a severe crisis, since the Chief Executive Officers four PPPs are either suspended or sacked , namely National Forestry Authority, The Uganda Communications Commission, and the Uganda Wildlife Authority and the Electricity Regulatory Authority. These agencies regulate key sectors in the economy of this country, hence any form of instability is detrimental to the development and welfare of her citizens. This study therefore specifically addresses itself to the factors that drive the performance of these regulation bodies, with a special focus on the electricity sector (ERA). The next section gives a background to the formation of the ERA, and the general performance of the electricity sector in this country. |
The power sector in Uganda |
| In 1997, GOU through its ministry of Natural Resources drew up a strategic plan for the Uganda power sector, so that it is able to produce adequate and reliable energy, in order to ensure sustainable social and economic development, as well as maximize inter regional power exports. This effort gave way to the formation of The Electricity Regulatory Authority (ERA), following the enactment of the Electricity Act (1999). This act repealed the Electricity Act (1964) and its major aim is to transform the electricity sector into an independent industry, to enable it supply reliable power at reasonable prices and thus make a contribution to the economic and social development of Uganda. |
| The enactment of the Electricity Act (1999) provided the legal basis for the privatization of the Uganda Electricity Board (UEB), which was unbundled into three companies in March 2001 namely: |
| 1. The Uganda Electricity Generation Company Ltd. (UEGCL) |
| 2. The Uganda Electricity Transmission Company Ltd. (UETCL) |
| 3. The Uganda Electricity Distribution Company Ltd (UEDCL) |
| Under this arrangement, Uganda Electricity Distribution Company Ltd owns the electricity supply infrastructure operating at 33 kV and below. Its assets were finally leased to UMEME Ltd in 2005 under a 20 year concession. The Uganda Electricity Transmission Company Ltd owns and operates the grid connected electricity supply infrastructure operating above 33kV. It is the only company responsible for buying power in bulk from generators and selling it to distribution companies (Single model Buyer). The Uganda Electricity Generation Company Ltd owns the Kiira and Nalubale hydro-electric power stations. Its generation assets were leased to Eskom (U) Ltd in April 2003 under a 20 year concession agreement |
| According to the ESPR (2007), installed capacity of hydro generation is 314 MW of which 180 MW is from Nalubaale dam, 120 MW comes from Kiira dam, while the remaining 14MW comes from the combined installed capacity at Kilembe Mines Ltd and Kasese Cobalt Company Ltd. However, due to poor hydrology, as a result of the drought in 2005 that affected much of the East African region, there was deterioration in water levels which reduced the generation capacity of Nalubaale and Kiira to 120 MW, effective 2006. This forced government to diversify energy supply sources, hence the introduction of thermal power. Electricity supply at peak stands at 250 MW, while maximum demand stands at 350 MW during the evening peak, thus the electricity deficit at peak is about 90MW resulting in serious load shedding. In order to cover the deficit 100MW are generated through diesel powered thermal generators (which is still below the 150 MW optimal diesel based thermal energy mix proposed by government). The country’s GDP has as a consequence suffered due to insufficient power supply. The increased share of thermal electricity in the energy mix (now standing at 50%), coupled with rising oil prices necessitates the continued subsidization of the electricity tariff by government. For example in the first half of 2007, government spent 58,197 million Uganda shillings on electricity tariff subsidies. This money could have gone toward improvement of infrastructure in the sector. It is also important to note that electricity tariffs in Uganda are high compared to other countries in the East African Community, a fact works against the competitiveness of Ugandan products in this market. |
| The establishment of the ERA secretariat in 2001 was a step forward in the drive to instill confidence in this crucial sector in the national economy. According to ERA (2008), ERA has a statutory mandate of regulating the generation, transmission, sale, export, import and distribution of electrical energy in Uganda. It has the duty to ensure that the above PPPs earn a reasonable rate of return on their investment, while at the same time they provide quality electricity and service at affordable prices to all categories of consumers. Given the multiplicity of stakeholders that it serves, ERA tries as much as possible to get stakeholder on its operations and consults customers whenever there is a contentious issue in this sector through public hearings. Uganda has enjoyed a stable and predictable electricity sector regulatory environment. This is exemplified by the fact that the first Commissioners of the Electricity Regulatory Authority served two 5-year terms uninterrupted by politicians. |
