New Directions: Going forward, the Government is planning to have private entities operate concessions outside the UMEME service area. REA intends to plan and build ‘zonal’ the network extensions itself, then lease them to the operators. It will also provide subsidies for new connections, cover the cost of major maintenance and provided technical assistance. REA is currently in negotiation with the existing concessionaires in some of the zones to convert their current concessions (which are to operate particular lines) into area concessions. In time, REA hopes the operators will develop into viable utilities. Key Lessons: electrification in most places is not a commercially viable business. Subsidies and guarantees from the Government are needed to encourage private sector involvement. Implementing a concession for the existing national distribution network can positive results. Though it was conceived of as an urban concession area, UMEME has connected around 100,000 customers in rural areas. By comparison the projects focused exclusively on rural electrification have achieved less than 40,000 connections altogether. In Uganda, government-financed grid extensions have been leased to new, inexperienced operators and exclude the existing large concessionaire. This need not be the case. The same government-financed grid extensions can be transferred to the existing viable operator. Economies of scale suggest this strategy may be more efficient. Concessions should be designed that target commercial loads. While the government may rightfully focus on household electrification, a complementary focus on financial viability is also necessary. Concessions that specifically target large-load customers provide more substantial revenues to concessionaires while also improving the locality’s economic situation. Such a strategy improves the long-term viability of rural electrification projects and reduces subsidies necessary to prop up smaller operators.
New Directions: Going forward, the Government is planning to have private entities operate ‘zonal’ concessions outside the UMEME service area. REA intends to plan and build the network extensions itself, then lease them to the operators. It will also provide subsidies for new connections, cover the cost of major maintenance and provided technical assistance. REA is currently in negotiation with the existing concessionaires in some of the zones to convert their current concessions (which are to operate particular lines) into area concessions. In time, REA hopes the operators will develop into viable utilities. Key Lessons: electrification in most places is not a commercially viable business. Subsidies and guarantees from the Government are needed to encourage private sector involvement. Implementing a concession for the existing national distribution network can positive results. Though it was conceived of as an urban concession area, UMEME has connected around 100,000 customers in rural areas. By comparison the projects focused exclusively on rural electrification have achieved less than 40,000 connections altogether. In Uganda, government-financed grid extensions have been leased to new, inexperienced operators and exclude the existing large concessionaire. This need not be the case. The same government-financed grid extensions can be transferred to the existing viable operator. Economies of scale suggest this strategy may be more efficient. Concessions should be designed that target commercial loads. While the government may rightfully focus on household electrification, a complementary focus on financial viability is also necessary. Concessions that specifically target large-load customers provide more substantial revenues to concessionaires while also improving the locality’s economic situation. Such a strategy improves the long-term viability of rural electrification projects and reduces subsidies necessary to prop up smaller operators.
116661-WP-P150241-PUBLIC-53p-Detailed-Case-Study-Uganda.docx