Negotiate extension of Umeme concession, Museveni directs

President Museveni has instructed Energy minister Irene Muloni to commence negotiations to extend Umeme’s power distribution concession, which is due to expire in 2025.

This directive was issued through a November 28 letter that the Daily Monitor has seen.
It follows a call for him to address the matter before he switches on Isimba and Karuma hydropower plants in order to restore certainty in Uganda’s electricity sector.
“I have received information that the delay in starting negotiations on the Umeme concession is affecting the market,” Mr Museveni wrote.

He said any developments that might delay the negotiations should be brought to his attention.

Ms Muloni neither picked this reporter’s calls nor responded to the text messages asking her for comment.

On March 12, Mr Museveni had stepped on the concession extension brakes.

Return on investment
He argued then that the 2005 ‘concession was messed up by certain elements’ in the Energy ministry.

It is as a result of the mess – inflating the level of energy losses and agreeing to a 20 per cent return on investment (ROI) that Uganda’s retail power tariffs were high, he said.

During an interview on December 17, Mr Patrick Bitature, Umeme’s board chairman, said the President’s March 12 letter ‘was like a court injunction’.
“Shareholders thought the President had said terminate the concession, which was not true,” Mr Bitature said in Kampala.
“Investors do not like uncertainty,” Mr Bitature added.

It is not clear when the negotiations on a post-2025 concession will commence.
What is clear is the Attorney-General’s Chambers as well as Energy and Finance ministries’ officials will represent Uganda.

Certainly, the two sides will discuss Umeme’s ROI, as hinted on by an Energy ministry official as well as Mr Bitature.
“We could start negotiating how to bring this [20 per cent] down through a stepped reduction so that it is in line with the current conditions,” Mr Bitature said.
“As shareholders, we might get less money but we will have a long tenure.”

The 20 per cent ROI was informed by the high risk profile associated with investing in Uganda’s electricity sector in 2004/05 when hydropower generation was low due to a long dry spell.

Equally low, were collections from ministries, departments and agencies, which consume a lot of power.

Energy losses
On the other hand, energy losses, according to the Electricity Regulatory Authority (ERA), were high at 36 per cent at the time Uganda Electricity Distribution Company Limited (UEDCL) leased the distribution network to Umeme.

Umeme has since then reduced the losses to 15 per cent by investing in modern technology and sensitising the public on the risk of electrocution resulting from illegally tapping electricity.

Additionally, the company has increased collections from consumers from lows of 40 per cent to 99 per cent and seen the number of premises connected to the Umeme grid increase from 290,000 to 1.3 million.

Currently, ERA is going through a report by Tata Consulting Group on the new performance targets for Umeme.

For Umeme, working to achieve the new targets it will require even higher financial investment.

Much of the money will be raised by borrowing from especially international lenders.
For the lenders to infuse long term loans in its veins, there is no better bargaining chip than a long term contract and projections of higher sales of electricity from the current and upcoming power generation plants.

Businesspersons are establishing many factories and the government is out to connect 300, 000 premises annually to the power grids.

These two should increase power consumption.

When Daily Monitor contacted Richard Byarugaba, the National Social Security Fund’s (NSSF) managing director, for a comment on Mr Museveni’s latest directive, he said though he is not aware of it, if true it would be thrilling.
“As a shareholder, we would be thrilled because we believe Umeme has contributed a lot to the energy sector in terms of investment,” Mr Byarugaba said yesterday.
“Umeme is a listed company. As a result of that, it tends to attract favourable borrowing, whose benefit can be passed on to electricity consumers.”

NSSF is the largest shareholder in Umeme with 23 per cent of the stock.

Economist’s view
Outlook. Ramathan Ggoobi, an economist at Makerere University Business School, said NSSF’s investment in Umeme might have informed Mr Museveni’s decision to pen the November 28 letter.
“That must have made him realise this is a Ugandan company, not necessarily a South African one,” Mr Ggoobi said.
“Umeme has transformed the distribution of electricity. But I think it has not been regulated well. Something has to be done about the cost of power.”