| In a customer satisfaction survey commissioned by ERA and carried out by Makerere University Faculty of Social Sciences and Social Administration in 2006, a sizeable percentage of the respondents did not know what ERA was or how it was different from the utility companies. However what was alarming from this survey is that the overall rating of ERA’s performance by commercial and domestic consumers was poor, since 51% said they were just fairly satisfied, 38% said they were not satisfied at all, while only 6% said they were satisfied (5% did not know). |
| Another important issue raised in this survey was that ERA was not assertive enough, while other respondents felt that ERA was an arm of government “dancing to the tune of government.” Of major concern from this survey was the view held by the umbrella association of Ugandan manufactures (UMA), who expressed the view that ERA was there to defend the Utility companies and hence was not impartial (pg 35) stating “ERA is meant to be a regulator, but works too closely with the utility companies like UMEME, a relationship that makes other stake holders uncomfortable”. Other stake holders like the National Environment Management Authority (NEMA) and the Uganda Electricity Transmission Company (UECTL) felt that ERA was faced with a challenge of adequate personnel and financial resources, and hence was not in position to monitor the utility companies. |
| In light of the above background, the purpose of this paper is to examine the factors that impact upon the performance of ERA. Specifically, the paper seeks to examine the extent to which ERA has been mandated to carry out its functions, and whether there are impediments if any that disrupt this mandate and suggest mitigation measures .This study report is presented in two parts. The first part which is presented in this paper is organized as follows. The next section outlines some of the regulation theory and models. Some of the problems and challenges with existing regulatory models are highlighted, including weak regulatory commitment, institutional fragility, lack of transparency and legitimacy, and lack of capacity and competence. This section is followed by the methodology used to carry out the study. A concluding discussion sums up the study. |
2.0 Regulatory Theory |
Definition and Importance of Regulation |
| In the attempt to increase investment and improve efficiency, many countries have opened their infrastructure industries to the private sector (Farlam 2005), and also increased the independence of regulation. Regulation is a great predictor of performance than the form of management used in a sector (Estache and Rossi 2005), and regulatory performance is influenced more by the institutional frame work than by the form of ownership or management. Estache and Wren-Lewis (2008) define institutions as the rules of the game that influence peoples’ behavior, as well as the organisations that implement these rules. The literature on utility regulation points to a number of factors that influence the performance of regulatory authorities in developing countries and Laffont (2005) provides three important points that are notable in this regard. |
| First, regulatory authorities in developing countries face many challenges that are peculiar from those faced by similar bodies in developed nations. Second, policy makers are finding traditional regulatory theory as applied in the developed world to be of limited use in the developing countries. Hence the solutions to those problems are imperfect, contradictory, and may be different from those advocated in developed countries. Consequently, it is risky to advocate simply for a regulatory framework that is closer to some universal ideal. Third, while there has been significant improvement in the regulation theory (based on the tools of incentive theory and asymmetric information), there has been a persistent neglect of the specific characteristics of the developing countries, which undermines the reforms in these countries. Hence the literature on infrastructure reform in developing countries is replete with evidence that the original expectations of regulatory performance have not been met (Eberhard 2007). It was expected that regulatory agencies and contracts would depoliticize tariff setting and improve the climate for operational management and private investment through more transparent and predictable decision making. This has not been the case in many developing countries. With this back ground in mind, the paper now discusses some of the factors that influence the performance of regulatory agencies in these countries. |
Legal system |
