Nankabirwa: Umeme exit has started

Kampala, Uganda | THE INDEPENDENT |  Government is putting in place structures that will ensure a smooth transition after the concession for the power distributor Umeme, is not extended beyond March 2025. Umeme has for the last 19 years become a household name and is known for introducing the now-popular Yaka prepaid meters.

The Minister of Energy, Ruth Nankabirwa confirmed that come the beginning of March 2025, the concession agreement will come to a natural end after 20 years.

Nankabirwa has indicated the preparation for UMEME to revert the concession to Uganda Electricity Distribution Company Limited (UEDCL) has already begun.

The Minister in a statement revealed that she set up a Joint Technical Committee (JTC) to supervise and manage the transition process as Umeme exits and hands over to UECDL by 1st April 2023.

She said the Joint Technical Committee comprises the Ministry of Energy and Mineral Development, Secretary to the Treasury, Attorney General, Uganda Electricity Distribution Company Limited, Uganda Electricity Transmission Company Limited, Privatization Unit, and the Electricity Regulatory Authority (ERA) The same committee successfully handled the exit of the South African company ESKOM Uganda Limited which used to the Nalubale and Kiira dams in Jinja.

“All efforts are being made to support the Uganda Electricity Distribution Company Ltd to get ready to take over the operations of the Umeme network come 1st April 2025,” Nankabirwa said.

The cabinet also endorsed the post-concession management strategy whose implementation had begun. URN has learned that as part of the preparation the government has been trying to capitalize UEDCL with sixty-four million dollars.

Some of that money will enable UECDL to continue with operational costs which may include taking over most of the employees of Umeme who are mostly Ugandans. By the end of 2022, Umeme had 2300 full-time employees excluding those working on a contractual basis. It had about 800 workers on contract.

Umeme  is listed on the Uganda Securities Exchange and is cross-listed on the Nairobi Securities Exchange. Last year, the Energy Ministry Permanent Secretary, Irene Bateebe together with the State Minister of Minerals appeared before Parliament’s Natural Resources and Environment committee.

Bateebe told MPS that the government could pay up to $ 215 million to acquire a majority share of Umeme. She said the arrangement they have with Umeme is for it to recover the investments so that assets are taken over by the government or Uganda Electricity Distribution Company Limited which is a government entity.

As of the end of 2023, 35% of Umeme was owned by Ugandans. 1.5 % of the 35% is owned by Ugandan members of staff of Umeme. The recovery of costs Umeme has recovered some of the investments over the years but because it is a going concern, there are some of the investments to be recovered at the end of the concession.

There had been talk that Umeme could end up receiving over between $200-225 million as a buyout amount. The final amount like it was in the case of ESKOM Uganda Limited will be determined by the Auditor General.

URN has however accessed documents where the power distributor had indicated to the Electricity Regulatory Authority that it had $145 million as unrecovered investment costs.

The said monies are said to have been rejected by the Electricity Regulatory Authority during the period 2008-2021 from inclusion in the regulated assets base.  “We will continue to engage with the Authority to ensure recovery of these asset costs,” said Umeme in October 2023.

It further proposed to ERA that any reconciliations for capital investments be postponed until the authority reviews the company appeals. Umeme had projected an additional $35 million capital investment worth its assets by the end of 2023.

This money will be added to the gross regulated cost. It hopes to provide the schedule for closed capital investment for 2022 in the first quarter of 2024. URN has information that while the Electricity Regulatory Authority is reviewing Umeme appeals, there are other organs which include a steering committee at the ministerial level and a government coordination committee that interacts with Umeme to iron out issues for a smooth transition and handover.

What is Umeme leaving behind?

It has been operating and maintaining over 44000 kilometers of 11kV and 33kV, distribution Lines, and about 15000 transformers. It has been serving about 1.9 million customers compared to about 250000 customers when it entered the concession.

Is it an End of Umeme in Uganda’s Electricity sector? 

There have been attempts to have the concession extended beyond 2025. However, the parties disagreed on the 20% return on investment charged by Umeme.

President Museveni then directed against further discussion saying the rate charged by Umeme was partly the reason the end-user tariff remained high. It now appears that Umeme could bounce back in the distribution sector after 2025 if a cabinet proposal that UEDCL acquires private investors with less shareholding.

Sources at the Ministry of Energy told URN that the cabinet guided that the ministry should put in place a special purpose vehicle comprising UEDCL to work with a private investor like Umeme to run the concession when the current one comes to an end.

The source indicated that while it is not automatic that Umeme would be selected, it has a high chance of clinching the deal given its experience and the structures it had established across most regions in the country.

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URN