Umeme is expected to exit the electricity distribution market at the end of its concession in March. Photo / File
Cabinet last week on Monday gave a green light for the borrowing of $191m (Shs700b) to buy out the electricity service provider, Umeme Ltd, ahead of the end of the company’s 20-year concession next month.
According to top energy sources, another $50m (Shs183.5b) was approved as startup capital for the Uganda Electricity Distribution Company Ltd (UEDCL), which is taking back operations of the national grid.
The ministry of Finance is expected to table the request to borrow $191m from Stanbic Bank before parliament today, compounding the government’s excessive domestic borrowing which has severely impacted the private sector, with many borrowers left with no source of credit or distorting the capital market.
It remains unclear when request to borrow $50m will be tabled. However, the government and Umeme are already elbowing over the actual buyout amid maneuvers to prepare for a smooth transition to UEDCL. Some officials are already parading private companies promising to assist UEDCL and turn a higher Rate of Return on investment that Umeme’s.
UEDCL, is one of the three successor companies of the Uganda Electricity Board (UEB), alongside Uganda Electricity Generation Company Ltd (UEGCL) and Uganda Electricity Transmission Company Ltd (UETCL), which was unbundled as part of the first-generation electricity sub-sector reforms— the Power Sector Restructuring and Privatisation Strategy supported by the World Bank and the Norwegian Water Resources and Energy Directorate—in 1999.
The second reforms came into effect with amendment of the Electricity Act in 2022 to merge the three companies to form one utility company-Uganda National Electricity Company, with generation, distribution and transmission as departments, which is on hold for now pending kicking out of Umeme and managing the transition.
Industry sources told of ongoing tight rope pulling between Umeme, which was initially looking at Shs1trillion, and the government over the exact buyout amount. Sources indicated that Umeme, which listed on the stock exchange through Initial Public Offering in 2012 to secure capital, has promised its shareholders at least $250m (Shs917b). The National Social Security Fund (NSSF) is the biggest Umeme shareholder with a 23.34 percent stake.
Energy ministry sources, however, revealed that the $191m is the draft estimate as per to the ongoing Auditor General’s audit which is expected to be complete by the end of this month.
“The figure won’t increase significantly. Initially we told Umeme not to invest in order to keep the buyout amount in check but either way they invested small monies along the way for obvious reasons. That we can align along the way but we needed to start on the process to secure this big figure considering we have one month,” a senior official told this newspaper last evening on condition of anonymity to speak freely.
Meanwhile, on the other hand some insiders expect the Umeme-UEDCL takeover to be a messy fair. For instance, the regulator, Electricity Regulatory Authority (ERA), which approves all licensee’s annual workplans and budgets in order to regulate tariff has no proper inventory of Umeme’s investments including land for among substations that previously belonged to UEDCL, there are lingering questions on who inherits Umeme’s liabilities, while Umeme was supposed to tender three-phase sequenced engineer’s report detailing the status of the distribution network and assets and plans.
This, as some senior government officials are already peddling private companies to sign MoUs to assist UEDCL with the transition. The ministry of Energy has, for instance, committed with one company, Powercom, for 10 years.
The government, through UEDCL, signed a 20-year lease and assignment agreement with Umeme Ltd running from May 17, 2004. The concession agreement[s] were amended in 2006.
Umeme Ltd was formed in April 2004 by two companies; CDC Globleq Holdings (Conco) Ltd with 56 percent and Eskom Enterprises Ltd with 44 percent, but the latter pulled out in March 2005 and later in April 2006 sold its shares to the former, which deal raised eyebrows after it did not attract Capital Gains Taxes.
The buyout amount, calculated and agreed to by both sides, is a key clause in the concession. It includes cost of modifications that is underappreciated and under-recovered by Umeme at the time of reverting the distribution network to UEDCL. This would be multiplied by a percentage equal to 120 percent from the end of the initial period through the thirteenth anniversary of the transfer date, such a percentage declining 2 percent per annum thereafter to 106 percent in the twentieth anniversary.
With all variables considered therein the government has to pay the said monies within 91 days, short of which a 20 percent interest per annum on any outstanding amount would accrue.
The government decided in late 2020 not to renew Umeme’s concession when it comes to its natural end. President Museveni has variously accused the company of sabotaging his industrialisation efforts by failing to lower power tariffs.
Speaking during the 2020 Independence Day celebrations, President Museveni disclosed why he opposed extension of the concession.
“We are working hard to evacuate power from Karuma dam to the manufacturing hub and export excess power. There is a group called Umeme. These are private people who want to make high profits. Can you make high profits from bone marrow and then we survive? We are debating that. If you are looking for high profits, there are areas you can go to; invest in clubs, casinos I will not follow you,” he said.