| The legal system in which the regulatory authority functions greatly influences its performance (Eberhard 2007). Two legal systems are found to influence utility regulatory systems. In former Anglophone colonies, independent regulatory authorities have been established based on common law where the regulator acts in public interest and has sufficient though bounded and accountable discretion when setting tariffs and service standards. On the other hand, former Francophone countries rely on regulatory contracts e.g. concessions with pre specified tariff setting regimes administered within civil law backed by various provisions for contractual renegotiation and arbitration. Other countries like Uganda (a former British colony) prefer the hybrid model which combines independent regulation with regulatory contracts (for example long term concessions in electricity generation and distribution have been awarded in Uganda). In short, regulatory discretion and performance of the utility companies in a given country emanates from regulatory design followed in that country. |
Autonomy |
| A contentious issue in the literature is the extent to which regulation authorities should be granted autonomy in decision making for effective regulation in developing states (Eberhard 2007). In this regard, a distinction is drawn between regulatory governance and regulatory substance (Brown et.al 2006). The former refers to the design of the regulatory system, institutional arrangements, and the process of regulatory decision making. The latter refers to the context and outcomes of regulation, e.g. tariff setting or service standards plus their impact on the customers or the utilities. Regulatory governance includes dimensions such as regulatory commitment, clarity of roles and functions between the regulator and policy makers, regulatory autonomy, organisation structure and resources of the regulator, transparency, participation, accountability, predictability, proportionality and discrimination. |
| There is little consensus on the role of regulatory design in the regulation of utilities, with some people arguing that the challenge for regulatory design is to come up with regulatory governance mechanisms that can balance regulatory discretion with issues such as tariff setting (Levy 1994), while others posit that a certain degree of regulatory discretion is inevitable (and even desirable) and thus the focus should be to find governance arrangements and procedures that permit this (Stern and Cubbin 2005). |
Institutional Weaknesses |
| An examination of the institutional context and its implications is necessary when deciding upon regulatory policy. Laffont (2005) argues that regulation in developing countries suffers from a weak institutional environment which renders the regulatory contract between governments and firms incomplete. For instance, few countries enjoy the solid accounting data needed to set fair tariffs for regulated firms simply because the definition and/or the enforcement of accounting standards for monopolies responsible for public services tends to be weak. Tariffs end up being more negotiated than calculated in that kind of environment. Ideas from the literature on the economics of transaction costs, economic and legal contract theories are therefore being brought alongside the fundamental tools of incentive theory to lead to a theory of regulation more consistent with the LDC context (Estache and Wren-Lewis 2008). |
Lack of regulatory commitment |
| In spite of the attempt to set up independent regulatory bodies in many developing countries, goverments in many cases resist the setting of tariffs in a transparent and objective manner for a number of reasons. At times, regulators are pressurized to overturn rational decisions. Tariff setting is a highly political issue, and goverments are sensitive to popular demands not to increase tariffs. In other words, political expediency undermines regulation. As Tremolet and Shah (2005) put it, there is a gap between law and practice. In short, a lack of regulatory commitment is characterized by resistance on the part of government or its officers to transfer regulatory decision-making powers to an independent regulator or a regulatory contract and by a reluctance to embrace cost-reflective or revenue sufficient tariffs. A low level of regulatory commitment is also evidenced in weak and slowly operating courts of law and ineffective appeal systems (Eberhard 2007). |
| The literature distinguishes between problems lack of commitment brings to regulation (see for example Maskin and Tirole 1999). First, commitment and negotiation is a situation where both parties are willing to negotiate after the contract has been signed (Laffont and Tirole 1993), while non commitment is a situation where government wants to renege on its commitments, often under the guise of expropriation (Perotti 1995 ). On the other hand, limited enforcement is a situation where the firm succeeds in renegotiating the contract in spite of government opposition (Laffont 2003), especially where the judiciary is weak or corruptible or because the firm is actually in a very powerful position. Lastly non commitment is a situation where neither side wishes to renegotiate the contract (Estache and Wren- Lewis 2008). Generally, an incomplete contract resulting from the inability of the parties to commit damages incentives and decreases efficiency. A possible solution around problems emanating from lack of commitment of both parties is to have an independent regulator (Estache and Wren-Lewis 2008). |
