Kampala. In the first half of 2015, power utility company, Umeme, was paying the price for a weak Shilling as it plunged into a Shs7 billion loss.
The period saw the weak Shilling wipe Shs73 billion off Umeme’s income at the time.
However, the fortunes of the company appear to have changed in the second half of 2015 as the company recovered.
In fact, Umeme’s net profit has hit a new high in 2015, according to results released by the utility company.
The firm’s net profit rose to Shs105.8 billion in 2015, up from Shs96 billion in 2014, according to the financial results.
The net profit growth is a result of increased revenue and reduction in foreign exchange losses.
“Revenue increased by 18.8 per cent to Shs1.2 trillion supported by an 8 per cent increase in units sold (GWh) coupled with regulatory adjustments in the end user tariff through the quarterly tariff adjustment mechanism during the period,” a statement from Umeme reads.
In the first half of 2015, the Electricity Regulatory Authority (ERA) had set the power tariff at a rate that was below the existing market conditions.
The Uganda Shilling had depreciated by about 19 per cent between January and June 2015, whereas power tariffs in the same period only rose by about 5 per cent.
ERA sets a new tariff once every three months based on the prevailing conditions like inflation, the exchange rate and the global price of oil.
However, there were demands from power producers and Umeme for the tariff to reflect the exchange rate movements. African Alliance had then warned that tariffs would have to rise if players in the sector were to meet their expenses.
“A depreciating currency could lead to additional tariff increases in succeeding quarters and also foreign exchange losses since the machinery that Umeme imports has to be paid for in dollars yet its revenues are in Uganda Shillings,” reads a report from African Alliance.
And indeed in October 2015, the start of the fourth quarter, ERA raised electricity tariffs by 17.4 per cent to the disappointment of consumers and delight of producers.
It is estimated that about 75 per cent of all costs in the electricity sector are dominated in the foreign currency.
Umeme collects its revenues in Uganda Shillings but has a contractual return on investment requirement denominated, non-salary expenses and financing costs all in dollars.
The increased tariff raised the revenue levels of Umeme. Even with the higher tariff, there were increased customer purchases which rose by 5.5 per cent during the year.
Additionally, Umeme has guaranteed return from the government of 20 per cent annually on the capital investments made through the year.
Umeme’s new substation in Namugongo and upgrades on substations in Bombo, Mukono, Jinja, Ntinda and Lira, among other investments, increased by Shs281 billion during 2015.
The performance of the utility company is slightly what some of the investment firms had projected in November 2015. Renaissance Capital, an investment firm, had projected that Umeme’s revenue would grow to Shs1.3 trillion.
Ever since the introduction of the pre-paid metering system, Umeme has continued to experience a reduction in energy losses – now at 19.5 per cent in 2015 from 21.3 per cent in 2014.
At least more than half – 415,000 of 794,533 customers – are now using the pre-paid metering system, often referred to as Yaka.
The automated meter reading and prepaid metering reduce incidences of meter tampering hence curbing non-technical losses.
The Umeme board of directors has recommended a dividend payout of Shs24.4 per share, up from Shs19.5 per share in 2014.
The Umeme share price has been dropping for most of the last two weeks as some of the staff who held shares regulatory restrictions finally expired, allowing them to sell their shares on the market.