This time next year, Umeme, one of Uganda’s most well-known utility brands, will have different owners, perhaps even a new name.
Following the decision not to extend a 20-year concession, arrangements are underway for the government to buy out the electricity distributor whose shares are cross-listed on the Kampala and Nairobi stock exchanges.
For the Umeme management, it was not for the lack of trying. But after several rounds of talks, the government, through the Ministry of Energy and Mineral Development and specifically, the Uganda Electricity Distribution Company Limited (UEDCL), says it wants the business back.
UEDCL has given assurances that they are up to speed. Conveying the message that UEDCL is a far cry from the defunct Uganda Electricity Board (UEB), the monopoly that existed before liberalization of the sector at the turn of this century.
Speaking in February, the UEDCL Managing Director, Paul Mwesigwa was confident: “Our staff, the board, and management are fully prepared for the responsibilities that lie ahead,” he said.
To be fair to UEB, a decade and half of little or no investment during the turbulent 1970s and early 1980s left the state enterprise a gutted shell relying on increasingly limited generated electricity output.
Another nuisance for UEB was that many consumers simply did not bother paying their bills. Notable was the government, which ironically towards the end, was also heavily subsidizing UEB operations.
With the development partners breathing hotly down the government’s neck, privatization and unbundling of the sector was deemed a matter of urgency. Critics at the time said the government was bulldozed into the concession negotiations resulting in Umeme walking away with the best bits of the deal.
In its latest financial report, Umeme states: ‘We are committed to, and continue to, work with Government and relevant stakeholders in preparation for a smooth assets retransfer and settlement by Government of the buyout amount when the concession naturally terminates in March 2025’.
We are entering uncharted waters. This is the first time the government is buying a profitable going concern rather than bailing out a failing one. It only remains to be seen whether all the relevant parties can avoid any squabbling as the actual buy-out day draws nearer. Umeme has the right to sell the assets back to the government at 105% of book value and full payment has to be made by April 2025, one month after the end of the concession.
There are some who gleefully say: ‘Good riddance!’ Not least of all, President Yoweri Museveni. During the 2021 Labour Day celebrations he said, “When it comes to electricity, this is a strategic issue. We now have electricity that can be sold cheaply to manufacturers, but people who want to make business are pushing it up.”
For the past 10 years, the President has repeatedly made it clear he wants five US cents per unit tariff for Uganda’s industry– something Umeme has been unable to guarantee. Yet the President insists this is a national priority if manufacturing and industry are to sustain any competitiveness.
To underline the issue, in a statement in mid-2022, the Uganda Manufacturers Association (UMA) said in part: ‘If we are to remain in business, the issue of electricity tariffs has to be resolved. Electricity can be wheeled directly to the industrialists thus reducing the impact of distribution costs on the final consumer prices incurred’.
However, last year, Harrison Mutikanga, the Chief Executive Officer of the Uganda Electricity Generation Company Limited (UEGCL) pointed out in a commentary, ‘A pilot study executed in the Kapeeka and Buikwe industrial parks to incentivise industries to consume more electricity and benefit from the low tariff of US cents 5/kWh was not successful as industries did not increase their consumption and output. This therefore is an indicator that electricity is probably not the major cost driver for most industries’.
It would be uncharitable to deny that Umeme has played a significant role in transforming Uganda’s electricity sector. According to company estimates since 2005, cumulative investments have reached just over $800 million while capital recoveries to date amount to about $500 million. In tandem with the government’s laser focus on generating more electricity, Umeme has been making good profits.
With the Yaka system, you can manage your electricity consumption by paying for what you can afford rather than quarreling with meter readers or begging not to be disconnected. Yaka has been a big cost-saver while also enhancing company revenues at the same time giving consumers a sense of liberation.
On assets of UGX2.3 trillion, Umeme reported 2023 revenues of UGX461 billion compared to UGX350 billion the previous year and management reminds us: ‘Together, over the last 19 years, we have rebased Uganda’s electricity sector into an operationally efficient and commercially viable industry, attracting both private and public investments to meet the country’s electricity needs’.
Profit after tax in 2023 reduced to $4.1 million compared to $43.4 million the previous year due to recognition of a higher amortization charge as the company begins winding down which also involves completing loan repayments and clearing other obligations.
From being Africa’s pioneer for unbundling the energy sector, Uganda is now the trailblazer for ‘rebundling’. Umeme’s long farewell follows the departure of South Africa’s Eskom in 2023 with UEGCL taking over dam operations on the River Nile at Jinja.
Renationalisation is a step into the unknown for Umeme customers, employees, bankers, contractors, suppliers, investors and the government itself.
No, the power will not suddenly go off, but the transition period will involve a cultural change in the way the business is run. From being a fully private sector enterprise, as a parastatal, the company will inevitably take on some political overtones. The question then arises whether the profit-motive still holds true, because market forces don’t always respect the public interest.
Technically, top level managers will now become senior civil servants and consequently enter the world of ‘orders from above’. When dealing in a fast-moving consumer commodity such as electricity, this is not always necessarily good for service delivery because of the added layers of decision-makers.
Customers may ask: will there be a marked improvement or worsening of services? Already, there are claims in Parliament that malfunctioning transformers are not being repaired or replaced fast enough. The accusation is Umeme management is no longer bothered. This is something the company has denied, though the closer we get to March, the more likely we will hear of real or perceived failures on the part of Umeme’s services.
Umeme employees may be wondering about job-security, and whether they will be kept on at the same salary and benefits. Probably not, however the new owners should appreciate that technical expertise does not come cheap. You have to pay the going rate; an issue that is bound to frustrate several quarters.
Umeme contractors and suppliers might be uncertain if UEDCL will maintain current business relationships. Due to the considerable amounts of the money involved, harmonising procurement is probably going to be another area of contention.
Shareholders, and in particular the 60% in the hands of international investors, wonder if the government will really pay top dollar. Since early 2023, different figures have been tossed about; $215 million, $225 million, $251 million and lately, $339 million.
The company states in its full year report of 2023, ‘The final outcome is subject to the level of investments over the remaining period and underlying capital recovery through the tariff’.
Contributors to the National Social Security Fund (NSSF) should be paying close attention. Collectively they own nearly a quarter of the company. It’s their right to pester NSSF management about what it’s going to do with the proceeds from the sale.
With limited resources, the Ministry of Finance, Planning and Economic Development has to source all the required money in time. No mention was made of Umeme by the Minister, Matia Kasaija when presenting the 2024/25 National Budget recently.
A week later, Dr. Ramathan Ggoobi, the Finance Ministry Permanent Secretary clarified on the omission. “In the budget we could not put an unknown figure for the concession. That is why we said, let’s first finalise the verification process. Once we do that, we will provide the money,” he said.
Although having the required money is a vital element for the successful transfer of ownership, throwing teams seamlessly together in a revised working environment to ensure continuity, innovation and maintain ever improving customer services, is equally critical. The UEDCL people overseeing the convergence have a hard task ahead of them.
Meanwhile, there have been hints of a Chinese investor lurking in the wings. The Chinese are offering a joint venture deal. Time will tell whether this will amount into anything. It would serve Uganda well however, and boost overall investor confidence, if we could limit the drama. This is a straightforward business transaction.
If the Umeme buyout and transition can avoid such sparking wires as accusations of influence peddling, favouritism, nepotism and graft, this will generate plenty of goodwill. After all, according to the government, renationalization is being done in the public interest.
