Public-private partnerships in Uganda cost the country dearly

28 September 2015 by Paul Harper


Privatisation of the Ugandan electricity sector, initiated in 1999 as a condition of the debt relief programme, was supposed to mean the end of state support. Yet, by 2013 a special committee of the Ugandan Parliament reported that subsidies were higher than ever before, preventing the government supporting critical development programmes. Between 2005 and 2012 the government had paid out subsidies totalling $600m to the privatised companies, alongside nearly $300m in rebates for ‘losses’ under their deal with the new electricity distribution company.

In the early 2000s two major Public Private Partnerships (PPPs) with foreign companies arose from the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
/World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

sponsored ‘liberalisation’ of the Ugandan electricity sector: a 20-year concession to run the distribution network, delivering electricity to the end consumer, and a 30-year Build, Operate and Transfer contract for a new hydro-electric plant at Bujagali Falls on the river Nile.

Astonishingly, the ‘private’ company created to run Uganda’s electricity distribution sector, Umeme, was actually owned by the UK government and has been accused of defrauding the Ugandan government of hundreds of millions of dollars by overstating losses, for which it is compensated by the Ugandan government under the PPP deal, as well as massively increasing charges to consumers.

Domestic electricity consumers in Uganda are now burdened with a tariff of 18.5 US cents for 2015, compared to an average in Sub-Saharan African countries of just 13 US cents. In addition, from 2005 to 2012 the Ugandan government was forced to subsidise energy costs to the tune of more than $100m each year.

As a result the Ugandan parliament has voted to support the recommendation of a report from president Museveni’s special advisor that the PPP concession with Umeme be terminated.

The other PPP scheme, at Bujagali Falls, faced stiff opposition from local and international NGOs from the outset and the World Bank’s investigation unit found that its own lending policies had been violated. After spending $150m on the project, it was finally abandoned as the main contractor became implicated in the Enron corruption scandal and World Bank support was withdrawn when fraudulent payments by a subsidiary contractor were uncovered by the US Justice Department.

However the project was resurrected under a further PPP scheme, funded partly through the European Investment Bank. This scheme suffered from similar problems but was nevertheless completed in 2012 by Bujagali Energy Limited (BEL). But spiralling costs have made this one of the most expensive large dam projects in the world, with prices for electricity produced some 80% higher than the globally accepted level for hydro-generation and creating potentially serious financial risks to the Ugandan government.

An independent report has now called for nationalisation of the hydro-plant to bring an end to the damagingly high cost to Ugandan businesses and household consumers. In March this year the East African reported that this proposal was being actively considered by the government owned Ugandan Electricity Generation Company.

Since PPPs were introduced nearly $1 billion in subsidies and compensation for ‘losses’ has been paid out to the private electricity companies and Ugandan consumers have been forced to pay some of the highest charges in Africa. And, if suspicions about even greater cost overruns and overestimated generation capacity at Bujagali prove true, the Ugandan government could be exposed to further big pay outs to cover future losses.




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