Government business: is it economics, pride or both?

Andrew Mwenda, in a Sunday Monitor feature a week ago, presents a solid argument against the renationalisation of the Bujagali dam from Bujagali Electricity Ltd (BEL). I am persuaded!

It seems that the buy-back cost of Bujagali is about $1.5bn and Mwenda rightly argues that it would not make sense, especially since Uganda would have to borrow that money.

That amount of money would be enough to build another dam (double the size of Bujagali), “train 180,000 doctors, build 225,000 school classrooms, tarmac 2000km of roads and build three airports.”

While we (the few that have it) all like cheaper electricity, surely it is clear that the opportunity cost would be high. Mwenda argues further that if we really must have lower electricity tarrifs, then BEL should enjoy greater tax relief. However, this would deny government $1.8bn over BEL’s concession period. That is not sensible either!

Now Uganda is planning for the construction of a refinery. Twenty-nine (29) sq/km of land for the refinery was identified in Hoima and compensation for loss of economic activities and livelihoods for affected people has been going on through the Resettlement Action Plan since 2013. If all goes as planned, Kabaale parish in Hoima is destined to become a small city equipped with many facilities, including an airstrip.

The cost of this project was estimated at $4bn in 2012. Early this year, RT Global Resources, a Russian company, was selected as our first choice for a public-private partnership in which Uganda will hold 40 per cent shares. It is expected that fellow EAC countries may wish to buy some of the shares.

A British company, Foster Wheeler Energy Ltd, was contracted to conduct a feasibility study on building the refinery. Government was given reassurance that a refinery is commercially viable. Apparently we consume 27,000 barrels of petroleum products per day. The refinery is expected to produce 30,000 barrels per day initially in 2018, increasing to 60,000 in a couple of years.

Other benefits include the improvement of Uganda’s balance of payments since we would not need to import petroleum products; jobs will be created and conservation of trees and the environment will improve if increased gas (LPG) supply makes it cheaper.

All the above information is readily available from the ministry of energy and mineral development or especially at the Petroleum Exploration & Production Department (PEPD). However, independent opinions on the viability of the refinery project are hard to come by.

The lack of such, readily-available, in-depth studies on why we must have a refinery encourages cheeky thoughts about our intentions. As ministry of energy documents point out, there is only one other refinery in East and Central Africa. In Kenya! Why did Kenya give up on its own refinery ages ago yet there was a budget line for its refurbishment? And Kenyans have been proved to be better economists than us. Does owning our own refinery improve our status in the region and the world? Is it a question of pride?

The three big oil companies in Uganda; Total, Cnooc and Tullow have begged and cajoled government for licences to begin drilling crude oil for export. We have not budged. Right now these companies are in some kind of a mess because of the falling oil prices globally.

What will happen to them if oil prices remain low or fall even further? What can we expect from our 40 per cent of $4bn investment in the refinery if prices do not rise soon? News filtering in reveals that Saudi Arabia is very interested in keeping prices down to deter Americans from exploring and drilling their own oil. The Arabs rightly recognise that if oil products are very cheap, it does not make sense to invest heavily in that sector.

On the other hand, Matsiko Kahunga, a blogger and Kigo Thinker, asserts that there is no shame in government owning projects, business or property for pride. Kahunga believes that government has the power to develop a “positive and liberating mindset” in citizens and that “parastatals in emerging economies play a bigger, liberating role beyond balance sheet profitability.”

In his response to Prof Wasswa Balunywa’s argument against the revival of Uganda Airlines, Kahunga states that “Uganda must play a direct, active, dirigiste role in the economy, including aviation” because “unless we have Ugandans working as pilots, aeronautic engineers, air hosts and hostesses and other jobs, we shall soon have a generation of Ugandans who believe that Ugandans have no faculties capable of being pilots, flight engineers or any other aviation jobs, besides ground handling and cleaning.”

As we think this through, Uganda must sort out its Ebola check desk at Entebbe airport. In Kigali there is a lady who stands by the entrance in arrivals with a temperature check ‘gun’ in hand. One is cleared within seconds. In Nairobi it is already built in – they have a walk-through check! At Entebbe we have similar gadgets like Rwanda’s but with absurd queues and pointless forms to fill in.

Featured Posts
Recent Posts