Transparency and accountability |
| Many regulators are not transparent in the way they arrive at their decisions, which breeds suspicion and mistrust. Lack of access to these contracts, makes the public assume the worst (that is, excessive profits or corruption), which leads to a lack of trust in the regulator and government in general. Transparency is often compromised in regulatory contracts, such as concession agreements or power purchase agreements. Transparency requires all stakeholders to understand and develop confidence in regulatory processes and decisions, which include the clarifying of objectives and functions of regulation; consulting various stakeholders in the process of developing new regulatory methodologies and standards; publishing final standards, regulatory contracts, and regulatory methodologies, including scheduled tariff review procedures and timetables; public hearings where stakeholders can make submissions and inputs into important regulatory decisions; written public explanations of regulatory decisions; prescheduled independent regulatory reviews and impact assessments; accountability through appeal mechanisms; and open access to information. Transparency measures provide a common understanding of the “rules of the game” and how they are applied (NERA 2005). Ease of complaining and taking action after a complaint has been lodged would add to transparency. |
| Transparency in utility regulation is most needed where institutions face grave governance and capacity challenges (as is the case in Uganda) but it is in precisely these situations that transparency is most difficult to achieve. Fostering transparency goes hand-in-hand with building institutions and capacity. Ultimately, transparency is critical for developing legitimacy. A common problem in developing states is that agents involved in the regulation process are not fully accountable to their principals (Maskin and Tirole 2004). This could be due to the fact that government may not be accountable to the citizenry or bureaucratic contact between the government and regulatory authority is incomplete (Estache and Wren-Lewis 2008). For example, an agent may collude with another party against the will of the principal, yet the principal may have limited capacity to control such corruption through contractual terms. In regulatory theory, the most commonly discussed form of collusion is that between the regulator and the firm, known as regulatory capture (Dal Bo 2006). This enables the firm to influence the decisions of the regulator in its favour, or bribe the regulator to hide information from government (Laffont and Tirole 1993), with the aim of increasing information asymmetry which increases the rents to the firm. Further, corruption in the enforcement process erodes the ability of government to enforce contracts (Guasch et.al 2003). All these problems are worsened in a situation where government is unaccountable to the people or where its officials collude with an interest group. An example is where policy is designed such that future generations are burdened with too great a share of costs (Aubert and Laffont 2005). Making the regulator directly accountable to the legislature is a possible solution to accountability problems, since the interests of the citizens may be more closely aligned with those of members of parliament. |
Institutional fragility |
| Many regulatory bodies in Africa are less than 10 years old (except Uganda where ERA is over 10 years), hence they are still fragile in terms of experience. They also face funding constraints particularly delays in approval of their budgets. African regulators have experienced high turnover of Board members and management (there are many corruption scandals and counter allegations in Uganda), thus institutional development and memory are disrupted (Tremolet and Shah 2005). |
Lack of regulatory capacity and confidence |
| Besides governance and institutional challenges, developing country regulators face huge issues around regulatory substance, that is, the quality, credibility, and impact of their regulatory decisions (Eberhard 2007). Regulatory substance is negatively affected by lack of well trained and experienced regulators. There is need to improve the professional capacity of new regulators and this is a huge challenge facing the infrastructure sector in Africa. A global study of regulators established that the most frequently reported constraint was the lack of specialized skills in utility regulation (Tremolet and Shah 2005). It is thus critical that core regulatory competencies are developed in order to strengthen regulatory substance. Capacity constraints may be mitigated by initially limiting regulatory discretion, minimizing regulatory complexity, building in mechanisms for outsourcing some utility functions, and adopting a gradual approach to modifying or expanding the scope of the regulator’s responsibilities as capacity is built for a more fully fledged regulatory agency (Tremolet and Shah 2005). The greater the discretion enjoyed by the regulator, the more acute is the need for trained, experienced, and competent staff. |
