MPs terminate Umeme concession

Parliament has recommended that the government should open up the power distribution sector to competition.

Thursday March 27 2014


MPs yesterday resolved that concessions to power distribution and generation firms Umeme and Eskom, respectively, be terminated immediately.

In its place, the House recommended that the government should open up the power distribution sector to competition. Under present rules, House resolutions are, however, not binding on the government but generally considered as advice, which can be taken or ignored, albeit with certain political ramifications.

Under the agreement, Umeme’s concession runs out in 2025. Senior officials at the company never returned repeated calls by press time yesterday. The Eskom 20-year generation concession was to end in 2022.

Parliament also said the option of a Public-Private Partnership in the distribution sector, with the government having a 51 per cent stake, be adopted.

Parliament sanctioned the termination on the basis of a statement by an official from the Attorney General’s Chambers in 2011 that the AG did not draft the concession agreements between Umeme and the government as is required by the Constitution.

Should the government implement the resolution which follows a recommendation of the Ad Hoc Committee on Energy, Uganda would have to pay Umeme Shs526.3b in compensation.

The Shs526.3b is 120 per cent of the ($172m) Shs438.6b, which, according to Umeme’s 2013 audited accounts, is its unrecovered investment base.
It remains to be seen how potential foreign investors will respond to the news. But it sure will concern Umeme’s estimated 6,500 shareholders.

Parliament heard that even if government does not initiate the termination, at the end of the agreement, taxpayers would still pay Umeme a buy-out amount of $129.15m under the Natural Termination of the Concession Agreements provision which was pencilled into the contract MPs observed was bad because it was allegedly skewed in favour of the company.

The decision comes just five days after Umeme announced improved revenue collections driven by an increase in energy sales.
It also comes against the backdrop of a public show of confidence by Energy minister Irene Muloni that the Umeme concession would not be terminated.

Many MPs yesterday shouted down Prime Minister Amama Mbabazi when he proposed that the agreements should be reviewed.

“If termination is to be considered, it must be considered carefully so that it does not result in greater damage. Therefore, I would advise that Parliament does not take this decision now about the termination,” said Mr Mbabazi.

The Leader of the Opposition in Parliament, Mr Wafula Oguttu, said the government does not want to terminate the Umeme concession.
“The reasons the minister has given are not good. We are in a catch-22 situation. Either way we have to pay Umeme. So we are saying let us pay now. This contract must be terminated today,” said Mr Oguttu.

Mr Mbabazi said the government would consider the House recommendation.
Ms Kabakumba Masiko, Bujenje MP, said though many Ugandans hold shares in the Umeme, the company could engage in other business.

“It is true people have shares in Umeme. But when we terminate the contract, we would not be liquidating Umeme Ltd. It could continue with other businesses and it could get more contracts,” she said.

Mr Geoffrey Ekanya, Fox Odoi and John Kamara supported the termination whereas Mr David Bahati and Anette Nyakecho Okwenye (Woman MP of Otuke) said Parliament should not terminate but rather renegotiate.

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