Umeme technician carries out a connection. PHOTO/ FILE
More confusion continues to mar the planned Monday exit of power distributor Umeme’s and Tuesday handover of the management of the country’s majority electricity infrastructure to the Uganda Electricity Distribution Company Limited (UEDCL).
Amid the contradictory opinions and rope-pulling between Umeme and Energy ministry over the buyout amount, an internal assessment of the power distribution network has put the cost of existing defects in the system at Shs529b.
The assessment by UEDCL indicates that defects within the network and related issues are estimated at $85m (Shs310b), with the cost of spare parts and urgent repairs standing at $60m (Shs219b).
A copy of the assessment seen by Daily Monitor reads in part: “Although mechanisms for resolution were anticipated within the concession agreement, non-compliance and delayed identification of deficiencies have hindered timely remediation efforts. It is recommended that an equivalent amount be provided to address these gaps before the retransfer date.”
The $60m is specifically described as “essential in preventing service disruptions during the transition given that some of the items require long lead times to procure.”
The revelation, coming barely one week to the Umeme Ltd-UEDCL handover, brings into sharp focus the oversight roles of both the asset owners, UEDCL, and the regulator, the Electricity Regulatory Authority (ERA). ERA were required to supervise capital investments and rehabilitation of the electricity distribution infrastructure during the last 20 years of its operation.
Even then, the $60m is less than what Cabinet approved in February as start-up capital for UEDCL to take over and address the network deficiencies in the national grid. Cabinet gave the nod to the Finance ministry to borrow $50m (Shs182b) from Absa Bank.
Power outages
With only days to the handover, power outages that started in late 2022 when the decision was made not to renew nor renegotiate Umeme’s concession have surged across the country.
During the early days of the outages, some quarters of the public alluded to sabotage. But in the recent days, officials have attributed the episodes to system overload, derelict transformers and substations, and broken distribution lines in Mityana, Luweero, Kawanda-Masaka lines, and elsewhere.
For instance, the power outages in the Munyonyo-Ggaba areas last week were attributed to system overload—many users on the network. Officials then attempted to temporarily redirect the load to the Mutundwe–Entebbe line as they urgently rehabilitated the Ggaba substation, only to nearly crash the Mutundwe substation due to excessive load.
An assessment by UEDCL in the last 20 years indicates they have been “regularly monitoring” the distribution network as mandated in Section 2.16(a) of the Lease and Assignment Agreement (LAA), first entered with Umeme Ltd on May 17, 2004 (amended in 2005).
“These inspection visits have occurred regularly and are conducted with full participation of Umeme Ltd. Furthermore, pursuant to the LAA, UEDCL has consistently produced reports detailing the status of the distribution network, identifying any defects or nonconformities in anticipation that Umeme Ltd would promptly address these issues,” the report reads in part.
Section 2.7 of the LAA on the retransfer of the network specifies that Umeme Ltd was required to furnish UEDCL with engineers’ reports of three quarters to certify and detail the technical state—inspection reports, tests and other relevant data— of the distribution system, including any modifications incorporated therein as at the date of each report submitted.
The LAA states that in the event of any discrepancies or deficiencies noted, Umeme Ltd was expected to provide a list of such issues along with a remediation plan and an estimated cost for addressing them before the end of each period.
Discrepancies
The UEDCL report says owing to the inconsistencies in Umeme Ltd’s submissions, arising out of their routine monitoring activities, they embarked on a wide-ranging assessment of the network “to inform the current status of assets in Umeme concession.”
But Mr Peter Kaujju, Umeme head of communications, last evening stressed they have done everything by the book—the concession agreement.
“Like before, we are concentrating on honouring our mandate, delivering safe and reliable electricity as we close the concession in these last few days,” Mr Kaujju said.
“As per the concession agreement, an independent engineer was jointly hired by Umeme and UEDCL to conduct an audit of the network. The report highlighted that Umeme was found running the electricity distribution network according to prudent Utility Practice. The report was submitted to the government. I never glanced at the figure that is beginning to crop up,” he said in reference to the UEDCL’s report detailing the defects pegged at Shs529b.
Mr Jonan Kiiza, the UEDCL head of corporate and stakeholder affairs, said the matter is being looked into. “I don’t know where you got the report from, but what do you want me to add? Basically, we just have to look for the money and fix what we need to fix,” he said.
Since taking over management of the distribution network on March 1, 2005, the practice has been that Umeme submits capital investments and requirement plans to the regulator, ERA, for approval — to allow or disallow—owing to the need to keep the end-user tariff in check, and then proceed to invest.
Going by the concession, Umeme was required to, among other things, make annual investments in system rehabilitation and reinforcement of $65m (Shs237b) during the first five years, and at least $5m (Shs18.2b) 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 (Shs3.6b) in the first year of the concession that equals the sum of UEDCL’S existing debt service obligations, depreciation of UEDCL’s assets and government’s return on assets.
Umeme has been paying a monthly lease (concession fee) and in return, it operates, maintains, upgrades and expands the network, effective 2005 and then recovers its costs, invested capital and profits from electricity tariff and other service charges.
Subsequently, ERA puts Umeme’s cumulative investments at $746.798m (Shs2.7 trillion) inclusive of $10.84m (Shs40b) invested in the period running until the end of March.
Of the Shs2.7 trillion, ERA maintains and told the Auditor General looking into the buyout amount that Umeme has so far recovered $625.22m (Shs2.2 trillion), leaving a balance of $127.655m (Shs465b) as unrecovered investments. The unrecovered investments is the buyout amount.