| Theoretically the limited capacity of the regulator may be modeled as an increase in the asymmetry of information (Laffont and Tirole 1993). For example, staff inexperience and poor funding may erode regulator capacity to monitor effort (i.e. distinguish between controllable and uncontrollable costs) or even to observe the level of total costs. Further a poor resource envelope may limit the regulators efforts to pay the transaction costs involved in writing and enforcing the regulatory contract (Tirole 1999). This inability to pay transaction costs plus the bounded rationality of the regulator result in a suboptimal contract. There are two grave consequences of this scenario. First, it results into a lack of clarity on the regulatory frame work. Hence bargaining is bound to occur as soon as an event not covered in the contract occurs. Expectations of such an occurrence taking place in the future reduce the incentive of the firm to invest funds, or exert effort efficiently (Williamson 1975). Further, regulator bargaining power is weaker ex post, than ex ante since finding an alternative firm is problematic in mid contract (Williamson 1985), hence giving more concessions to the firm. Lobina (2005) adds that the regulator’s position is likely to be even weaker in such a situation due to capacity constraints. Second, contractual incompleteness is likely to breed inefficiency in a number of ways. Lastly, in an incomplete contract environment, implementation will depend on where real authority rather than formal authority lies (Aghion and Tirole 1997). Real authority depends on information access, as well as the ability to process that information. Hence capacity constraints in developing states transfer authority from the regulator to the firm (resulting in an increase in the firm’s rents and a decrease in efficiency) or to government (resulting in a loss of credibility and independence). In each of these cases the regulator is disempowered and rendered less efficient. |
Limited fiscal efficiency |
| Inefficient tax administration is a major problem in many developing states. A major consequence of this problem is that redistribution of income is costly (Laffont 2005). Consequently many consumers that government wishes to join the networked infrastructural services are unable to afford the connection fee to these services, or once connected, they are unable to meet the regular bills that accompany their consumption. Hence many goverments resort to cross subsidies to pay for the network expansion instead of fiscal transfers. Given that it is crucial to distribute the gains from sector reforms for the development of effective institutions (Acemoglu et.al 2007), regulation in developing countries must be concerned with both distribution and efficiency. However, using regulation as tool for redistribution is not generally acceptable in these countries on the pretext that there are better ways of income redistribution (Vickers 1997:18). Laffont (2005) however insists that due to the limited fiscal space of these countries besides weaknesses in their tax regimes, separation of regulation and redistribution is not a viable strategy. |
| In summary, the core issue advanced by Laffont (2005) as well as else where in the literature on regulation is that caution should be exercised when applying recommendations from developing countries to developing countries. Most of the challenges that arise in regulation and in regulatory contracts emanate from regulatory design, institutional weaknesses and governance issues, all of which are different in the developing countries compared to the first world. |
3.0 Method |
| This study is an on going work in progress that utilizes a triangulation technique (Campbell and Fiske 1959) in that both qualitative and quantitative research designs are employed. The qualitative part of the study comes first, with a view to gaining a firm grasp of what is happening in this sector since the Makerere University survey in 2006, and in light of the current situation pertaining in this sector. The study commences with a review of the literature on regulation in developing countries, as well as a documentary review of various ERA reports, supplemented with press reports, academic papers, and conferences reports and conversations with various stakeholder groups. This ground work will enable the researchers to use the EGTK (Dixit et.al 2007), to rate the performance of ERA along a number of dimensions in the second part of the study. |
4.0 Preliminary Findings |
| This section reports some of the initial findings of the study from documentary analysis and conversations with specific groups as explained above. The findings from the EGKT will be reported in the second phase of the paper. News paper reports especially the government owned New Vision, ERA reports and policy documents reveal six major happenings in the electricity sector in this country. |
