Weak Shilling eats into Umeme profits

Umeme technicians at new advanced metering system that the company recently installed. PHOTO BY Stephen Otage

What you need to know:

Loss. At least Shs73b was knocked off the firm’s income for the first half of the year


Power distributor Umeme is paying the price of a weak Shilling, after it suffered a surprising half year loss.
In its interim results, the utility company announced at least Shs73b had been knocked off their income due to the Shilling weakening by 19 per cent between January and June 2015.

This was a 943 per cent rise in unrealised foreign exchange losses from Shs7b during the same period in 2014.

As a result, the company suffered a half-year loss of Shs4.4b compared to a net profit of Shs38.2b during the same period in 2014.

“This is solely due to the increased unrealised foreign exchange losses,” the company said in a statement.
The company noted that this loss was “on borrowings” which are denominated in dollars.

A company may suffer foreign exchange losses if it has several transactions denominated in dollars yet the core of its business is in Uganda Shillings.
The unrealised foreign exchange can be recovered – and in this case, Umeme hopes to recover this through any appreciation of the Shilling.

“However, the company will recover the unrealised foreign currency losses over the life of the concession through the quarterly tariff adjustment mechanism,” the statement reads.
The Electricity Regulatory Authority sets quarterly tariffs based on the trends on the dollar, inflation and fuel prices.
However, the tariff can only go up by 2.5 per cent in any quarter, which may not necessarily reflect the trend in the economy.

For instance, power tariffs went up by 2.5 per cent between July and September.
This was much lower than the 8.2 per cent tariffs should have increased during the quarter.

Umeme also incurred higher administration expenses that rose by 36 per cent to Shs80b. This was up primarily due to staff salaries, bonuses and provisions for bad debts.

Umeme signs power sales agreement

Umeme revealed it signed a Power Sales Agreement (PSA) with Uganda Electricity Transmission Company Limited (UETCL) and Uganda Electricity Generation Company Limited to distribute the electricity from the 183 Megawatt (MW) Isimba hydropower plant once the project is completed.

“Accordingly, the terms and conditions governing the company’s purchase of electricity under the Isimba PSA are identical to the company’s existing rights and obligations related to global purchases of electricity from UETCL, as set out in the Umeme PSA,” the company revealed in a statement.

The company said it was also negotiating a similar arrangement for the 600 MW Karuma project.

The directors have recommended an interim dividend of Shs10.8 per share, which totals to Shs17.6b.