The Umeme buyout dispute will now be decided through arbitration in London. Photo / File
Imagine you are an investor in Umeme, who had hoped to cash in on the buyout windfall.
Suddenly, your money is stuck. One month. Then two. Umeme says capital reinvested during the concession must be recovered, but what government is offering falls below expectations.
Talks have been held, but have had no agreeable results. Now investors are locked in, expecting the best, but don’t know when the best will arrive.
In capital markets, this is not just a delay - it’s a deal-breaker.
On June 2, Umeme told shareholders the company was dissatisfied with the buyout amount paid by government, which had consequently forced it to issue a notice of dispute.
Government and Umeme entered into good faith negotiations between May 2 and May 9, later extending to May 20.
And while they did agree on certain amounts to be paid by government after May 31, they hit a wall on the full claim of $292m (Shs1.06 trillion) worth of reinvestments that
Umeme claims above the $118m (Shs427 billion) already received as the buyout Amount.
“The negotiations resolved and agreed on certain amounts as payable... but no resolution was reached on the ... entire claim,” the company said in a notice, in which it also revealed it had “resolved to and will proceed to pursue the full recovery of all outstanding sums due through arbitration in London”.
The negotiations
At the end of March 2025, Umeme officially handed over operational control of the power distribution network to government after a 20-year concession.
But the company’s legal documentation hasn’t been handed over – it’s only the assets.
Under the concession terms, government owed Umeme payment for two categories of investment: Undepreciated modifications – assets Umeme installed that hadn’t fully worn out, and depreciated infrastructure – older equipment whose costs were still contractually recoverable.
Umeme initially submitted a buyout claim of $234m (Shs850.9b) for audit. But on March 31, government paid just $118m - half of what it had expected.
To Umeme, this fell short of what was contractually ‘fair compensation.’
Initially, Umeme told Daily Monitor, it had expected a balance of $116m, but after internal audits, the figure was revised to $117m.
But in a notice last week, it indicated that after reviewing other components tied to the contract, including lease obligations, cost escalations, and regulatory treatment – the total dispute claim was now $292m.
The concession provides different channels of dispute resolution, starting with 30 days of “good faith negotiations”, under which two rounds of negotiations were held, with the first one in April and the second in May, involving teams from Ministry of Finance, Energy, the Attorney General, and Umeme.
No consensus was reached, with Umeme escalating the dispute to the arbitral process in London.
Umeme spokesperson Peter Kaujju, says they are seeking to recover shareholder funds “who invested to electrify the country”.
“We initially computed $234m. The Auditor General first saw $204m. Government settled on $118m. We went to the agreement - went to talks - and as we reviewed our documentation to reconcile what is owed and what we owe, the figure rose to $292m,” he says in explanation of the changes in buyout figures.
Who gets this money if it’s paid?
As of December 31, 2023, Umeme’s ownership structure was weighted toward institutional investors.
Local investors held 40 percent - including a 23.4 percent stake by National Social Security Fund, representing the savings of 2.3 million Ugandan workers.
The rest was held by international heavyweights like Allan Gray (14.82 percent), Kimberlite Frontier Africa Master Fund (8.9 percent), and funds managed by BNY Mellon, IFC,
Coronation, and others, including Vanderbilt University and the Hilton Foundation.
By the time Umeme’s share trading was suspended from trading on the Uganda Securities Exchange (USE) in March, it had about 4,300 investors.
About 46 percent were Ugandans, and an additional 5.5 percent were from Kenya, giving East Africa a majority stake.
So the financial implications of this dispute aren’t abstract - they affect real people. But beyond this, the dispute has curtailed Umeme, delaying its statutory obligations.
So, investors know nothing about their company’s financial health at a time when they would be calculating their returns.
Early this week, Umeme managing director Selestino Babungi, said the evaluation of the assets directly affects the company, which is why “we requested more time from the USE”.
Umeme had initially planned to hold its annual general meeting last month, but with the legal overhang, it was forced to delay the annual general meeting and financial disclosures “to pursue legal remedies within the contract”.
The center of the dispute
At the heart of Umeme’s $292m buyout claim is a detailed framework grounded in accounting principles and contract law.
To understand where the numbers come from - and why government and Umeme are at odds - you have to start with a clause known as the Support Agreement.
This document, signed at the start of the concession, says that any capital modifications not recovered through tariffs or other means must be paid at the end of the contract.
These are what accountants call undepreciated modifications - capital assets that haven’t been fully worn down, or paid back, while modifications mean capital investments deployed but not yet recovered.
“Our issue is that the amount government has arranged isn’t consistent with what the contract says,” Babungi says.
Thus, to know what is being claimed - and contested - you start with the balance sheet.
Capital investments like transformers, metres, and substations show up in long-term assets, governed by IAS 16 (International Accounting Standard 16), which sets rules on how property, plant, and equipment are valued.
Once these assets are built or acquired, IAS 23 steps in, detailing how financing costs are treated, especially in circumstances where the capital involves loans, receivables, or other financial instruments.
Umeme wasn’t just any company building long-term assets, it was a concessionaire - a private firm managing public infrastructure under contract.
In this context, rules from IFRIC (International Financial Reporting Interpretations Committee) kick in, under which Umeme’s long-term capital outlays are divided into two broad categories such as tariff-recovered investments, which are expected to be paid back gradually by consumers over time, and buyout-recovered investments, which are paid by government at the end of the concession.