| First, as highlighted in the introductory section of this paper, the top management of ERA (The CEO and Company Secretary) was suspended in October 2010 by the Minister of Energy who accuses them of insubordination and defiance when they refused to implement a policy directives on reviewing a policy directive on cogenerated electricity in line with legal notices in the National Gazette (Kasiita 2010). The suspended officials have consequently filed an application in court for a judicial review of the matter, claiming that the minister’s directive contravenes the Electricity Act (1999), and compromises the statutory duty and obligations of ERA as an independent body. They add that the policy direction on setting tariffs is illegal and against the law, and that refusing to obey the same is not insubordination or defiance but compliance with the law. Since the matter is before court and thus should not be discussed, it suffices to point out that what is happening in this case borders on issues of regulatory design and autonomy (Eberhard 2007) as well as arguments by Tremolet and Shah 2005 in concerning board member turn over. |
| Second, ERA itself has lost confidence in UMEME and suggests that the contract be reviewed (Ojwee 2010). ERA regards the operations of UMEME as incompetent and below expectation, arguing that UMEME lacks the incentive to expand Uganda’s electricity network to the rural areas, disconnects customers before sending them bills, and generally offers poor service delivery. Further ERA asserts that it is only for the fear of costly litigation that the contact which has so far lasted five out of twenty years is not terminated. The article further posits that either the contact was poorly designed, or the technocrats are failing to interpret the provisions of the contract with UMEME correctly. This situation lends credence to capacity gap claims in regulatory bodies in developing countries as espoused by Laffont (2005). However the fact is that it is unfair for the consumers to bear the consequences of a flawed contract where they had no say in drafting it in the first place. |
| Third, there seems to be a general dissatisfaction with the services of Umeme country wide. This is evidenced by a quick scan through any Ugandan daily. Recent riots in Bugembe near the Kiira dam over a three day black out (Mugabi and Kiirya 2010) as well as complaints in Masaka in central region (Kalemera 2010), and Kampala city (Lule and Ninsiima 2010) to name a few areas bear out this fact. In all these cases, critical services like hospitals are off the grid, resulting in serious service delivery. What is more, many customers experience power surges that blow up their home appliances, besides load shedding in many parts of the country and poor or unfair billing. Consequently many customers have lost confidence in UMEME and have resorted to the courts for redress. In May 2010, about 50000 customers took UMEME to court for over charging them and using faulty meters (Nsambu 2010). They argue that the suspicious billing system and faulty meters cost them millions of shillings, adding that UMEME breached a contract and trust between it and the consumers for which court should compel UMEME to compensate them. Similarly, In September 2010, the African Institute for Energy Governance (AFIEGO) together with 1927 domestic consumers dragged UEDCL, UMEME, ERA and the Attorney General to court, claiming that consumers are being exploited and that the electricity sector is in a serious crisis. The complainants want court to compel UMEME to recall meters, test them and have them certified by the National Bureau of Standards (UBOS) before installing them. They also want court to order a tariff reduction from the current Uganda shs385 per unit to shs 238 for all domestic users. Further, the complainants want court to terminate the 20 year concession that UMEME has with UEDCL, and compel UMEME to refund Uganda shs 452 billion which the company has received from government as subsidies since 2001 when the company entered the concession agreement. |
| Fourth, the utility companies have already taken steps to ensure that the tariff is raised (Kasiita 2010). UMEME first suggested a flat rate for all domestic users in June 2010 (Kasita and Kagoro 2010), such that those home using less than 50 units would pay a flat Uganda shs 12000 per month, those using 51-75 units would pay shs 26000, while those using over 75 units would pay shs 386 per unit. Consumers rejected this proposal as anti poor, and would discourage connections to the rural area. It was also described by opponents as a disincentive to energy saving, and it would also be punitive to good consumers. In October 2010, the power companies i.e. UEGC, UEDCL, UETCL and ESKOM applied to ERA for a 15% increase in the tariff in the first three months of 2011. They would like domestic consumers to pay Uganda shs 462 up from 385 commercial consumers to pay shs 455 up from shs 358, Small businesses to pay shs 457 up from shs 333, large businesses to pay shs 321 shs down from 330, while street lighting pays shs 461 up from shs 385. The business community reacted to this proposal as unfortunate and outrageously obscene. According to UMEME, the end user tariff is driven by the cost of the power generation, fuel and transport costs, non UMEME losses and the exchange rate, and most of these variables have been undergoing an upward trend. Hence for 2011, UMEME submitted a revenue requirement of shs 215 billion, translating into a distribution tariff of shs 191 per unit which is only part of the total end user tariff. |
