Govt owes Umeme Shs679b but only has Shs54.5m in account
Umeme is on a mission of putting up another substation in some other parts of the country like Ishaka. PHOTO/FILE
What you need to know:
- Failure to maintain enough cash in the escrow account, which strengthens government’s position in case of a buyout of the Umeme concession, might put Uganda in a tricky position in discussions for a renewal.
BY Christine Kasemiire
The Auditor General has warned government of the increasing liability of the Shs679b owed to Umeme yet the escrow account holding repayment funds only has Shs54.4m.
In the report to Uganda Electricity Distribution Company Limited (UEDCL) for the period ended June 2019, the Auditor General warned that the buyout amount for Umeme is escalating yet the concession is nearing its end.
“From a review of Umeme audited financial statements for the year ended December 31, 2018, it is estimated that as at that date, capital investments amounting to shs697b have not been recovered through the tariff methodology. This liability is expected to escalate further given that Umeme projects to make additional investments of $450m,” Auditor General John Muwanga, warned.
UEDCL signed a lease agreement with Umeme allowing it to operate and manage its assets, which took effect in May 2005 for a period of 20 years, after which the assets would be handed over.
For its work, Umeme was to be paid a 20 per cent return on investment for the investments made in the distribution network, through tariff set by Electricity Regulatory Authority (ERA).
According to the agreement, government would be required to pay Umeme a buyout amount for investments that have not been recovered through tariff at the expiry of the 20 years in 2025.
However, Mr Muwanga noted that a review of investment verification reports by UEDCL, which recommends approval of investments by Umeme to ERA, indicates that Shs750b worth of investments undertaken by the former had been disallowed by the regulator by the end of 2017.
The Auditor General highlights that this could increase the liability payable by government at the end of the concession.
To make matters worse, the escrow account meant to hold repayment funds in case of need to pay the buyout amount, is near depleted.
The account as at June 2019 held only Shs54.5m after Umeme withdrew shs66.6b to settle energy arrears owed by government.
It should also be noted that the account is not expected to be credited as ERA has since 2012 not provided for its financing in an attempt to maintain a sustainable tariff.
When contacted over the weekend, Ms Ziria Tibalwa Waako, the ERA chief executive officer, said she was on leave and engaged at the time.
However, Daily Monitor has learnt that the failure to credit the escrow account was because the money was not serving its intended purpose as Umeme raided the account in the event of default on payment of energy bills by government entities.
Auditor General’s warning
The Auditor General reveals, there has not been any policy guideline from government on how the liability will be settled, warning that lack of a payment plan at the end of the concession, could subject the country to high interest rates or be forced to unfavourably extend Umeme’s contract.
Government is currently renegotiating terms of extending the power distributor’s concession.
It is not clear whether the repayments will impact the negotiations since the buyout amount owed to Umeme is hefty.
Mr Muwanga advised UEDCL to engage stake holders to find solutions to the liability for the buyout amount before it materialises and mitigate it to an affordable amount.
