Auditor General warns of mounting debt to Eskom

The Auditor General has warned government about the more than $10m (Shs6.6b) debt to concessionaire Eskom Uganda Limited.
Mr John Muwanga, the Auditor General, who issued a report on the performance of electricity generator, Eskom, warned that the country’s accumulating debt to the South African company is likely to burden government in the long term.
“In a letter … dated 11 December 2018, Eskom wrote to Uganda Electricity Generation Company Limited submitting the outstanding amount of the implemented investments that had not yet been recovered via the tariff [structure] since 2003 to date amounting to $10.2m,” he said adding that the uncollected money is likely to increase to $18.2m (Shs66.7b) in 2019 subject to outstanding verification processes and works in progress.
Eskom signed a 20 year concession and assignment agreement with Uganda Electricity Generation Company Limited in 2002 to operate Nalubaale and Kiira dam, allowing it to make investments required to keep the dams operational.
The investments, according to the generation license, were to be recovered by Eskom through tariffs.

Investments
According to the Auditor General’s report, Eskom has since 2003 invested $29.1m (Shs106.6b) but $21.1m (Shs77.3b) has been approved by the regulator.
$10.9m (Shs39.9b) of the approved investments has been recovered through the tariffs.
To create affordable electricity in the short run, the electricity regulator breaks down the investments fed into the tariff structure over a period of time thereby stretching the recovery period.
Uganda Electricity Generation Company Limited, which plays a supervisory role over the South African company and its operations, approved generation operation and maintenance costs of $10m for its last leg of the concession.
If approved by the regulator, it would imply that the uncollected amount could accumulate to $28m (Shs102.6b).
Whereas government is expected to shoulder the risk of paying out any outstanding amount to Eskom at the end of the concession, the Auditor General noted that it would be a substantial amount.
In addition, the buyout amount according to the government support agreement, should be paid within 30 days following the last day of the term.
Late payment of the buyout amount, the report also revealed, will bear interest at libor (London Inter-Bank Offered Rate) plus 5 per cent, 90 days after delivery of the termination notice.
Failure to pay the buyout amount will grant Eskom the right to continue operation until the debt is settled.
Create Separate fund to cater for eskom’s debt - AG
However, according to Uganda Electricity Generation Company Limited, the investment in the dams is collectible within the respective years making it unlikely to accumulate debt.
To be certain, Mr Muwanga asked government entities in the electricity sub-sector to create a separate fund to cushion the country against debt.
“A separate fund should be established and managed by UEGCL as the principal concession monitoring agency as a cushion for the outstanding debt obligation at the end of the concession contract in April 2023.”
20 year concession
Eskom signed a 20 year concession and assignment agreement with Uganda Electricity Generation Company Limited in 2002 to operate Nalubaale and Kiira dam, allowing it to make investments required to keep the dams operational.