Umeme, on the other hand, submitted claims of 234.7m (Shs856b). The first draft audited buyout amount by the government was $191m (Shs697b), then $201m (Shs733b), exclusive of applicable taxes, as the current working figure.
Moving parts
Under normal circumstances, the Shs529b defects flagged in the UEDCL assessment would be reconciled from the Umeme buyout.
Knowable sources familiar with the ongoing discussions intimated to this newspaper that the Ministry of Energy has raised the matter with the Office of Auditor General as part of their audit of the buyout amount, but that the matter was “seemingly side-stepped.”
Nevertheless, Energy ministry permanent secretary Irene Bateebe argued that Umeme always made capital investments based on approved work programmes by ERA.
“Not all the required investments were always approved/invested. The Auditor General has factored in all these elements in his assessment,” Ms Bateebe told this newspaper.
The point of contention, knowledgeable sources said last evening, seems to have been sparked by the recent memo by the Attorney General that ERA, as the regulator, did not have any business scrutinising Umeme’s investments.
Daily Monitor reported yesterday that the Attorney General’s memo had disconcerted ERA executives as it appeared favourable to Umeme.
In the March 21 advisory, the Deputy Attorney General, Mr Jackson Kafuuzi, wrote to the Auditor General: “We advise that Umeme (does) not require the approval of ERA before making any modifications [certain investments].”
“It is important to note that any law enacted or issued after the Reference Date (i.e 1st January, 2004) would amount to a change in law and would be treated in accordance with change of law provisions of the agreement,” Mr Kafuuzi wrote.
The letter was copied to Attorney General Kiryowa Kiwanuka, Energy minister Ruth Nankabirwa, and her PS Bateebe, Solicitor General Pius Biribonwoha, and his deputy Charles Ouma, and the ERA chief executive officer Ziria Tibalwa Waako.
In summary, as per Mr Kafuuzi’s letter, 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).
Insiders in ERA told this newspaper the letter had been received but in their opinion, the Attorney General’s position that Umeme Ltd did not require ERA’s approval before undertaking “modifications” under the LAA “is not well-founded within the contractual framework of the Umeme concession and does not reconcile with Uganda’s regulatory regime.
“The AGs definition under Section 1.1 of the LAA defines Modifications broadly to include all of Umeme’s capital investments in the distribution system (aside from routine maintenance); and it does not make ERA pre-approval a prerequisite. On the other hand, the opinion posits that ERA’s requirement that investments be approved is valid and aimed at ensuring only prudent costs are passed to consumers,” an ERA internal memo to the effect reads in part.
Variance in opinions
The memo adds: “ERA’s concern about unchecked investments is valid from a regulatory perspective, other jurisdictions confirm that regulators normally do not guarantee recovery of unapproved investments– a principle ERA has followed – but here the Government of Uganda effectively desires to guarantee to Umeme to encourage network rehabilitation and expansion. The ERA’s regulatory authority remains intact.”
The implication of the same, another official explained, will be that in as far as the buyout amount is concerned, the government will stand behind Umeme Ltd’s investments, real or imagined, including those not formally approved by ERA, when it entered into the LAA and Support Agreement.
But Mr Kafuuzi defended that there is no contradiction or confusion in interpreting his guidance.
“That is why the audit is taking place. The auditor will be able to guide whether those investments were proper or not,” the Deputy Attorney General told this newspaper.
“The regulatory issue/ function of ERA in this space came in by way of enactments/regulations made after the signing of that Agreement. They did not affect this Agreement because there is a change of law provision in that agreement where it was stated that the agreement would not be affected by a later change in law,” he added.
Mr Kafuuzi’s guidance followed the Auditor General, Mr Edward Akol’s request for opinion on March 17. Mr Akol indicated during the audit they had come across different interpretations on the term “modifications” (certain investments) and whether Umeme Ltd required ERA’s approval as per the LAA.
Knowledgeable source indicated yesterday that UEDCL had also written to the Attorney General requesting for an opinion regarding the defects galore of Shs529b and the way forward.
“Nonetheless, it means a dispute may be declared after the buyout amount is paid out,” a knowledgeable source said, adding: “The best thing should have been for UEDCL to declare a dispute ahead so that it’s part of the buyout amount and off set or resolved before then - otherwise by the time they declare a dispute Umeme will have left.”
The distribution network operated by Umeme comprises among others, 60 substations, 15-switch stations, 32,794 of low voltage lines, 18,756km of medium voltage lines, and 19,319 distribution transformers. Add to the mix non-network assets like 22 office buildings, 10 Very High Frequency (VHF) sites, and eight pieces of open land.
The UEDCL’s assessment maintains there is no doubt that between 2005 and 2024, there has been a remarkable growth in the distribution network operated by Umeme Ltd.
However, a number of infrastructure, including substations Bubulo in Manafwa District, have obsolete transformers that require replacement.
POWER BLACKOUTS
With only days to the handover, power outages that started in late 2022 when the decision was made not to renew nor renegotiate Umeme’s concession have surged across the country. During the early days of the outages, some quarters of the public alluded to sabotage. But in recent days, officials have attributed the episodes to system overload, derelict transformers and substations, and broken distribution lines in Mityana, Luweero, Kawanda-Masaka lines, and elsewhere. For instance, the power outages in the Munyonyo-Ggaba areas last week were attributed to system overload—many users on the network.
Officials then attempted to temporarily redirect the load to the Mutundwe–Entebbe line as they urgently rehabilitated the Ggaba substation, only to nearly crash the Mutundwe substation due to excessive load.
