The government has finally informed Umeme, the country’s prime electricity distributor that it will not renew its 20-year concession once it expires in 2025.
The company has since 2019 pressed the government to pronounce itself on the concession, especially with regard to delayed negotiations, saying the delay was affecting its ability to attract investments and trading on the stock markets. Now, the government has officially notified Umeme that the contract will not be renewed.
“The company has formally received written communication from the Government of the Republic of Uganda, notifying it that the current concession will continue to run until its natural end in March 2025 as stipulated in the concession agreements after which, there will be no renewal after March 30, 2025,” according to a statement from Umeme.
The company says that it remains committed to performing its obligations as per the existing concession agreements and will continue to operate and maintain the electricity distribution system “in line with prudent utility practice to ensure continued service delivery through to the end of the concession.”
Umeme, which is listed both on the Uganda and Nairobi stock markets, has endured uncertainty over its future after 2015, with many critical views from both political leaders and consumers of the service. In 2020, the government finally formed a committee for negotiations with the company after two directives from President Yoweri Museveni and other government officials, from the ministry of Finance, Planning and Economic Development, ministry of Energy and Mineral Development, and the Attorney General’s office.
However, the committee’s delay to conclude its negotiations and engaging Umeme has been a concern for the company’s management and shareholders. In May last year, Umeme board chairperson Patrick Bitature expressed hope that the negotiations would start soon after the new government is formed by June of the same year, as the government had cited the electioneering period as a reason for the delays.
The hope, however, reduced when the government’s ‘rationalization of the ministries, departments, and agencies plan started taking shape and it became clearer that the several electricity government agencies would either be merged, scrapped, or made departments under the ministry.
During this debate, there were calls for the Uganda Electricity Distribution Company Ltd (UEDCL) to take over the distribution activities currently run by Umeme on grounds of the high cost of electricity to the consumers as well as the erratic supply. As early as 2013, barely eight years into its concession, there were already calls for the revocation of the concession, with a parliamentary investigating committee accusing the company of failing to reduce losses and costs while exaggerating and inflating its investment costs.
The then-managing director, Charles Chapman said the report had come too late because the losses had been reduced from 40 to 24 per cent since they started operations. Five years later, President Museveni spoke against the extension of the concession, accusing Umeme of behaving like a middleman bent on making a profit and influencing the cost of electricity.
In August last year, Ibrahim Ssemujju Nganda, the Kiira Municilaity legislator led parliament to block the presentation of a report on the evaluation of Umeme’s performance by minister Ruth Nankabirwa, saying parliament had already recommended the termination of the concession. They also cited the high return on investment of 20 per cent as set in the contract.
“We need to be serious; we take a decision to terminate and then you come here to brief us about the defiance of a resolution of parliament,” Ssemujju said.
Bitature said these developments and the delay to conclude negotiations were affecting their ability to attract investments into the company’s operations. He said the company was willing to take a downward-revised rate in a renewed concession. The decision to revoke the contract would have perhaps come earlier, but there have been concerns about how much the government would have to pay Umeme in recoverable investment costs currently totalling about $300 million (about Shs 1.1 trillion).
Last month, the distributor accused the state minister for Energy, Okasai Sidronius Opolot of stating that the government had made the decision not to renew the concession. Umeme said this was bad for the company and for its trading on the stock markets, adding that its prospectus when floating its shares, states that the contract ‘naturally runs up to 2025, which is still the position to date.
“The company shall, in accordance with the listing rules governing it, promptly issue a public notice once written communication is received from the government on the future of the Umeme concession,” said a statement to the markets.
Umeme’s exit will come two years after power generation company Eskom, which leaves Uganda next year. The CEO of Eskom Uganda, Thozama Gangi said they are serving out their contract in March. She told a tariff review public hearing Thursday that 126 of their 127 employees will all be transferred to the Uganda Electricity Generation Company Ltd (UEGCL).
The tariff review public hearing is aimed at enabling the public to give views on the applications by the companies to the Electricity Regulatory Authority (ERA) on how much the consumers will pay next year. Umeme buys electricity at an average tariff of Shs 290 per kilowatt-hour (unit) and sells to customers at a weighted average tariff of about Shs 504 per kWh according to ERA.
“The difference is the distribution price covering the approved cost of running the distribution business, including the recovery of investment costs and return on investment,” said ERA chairperson, Sarah Kanaabi.
Blessing Nshaho, Umeme Ltd head, corporate, legal, and regulatory affairs, says that they require a purchase price of Shs 168 per unit to meet the recommended cost of electricity.
Source: The Observer