| Fifth massive corruption, mistrust, arm-twisting, accusations and counter accusations have penetrated the electricity sector in this country. The former CEO of UMUME was relieved of his duties following allegations of abuse of office and is being investigated by police (Kasiita 2009). It is alleged that under his tenure in office, UMEME inflated power tariffs. The energy minister hence wants a forensic audit of UMEME (to be carried out by Deloitte and Touché), as well as accountability from this firm for US $11m advanced to it to invest in the power network. In July 2009, police on the orders of the minister raided the home of the accused CEO, took his photo graph, and downloaded personal files from his computer. He was also warned not to attempt to leave the country. The police also raided UMEME offices and the energy ministry. Investors did not take this matter lightly, branded the action irrational and wondered whether the country had not slipped back to the days of Idi Amin (Kasiita 2009). Investors further argued that the minister’s action was ultra vires, since it is the mandate of ERA to investigate tariff charges whether or not a complaint has been made for any tariff adjustment. |
5.0 Discussion |
| The above partial findings indicate that the electricity sector in Uganda is in a severe crisis, and something needs to be done to protect the end users who actually suffer in the long run. |
| Not only is ERA itself fragile (as admitted by the former CEO)( ERA 2008), but the consumers are up in arms against UMEME in many parts of the country. This paper will not discuss some of the matter of the sacked ERA officials because it is already before court, but it is important to note that whatever the out come, ERA will face a certain level of instability as the matter drags on. Hence the question of regulatory design and autonomy of ERA lingers on. |
| Another important question that comes to the mind is the issue of capacity in drafting and interpreting of the contracts. If ERA feels that UMEME is technically incompetent and lacks the incentive to build the power sector, then what should be done? Government, through the energy minister seems to have developed mistrust for this company and one wonders whether the 15 years left for the concession to expire are not too many. On the other hand this suspicious environment will make UMEME less efficient as it will not put in maximum effort since anything can happen any time. |
| The electricity tariffs in Uganda are the highest in East Africa, and are second highest in the world (after Sweden). Hence the raising of the tariff in the first three months of 2011 as proposed by the power companies will render Ugandan products less competitive in the East African Community, and reduce the welfare of many people especially the poor. For the time being however, government has stayed action over the tariff, by increasing the subsidy to the electricity sector. This is welcome news to many Ugandans, but it is important to know that 2011 is election year (Presidential and Parliamentary elections are scheduled for February). We hope that the winning government will not raise the tariff upwards after the elections. |
| Some of the cogeneration companies (e.g. the sugar companies) have complained about the slow decision making process by the regulator. They also think that the process of license application is too long, hence ERA needs to look critically at these issues in order to attract more investment in the electricity sector. Similarly, ERA needs to market itself so that people get to know what it is and what it does for more effective service delivery. Similarly, ERA needs to invest a significant part of budget into capacity building and research, since there are just too many issues that are going on this sector for which it has no proper answers. |
CONCLUSION |
| This paper set out to establish the factors that impact upon the performance of regulatory bodies in Uganda, with special emphasis on the ERA. The study focused on the 10 years period since the formation of ERA. Preliminary findings are generally consistent with the literature as outlined in section two of this study. Consistent with Tremolet and Shah (2005) political interference in regulation bodies as well as capacity issues continue to take center stage in developing countries. While the PPP arrangement is a possible remedy to the problems of poor service delivery in LDCs, there is need to think through the contracts carefully before signing concessions, for the sake of the people in these countries. Corruption is an impediment that needs to be routed out of Africa, for us not to end with contacts that are a yoke around the necks of our people. |
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