A Umeme technician at work. A fresh dispute has erupted over Umeme’s exit, with the Office of Attorney General (AG) putting an 11th-hour spanner in the works. PHOTO/FILE
A fresh dispute has erupted over Umeme’s exit with the Office of Attorney General (AG) putting an 11th-hour spanner in the works, ruling that the Electricity Regulatory Authority (ERA) did not have unfettered discretion over the power distributor’s investment requirements.
The AG’s opinion, multiple sources who are privy to the exchanges, told this newspaper last evening, has disconcerted ERA executives as being favourable to Umeme.
The power distributor is currently engaged in tight-rope pulling with the Ministry of Energy over payment of $234.7m (Shs856b) as the buyout amount, exclusive of applicable taxes.
This is computed based on the Net Accumulated Capital Investments of the Lease and Assignment Agreement (LAA).
But other industry sources are siding with the AG saying ERA, as a regulator, is an interested party in the matter and cannot be fair to Umeme.
ERA assessed $127.655m (Shs465b) as the buyout amount payable to Umeme. The Ministry of Energy had earlier assessed $225m (Shs819.7b) as the buyout.
A special audit by the Auditor General, contracted to the accounting firm Grant Thorton, initially assessed $191m (Shs695.8b) as the buyout amount.
This has since been revised upwards to $201m (Shs732.3b), exclusive of applicable taxes but inclusive of $9.7m (Shs35.3b) related to work-in-progress that is running until the end of the concession—next week. A final report is expected between tomorrow and Thursday.
The latest disharmony in opinion, according to knowledgeable sources, started during AG’s audit over the legal definition of the term “modification” under the LAA, and if ERA’s authorisation was a precondition before Umeme undertook any capital investments.
While ERA, which was midwifed in 2001 as part of the first electricity reforms that unbundled the Uganda Electricity Board (UEB) into three successor companies for generation, transmission, and Uganda Electricity Distribution Company (UEDCL), has been approving all Umeme’s capital investments—allowing many and disallowing some aspects—the Attorney General averred that the latter did not require the former’s approval.
“This divergence is critical, as it affects which investments count towards the buyout amount and could impact ongoing disputes between Umeme and the government,” reads in part a confidential memo prepared by the Ministry of Energy.
The Energy ministry Permanent Secretary, Ms Irene Bateebe told this newspaper last evening she was yet to look at the AG’s advisory.
The LAA defines “modification” to mean any restoration, reinforcement, replacement, upgrade or expansion of the distribution system by Umeme and all attendant capital investments made in the execution of the concession provided that these are approved by the regulator.
This, an official who spoke on condition of anonymity, said encompasses two aspects; the mandatory capital requirements by Umeme to the distribution network, and “explicitly” any required modification—all other capital investments in fulfilling Umeme’s obligations.
The AG opined that the definition, taken as a whole, does not make ERA’s prior approval a condition precedent for an investment to be deemed a “modification” under the LAA.
In effect, all capital investments undertaken by Umeme to meet its obligations, whether or not submitted by the company in its investment plan to the regulator, fall under the contract definition of modification.
Questions of legality
“In summary as per the AG, section 1.1 of the LAA defines modification broadly to cover all capital investments (except maintenance that Umeme makes in furtherance of its duties under the concession and licences,” the memo reads in part.
Some of these investments, knowledgeable sources told Daily Monitor separately, include transformers, substations and networks installed but connecting to either the upcountry homes or other property such as farms belonging to fat cats in government and the politically connected.
“Yes, on the surface it appears like an investment but when we did our on-ground verifications we established that these investments were serving individuals. When we asked Umeme how come they did not include them in the investment plans, the excuses hinging mainly on political pressure,” ERA insiders explained.
While investments under this scope had drastically declined in recent years, the official indicated that there are many of such on Umeme’s books of accounts as investments.
According to the memo: “The wide and problematic interpretation underpins the Attorney General’s stance that Umeme did not need ERA’s prior consent to carry out network improvements during the concession.”
The ERA authorities declined to comment on the matter. However, sources said last evening that the AG’s opinion has potential “implications” on the buyout amount and specifically gives Umeme confidence to stand ground on its $234m (Shs852.5b) claim.
The first draft of the special audit of the LAA, which came to a natural end on February 28, 2025, estimated the buyout as $191m, arising out of audit of total investments by Umeme and verified by ERA of $746.798m (Shs2.7 trillion) inclusive of $10.84m (Shs39.4b) invested in the period running to next Monday.
ERA says Umeme has so far recovered $625.22m (Shs2.2 trillion) leaving a balance of $127m (Shs462.7b) as unrecovered investments.
ERA contends that the requirement that investments be approved is valid and only aimed at ensuring only prudent costs are passed to consumers.
“The implication of the same will be that in as far as the buyout amount is concerned the government will stand behind Umeme’s investments real or imagined, including those not formally approved by ERA, when it entered into the LAA and Support Agreement,” the memo reads.
