Why Umeme is investing Shs130B despite its Concession ending?

by Christopher Kiiza
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Uganda’s main electricity distribution company, Umeme Limited is investing USD 35 million approximately 130 billion despite its concession coming to an end in 2025.

In 2022, government notified Umeme that its 20-year concession would not be renewed upon expiry in March 2025. Part of the reasons the government decided to end the Umeme concession was high electricity tariffs.

Despite the concession coming to an end, Umeme says it is investing over 130 billion shillings to honor its obligations as per the existing concession agreements.

“We are executing a number of investments and also to reaffirm our objective to deliver on the license until the last day of the concession. We are executing a number of investments. Our investment plan is around 130 billion which is around 35 million dollars where we are building the Hoima substation, Matuga sub station, West Park in jinja, Owen falls upgrade, a number of transformer injections. All those, including technology catered for,” says Umeme Managing Director, Selestino Babungi.

This year 2024, Umeme is looking at capital investments in the networks subject to approval by the power regulator, the Electricity Regulatory Authority (ERA) to ready the sector for reliability, expansion, uptake of new power generation, and also keep building the backbone to serve the consumers.

The 130 billion of capital investments in the network will see among others the entire reconstruction of Hoima substation and decommissioning the old substation to ready Hoima for the growth that is coming through the oil. The new substation, according to Babungi will be three times the capacity of the existing 5mVA capacity.

Umeme will also revamp the Owen Falls substation on Kayunga Road from the current load of up to 40MW capacity to 60MW to improve supply.

“We are also to serve our health facilities on the directives of government. We are building a number of dedicated lines like how Mulago is to our referral hospitals; Mbarara, Lira, Mbale, Entebbe, and the objective is that all major referral or regional referral hospitals should have a dedicated line of supply to improve supply reliability,” says Babungi.

He adds: “We are fully aware that health facilities of today are heavily dependent on electricity; be it CT scans, X-rays, lab testing equipment. All those require reliable and stable supply. What we have seen also is that government has ramped the equipment in hospitals. During COVID-19, we realized that oxygen supply was a challenge and a number of these referral hospitals have now built oxygen generating plants within themselves which require a lot of reliable electricity. We are glad that we are completing those projects.”

On matters billing, Umeme is implementing a new customer information system which will integrate pre-payment, postpaid customers, customer relationship, management and meter management.

New Electricity Connections 

“We have recruited a lot of technicians. More than 500 technicians were recruited and retooled. So, we have increased our capacity to connect customers from an average of 10,000. Now, every month we are connecting between 20,000 to 25,000 new connections.”

Additionally, the recruit of technicians was in readiness for the Electricity Scaleup Project by government which aims to connect 1.3 million consumers for free on the national power grid. Out of the 1.3 million consumers, Umeme has been assigned to connect 600,000 consumers.

Babungi says Umeme has mobilized resources and trained its technical personnel to be ready for the task.

GOVT to Pay UMEME USD 225 Million

Government estimates it will pay Umeme approximately USD 225 million to enable it recoup its investments in the national grid once the concession expires in March 2025.

The concession’s terms require the government to pay Umeme all unrecovered capital investments when the agreement ends.

As per the concession terms, the government is obligated to compensate Umeme for all outstanding capital investments at the conclusion of the agreement.

“Today we do have an idea of how much the buy-out amount is … approximately we are in the tune of about $225 million,” Irene Batebe, the Permanent Secretary for the Ministry of Energy and Mineral Development said recently.

It was the first time the government was signalling how much Umeme was likely to earn in unrecouped investments.

Batebe added that the Auditor General would do a final review of Umeme’s investments in the national power grid to determine a final amount to be paid out to the firm.

The government also plans to contract a private company for a joint venture with the state-owned Uganda Electricity Distribution Company Limited (UEDCL) to operate the grid after Umeme’s exit.

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