This classification plays a big role in how Umeme justifies its numbers.
Every year, Umeme reports these capital movements in its financials, and can be tracked for recovery through cash flow statements, which show how money was spent on infrastructure or paid back through tariffs.
"Capital investments are recorded annually. Recoveries are visible in cash flows. And the tariff model itself includes capital recovery,” says Babungi.
His argument brings us to the formula that Umeme insists is central: Total investment less of what was recovered through tariffs.
But government says money was recovered, with only $118m remaining unpaid at the time the concession expired. Tariffs Umeme charged over the years had a capital recovery component, essentially a planned depreciation cost embedded in consumer bills.
But what wasn’t recovered by the time the concession expired is, in Umeme’s eyes, the government’s tab to settle. If Umeme wins the arbitration, shareholders stand to receive up to $292m, plus interest.
And that interest isn’t static - it ratchets up over time: First 30 days: 5 percent (annualized) and rises to 10 and 20 percent.
This stepped structure is designed to pressure government into timely payment. Delay too long, and the bill gets steeper - fast.
The arbitration dilemma
Umeme has initiated arbitration proceedings in London, with the Ministry of Energy already served.
This is not the first arbitration Uganda is getting into. There is already a precedent.
Uganda’s major win in an international arbitration came in a high-profile $434m tax case against Heritage Oil and Gas in the London Court of International Arbitration.
But experts say the odds often favour companies, especially those savvy enough to structure their holdings through countries with which Uganda has bilateral investment treaties, such as UK and the Netherlands.
More recently, investors have been exploring similar protections in East African jurisdictions such as Tanzania.
On the flip side, government lawyers typically prefer to keep disputes local, fearing international sympathy for investors.
In Umeme’s case, the arbitration stems from conflicting buyout figures. While Umeme claims it is owed $292m, the Auditor General puts the amount at $118m, and the electricity regulator at $127.6m.
However, under the concession agreement, it is the figures from the Auditor General and Umeme that carry weight in determining the final settlement.
Government has also previously indicated it is auditing a $9.7m investment worth of work-in-progress assets.
A challenging flip-flop
But the flip-flop in Umeme figures, however, presents challenges with an analyst, who asked for anonymity, wondering “if government had paid the $234m as initially submitted, and Umeme later discovered its claim was actually higher, would it have returned to shareholders with the updated figure, or simply moved on?”
The flip-flop could work in government’s favour.
International arbitration is a costly affair. According to international tax lawyers, legal representation alone could exceed $10m, especially since local law firms typically partner with global outfits.
Add to that the arbitration fees and logistics of witnesses across borders, and the cost of litigation balloons further.
Investors’ unease
With the buyout dispute heading to arbitration, investors are starting to show signs of unease.
While it’s difficult to pin down the collective mood of shareholders, those who bought into Umeme during its 2012 initial pubic offer at Shs275 per share have little to complain about.
The share price now hovers at around Shs415, offering healthy capital gains.
Add that to the approximate Shs406 per share in cumulative dividends over the years, and it’s clear that early investors have had a good run - even under the most conservative buyout estimate of $118m.
But not all shareholders are in the same boat. Those who bought at higher prices - Shs300, Shs490, or even more recently - are understandably more anxious.
For them, the best-case scenario lies in the highest possible buyout figure and final dividend payout.
Stockbrokers such as Crested Capital project that Umeme will pay a total dividend of between Shs90 and Shs95 per share for the financial year ending December 2024.
With Shs26 per share already paid out as interim dividends, the final payout is expected to land around Shs70 per share.
The 2025 dividend outlook, however, is less clear. While Umeme continued distributing electricity in the first quarter of 2025 - an effort government estimates was worth $9.7m -
Crested Capital cautions that the company may opt to reduce or suspend dividends for that period and the second half of 2024 as it navigates concession termination and transition costs.
Still, Umeme’s financial cushions appear robust. As of December 2023, Umeme had accumulated Shs609b in retained earnings - profits not distributed to shareholders but reinvested into the business.
Adding the undisputed portion of the buyout at Shs427b brings the total available resources to at least Shs1.036 trillion.
But final shareholder payouts will hinge on several moving parts: final audits, concession-related obligations, and, ultimately, decisions made by the Umeme board.
Suspension of trading
USE has extended the involuntary suspension of Umeme’s stock trading until June 12, when it plans to release its 2024 financials. The decision follows the protracted disagreement over the buyout figure.
Umeme fears that lifting the suspension prematurely could trigger speculative trading, potentially distorting its valuation and impacting minority shareholders.
USE has directed Umeme to submit a progress report detailing the state of affairs and any proposed actions. The situation is compounded by government’s strong confidence, in which it believes, the Auditor General accurately assessed Umeme’s assets at $118m.
This presents a dilemma for Umeme: should it distribute the cash it has on hand now, or wait for a final ruling on the full buyout figure?
There is no certainty on when the arbitration would end
Such uncertainty unsettles investors, who now face delays in the return on their investments.
Whereas some shareholders might be willing to accept dividend payouts from available cash reserves as they wait for the arbitration outcome, it is not without complications.
The bigger question is, will other shareholders accept piecemeal payouts?
How much longer investors are willing to wait will be a tricky issue for Umeme to handle during the upcoming annual general meeting.
