Government sets eye on Chinese firm as Museveni blocks Umeme deal

Kampala- President Museveni has ruled out renewing electricity distributor Umeme’s contract, saying Uganda should instead look for “a cheaper way of modernising and expanding the distribution and distribution lines”.

Umeme’s power distribution concession is due to expire in seven years (March 2025). According to the law regulating the power sector, a concessionaire can, three years to the expiry of its concession, apply for a renewal. Umeme had expressed interest in having it extended.

In a March 12 letter blocking the renewal of the concession, at least for now, the President directs Energy minister Irene Muloni, who has in the past defended Umeme, to explain why, despite Umeme’s investment in the network, energy losses are high.

Distribution energy losses are now at 17.2 per cent, down from 19 per cent two years back. Mr Museveni seems to suggest Umeme should have eliminated technical losses altogether.

The head of state terms as “mysterious” the losses and investments that have been made. He adds that because of energy losses, electricity consumers are paying 26 per cent more, that is, currently Shs204.8 higher, in the case of domestic consumers, than they should for power.

“I am now directing you to furnish me with the explanations on all these matters,” Mr Museveni directs Ms Muloni.
“In the meantime, there should be no question of renewing Umeme’s concession. By copy of this letter, I am also directing the [Inspector General of Government] to look into these issues,” his letter adds.
IGG spokesperson Munira Ali said: “We received the complaint. We have to now look at what it requires.”

Earlier calls
Mr Museveni’s letter comes on the heels of a December 1, 2017, UEDCL letter to Finance ministry Permanent Secretary Keith Muhakanizi about the concession.

Daily Monitor reported then that the Uganda Electricity Distribution Company Limited (UEDCL) was pushing for a Chinese firm, whose name UEDCL did not reveal.

Through the letter, UEDCL managing director Joseph Katera noted that the government should invest more of ‘its own money’ in the network.

That money, according to a source, was to be provided by a Chinese firm, who would then buy out Umeme’s undepreciated investment at the end of the concession in 2025.

It was reportedly against this background that Umeme had as of 2017 started engaging key policymakers to lobby for an extension, arguing that it is better placed than any company to distribute power in Uganda.

Umeme needed a positive signal from the government to ease the utility’s access to loans to invest in the power distribution network over the course of the next seven years.

Over that time, it had indicated it would require about $1 billion (Shs3.5 trillion) to revamp the network, whose reliability is presently affected by rains.

Umeme wanted the signal, too, to ensure people, who have over the years bought shares in the company, which has a record of paying out dividends annually, do not hurriedly offload the shares. The offloading of shares could have a bearish effect on Umeme’s share price on the Uganda Securities Exchange (USE). Lenders will surely take note of the latest development. UEDCL, which in March 2005 leased the distribution network to Umeme, last year pushed for a yet-to-be named Chinese company to take over from Umeme.

UEDCL argued that the Chinese would offer cheaper money and accept a lower return on investment (profit). Umeme’s return on investment is 20 per cent. Since 2012, when an ad hoc committee of Parliament, headed by Jacob Oboth recommended the termination of Umeme’s concession, because, among others, the Attorney General’s Chambers played a peripheral role in crafting of the concession agreements, debate has been swirling around the contentious clauses of the concession agreements.

For instance, the Escrow agreement provided for the establishment of an Escrow account through which UEDCL granted a first lien and security interest in the account in favour of Umeme.

Clause 11 of the agreement provides that Citibank N.A., London shall be entitled to a $50,000 (Shs182m) fee in the first year of the agreement and thereafter to $20,000 (Shs72.9m) per annum, a fee that was to be paid by UEDCL – within 30 days of Citibank London delivering the invoice to UEDCL.

Clause 12.1 of the support agreement provides that in case of the natural termination of the agreement, the buyout amount shall equal 105 per cent of the cost of the modification that is un-depreciated and unrecovered by the company through the tariff as of the date of transfer.

Clause 9.5 of the agreement provides that should any proceedings be brought against the government, Uganda shall unconditionally and irrevocably not claim diplomatic and consular immunity or privileges unless the action is against its aircraft, naval vessels and other defence assets.

Clause 9.2 of the agreement provides that in case of a dispute, it shall be conducted in Uganda.
However, if Umeme desires that it should be conducted outside Uganda, it shall be conducted in London – though in such a scenario, Umeme shall pay all costs of the arbitration as and when incurred by the government of Uganda.

UEDCL has also in the past accused Umeme of not paying for the depreciation of the assets it got from UEDCL, which means once Umeme leaves, UEDCL would have challenges replacing or maintaining what will be left.

In January, this newspaper catalogued Umeme’s achievements over the years. For instance, it has increased the number of entities connected to the grid from 292,000 in 2005 to 1,064,547 as of September 2017.

Umeme’s gains
We reported that Umeme has reduced energy losses through, among other means, introducing prepaid billing – that is, making sure domestic customers pay in advance for the power they will consume – and, in some cases, offsetting amounts government departments owe it from what it collects from retail users and should pass on to the Uganda Electricity Transmission Company Limited from which it buys bulk electricity.

Over the last 12 years, Umeme has increased revenue collection from 80 per cent (2005) to 99.9 per cent (2017). This it achieved by going after those who owe it money.

Going by the comments some of its consumers voice via social networking sites Twitter and Facebook, the company had become complacent, knowing that it covers the largest service territory than all the other seven distribution companies combined.

Whereas it has many defenders, they seem to live in a different Uganda than those with Umeme accounts and pay the utilities bills but many a time cannot either charge their phones because of outages or whose fresh milk go bad in their refrigerators whenever even a drizzle results in a blackout.

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