This newspaper revealed early this month that Umeme had protested ERA’s computations and over-reaching mandates to both the Attorney General and Ministry of Energy based on terms of the concession.
The concession encompasses several agreements, namely the LAA entered between Umeme Ltd and UEDCL on May 17, 2004, and amended in 2005, the Power Sales Agreement entered on May 17, 2004, between UETCL and Umeme (amended), the Support Agreement between the government and Umeme, among others.
Mr Peter Kaujju, the Umeme head of communications, said last evening there are layers of trust that have been built during the last 20 years.
“We played our part. We submitted our claim as we know them to the Auditor General and we are waiting for their final position,” Mr Kaujju said.
Attorney General Kiryowa Kiwanuka. PHOTO/FILE
Bracing for the unknown
Effective April 1, management of the country’s electricity distribution network—comprising 97 percent of the national grid— will revert to the Uganda Electricity Distribution Company (UEDCL).
The transition process has, however, been marred by claims of irregularities, and chaotic intermittent power blackouts—likely to worsen in the coming days.
A Technical Working Committee, with participation of the Ministry of Finance’s Public Private Partnership (PPP) unit in November 2019 guided on the renegotiation of Umeme’s concession, and the decision not to renew the concession taken in 2021.
While the concession provides for discussion on the buyout amount in the 19th-year, the recent dissonance in opinions has left a lot to be desired and the public utterly befuddled.
This, as the proposal for a short-term Umeme-UEDCL marriage to manage the transition smoothly, was expressly shot down owing to, among other factors, a clash of egos.
Parliament last week unsystematically approved the borrowing of $191m, approved by Cabinet as the draft Umeme buyout, while ignoring concerns laid out by among others, ERA, Auditor General, and the Committee on the National Economy that scrutinises loans.
The loan from Stanbic Bank is payable within five years at a present discounted value of the loan of $213m (Shs776b), meaning that the government will pay back $235.41m (Shs857.6b).
The report of the parliamentary Committee on the National Economy tabled last week recommended that: “Given that the Auditor General has not determined the final buyout amount and considering the period remaining to come to the end of LAA, the Auditor General expeditiously reconciles with ERA and UEDCL to determine the final Umeme buyout cost and submit to Parliament to guide approval of the loan request.”
The National Resistance Movement (NRM) majority-backed House, however, approved the loan request despite the red flag raised.
In the likely event that Umeme disputes the final buyout amount in the report expected out tomorrow, the concession provides for London-based international arbitration.
During the 20 years, Umeme has been paying a monthly lease (concession fee) and in return, it operates, maintains, upgrades and expands the network, effective from March 1, 2005, and then recovers its costs, invested capital and profits from electricity tariff and other service charges.
However, at the end of the concession agreement the government committed to pay a mandatory buy-out amount comprehensively calculated undepreciated investments approved by the regulator, which are made by Umeme that have not been recovered through the tariff guided by the ERA-issued Distribution and Supply Licence which imposes service regulations and tariff regulations.
The concession
As per the concession, copies seen by this newspaper, Umeme was required to among other, make annual investments in system rehabilitation and reinforcement of $65m during the first five years, and at least $5m within the first 18 months.
Other commitments included, making 15,000 new connections per annum in the first five years and 25,000 new connections per year thereafter, pay a concession fee for the use of the assets set at approximately $1m in the first year of the concession which equals the sum of UEDCL’S existing debt service obligations, depreciation of UEDCL’s assets and government’s return on assets.
Umeme then was a private company fully owned by the private international consortium of Globelec (CDC/Actis) of the UK and South Africa’s ESKOM, which exited the arrangement in 2006 citing lack of viability of the concession.
Over the years, starting 2009, Umeme’s performance was called into question leading to back-to-back inquiries, starting with the Gen Salim Saleh inquiry in 2009, the Parsons Brinckerhoff Africa (PTY)-led inquiry in 2011, and a parliamentary ad hoc inquiry of the performance of the electricity subsector in 2012, which recommended termination of the concession.
The company, however, lived to see another day as the government was wary of the exorbitant buyout amount if the concession was terminated mid-way. Then from 2020, President Museveni doubled-down that Umeme must go.
Today, the company says it has rehabilitated and constructed new substations across the country to improve supply reliability to the current 74 stations and more than doubled the distribution network size to 44,000km, from 16,000km in 2005.
“We have also increased transformer zones to 14,000km from 6,000km in 2005. We have increased the customer base seven-fold to 1.7 million from 250,000 in 2005 and this number will grow to over two million customers by the end of 2023. The electricity distribution efficiency has greatly improved to 85 percent from 50 percent through the reduction of energy losses,” says Umeme.
Effective next month, UEDCL will take over operation of the national grid amid a cocktail of challenges buffeted by government bureaucracy. Already a section of Umeme staff have known their fate that they won’t be absorbed by UEDCL but amid low or no morale, are required to work until March 31 while a section of electricity users have reported problems in buying power units as the billing system is being migrated.
