Why MPs advised government to end Umeme contract

Stand taken. MPs on March 26 resolved that concessions to power distribution and generation firms Umeme and Eskom, respectively, be terminated immediately and in place open the distribution sector to competition. Our reporter Nelson Wesonga explores the Whys and Hows of this decision.

Tuesday May 13 2014

Umeme staff place a transformer in Namuwongo recently.

Umeme staff place a transformer in Namuwongo recently. Photo by Faiswal Kasirye 

By Nelson Wesonga

Parliament- Between 2004 and 2005, Umeme Uganda Ltd signed five agreements with the government to distribute electricity around the country.

These were the Lease and Assignment, the Support, the Power Sales and the Escrow Agreements (2005) as well as the Power Supply Licence (in 2005) agreements.

Through the Lease and Assignment Agreement, the Uganda Electricity Distribution Company Limited (UEDCL) leased its assets to Umeme to operate for 20 years.

According to the Support Agreement, the government is to support Umeme in designing, insuring, rehabilitating and maintaining the electricity distribution network.

The Power Sale Agreement provides that the Uganda Electricity Transmission Company Ltd (UETCL), which buys bulk power from electricity generating companies, avails Umeme electricity to distribute.

The Escrow Agreement provided that UEDCL would open an account with Citibank (London) where it would deposit monies to serve as security, should some government departments not live up to their obligations to Umeme.

The Power Supply Licence provides for the performance targets which the Electricity Regulatory Authority (ERA) sets for Umeme.

All these concession agreements are meant to run for 20 years.
However, on March 28, Parliament recommended that the government terminates the concession.

MPs argued that, contrary to constitutional provisions, the Attorney General’s Chambers did not draft the agreements.

Mr Fred Ruhindi, the deputy Attorney General, had, however, told the Ad Hoc Committee on Energy (ACE) on March 19, 2012 that the “the Attorney General’s office reviewed all the legal documents, participated in the negotiations with the bidder and cleared all the drafts of the agreements”.

Article 119 of the Constitution provides for the AG “to draw and peruse agreements, contracts, treaties, conventions and documents by whatever name called, to which the government is a party or in respect of which government has an interest”.

Who brought Umeme on board?
Ms Elizabeth Nakkungu, the Commissioner of Legal Advisory Services, had in December 2011 told the House Ad hoc Committee which was set up to look into the energy sector, that it is the Privatisation Unit (PU) of the Ministry of Finance which procured and contracted transaction advisers to do the work.

When Daily Monitor asked Mr Jim Mugunga, the spokesperson of the Finance ministry, for comment, he said: “That is the position of the committee, they are better placed to expound.”

“During the time, the state of the sector and return from the international market (as informed by the international tender process) Uganda got a competitive deal and this is the position put to the committee with the relevant facts,” Mr Mugunga said during an interview on May 2.

But the House still adopted the view contained in its ACE report that “the concession agreements, while generally conforming to the basic standards, were crafted to strongly favour the private concessionaire at the expense of Uganda in terms of return on investment, arbitration, buy-out conditions on termination of the contract…This contract should be terminated.”

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