Why Umeme is lobbying for early renewal of concession

Why Umeme is lobbying for early renewal of concession
Umeme officials pose for a photo with President Yoweri Museveni moments after meeting him at State House Entebbe

Power distributor Umeme is lobbying the Ministry of Energy to have its concession agreement extended before it expires and as President Yoweri Museveni threatens to have the contract terminated.

A source at Energy ministry told this publication on condition of anonymity that Umeme officials have been using different lobbyists to convince President Museveni and Energy Minister, Engineer Irene Muloni, to commence early negotiations to have the current twenty- year concession extended beyond 2025.

Umeme has been using its latest achievements like increased roll-out of pre-payment metering, increase in revenue collection and distribution efficiency to lobby the government to extend its concession.

The company says it has excelled in distribution efficiency at 83% compared to 50% at the start of the concession in 2005.

It appears that sections within the Ministry of Energy have been convinced by Umeme’s lobby but the President, who has over the years been critical of power tariffs, was not.

President Museveni in a March 12 letter to Minister Muloni directed against the renewal of Umeme’s concession. He also directed the Inspectorate of Government to investigate Umeme and the Energy ministry officials over suspected exploitation of consumers.

President Museveni’s letter left many wondering to why he would direct against the renewal of the Umeme concession with seven years left to the end of the current one.

Dickens Kamugisha, Chief Executive officer at the Africa Institute for Energy Governance (AFIEGO), a research and consumer lobby group, says Umeme badly wants an early extension of concession because they would use it to seek for loans from local and international banks.

Kamugisha suspects that the President’s letter was sparked off by reports that Umeme wants the concession extended before end of this year.

Umeme took over the distribution and supply of electricity in Uganda from Uganda Electricity Distribution Company Limited (UEDCL) under the Concession for a period of 20 years, commencing 1 March 2005.

Under the Concession, Umeme is required to repair, upgrade, and expand the Distribution System within Uganda.

UEDCL owns the Distribution Network leased to Umeme under the Privatisation Agreements.

Umeme purchases electricity from Uganda Electricity Transmission Company Limited (UETCL), which owns and operates the high voltage transmission network. UETCL purchases electricity from several sources including; Eskom (U) Limited, operators of the Nalubaale and Kiira hydro-power generation stations and Bujagali Energy Limited which operates the Bujagali dam.

Umeme also continues to buy expensively generated thermal electricity from Jacobsen Elektro or Electro-Maxx and Tronder Power Ltd.

Umeme, according to the source at the Energy ministry, has since 2014 been working on plans for expansion in preparation for a more lucrative phase in Uganda’s electricity generation when the Karuma and Isimba dams are commissioned later this year.

The Company which already has running loans from the World Bank’s International Finance Commission reportedly plans to borrow close to 1.2 trillion shillings in loans for network expansion as it eyes the Karuma and Isimba dam generation.

Karuma, Isimba and other planned hydro-power dams, as well as the developments in the oil and gas sector in Uganda are, according to those in the electricity sector, likely to be much sought after now than in 2005 when Uganda was faced by electricity shortages.

Umeme in its 2017 financial statements observes that the electricity industry continues to grow, with additional generation capacity in the pipeline due to be commissioned later in 2018 to 2019.
It says the industry registered a maximum demand of 597.4 Megawatts compared to 557.4 Megawatts in 2016, reflecting a growth of 7.2 percent.

This publication has come across documents of an Energy Planning and Management Consultants, a firm hired by Umeme to review its Strengths, Weaknesses and Opportunities and Threats (SWOT) under the current concession.

The consultant firm concluded that “Opportunities in the oil industry for Umeme are twofold. Firstly, petroleum products produced in Uganda will be cheaper compared to imported oil and this will make thermal oil generation less costly.

Secondly, the firm said that the oil industry will itself consume a lot of power and as well spur local industries, both new sources of revenue for Umeme. The third opportunity for Umeme, according to the consultant firm, is the pre-payment metering system which guarantees 100 percent revenue collection and offers Umeme the flexibility to link the price to fluctuations in inflation, foreign exchange, and oil prices.

Umeme Managing Director, Celetino Babungi, while releasing the company’s financial results for 2017, confirmed that they had written to government to have the concession renewed. Babungi said the renewal of the concession would allow long-term borrowing.

It is not clear whether the original agreement has a renewal clause. Babungi had previously told journalists that Umeme is still interested in distributing power in Uganda. The concession agreement between government and Umeme remains secretly kept.

Babungi and Umeme Board Chair, Patrick Bitature, had met President Museveni at State House Entebbe. The Umeme delegation to statehouse also included former finance Minister Gerald Ssendaula and Florence Nsubuga, Umeme’s chief finance officer.

Officials at the Ministry of Energy have been hesitant to comment on the Umeme status following President Museveni’s letter but a separate source indicated to URN that the president’s letter came at the time when the Ministry is supposed to recruit a consultant to review Umeme against a six-year performance target. The process for recruitment of the review consultant, according to the source, should have been completed by December 2017.

The source indicated that internal review of Umeme’s performance for the past seven years has been ongoing. It is suspected that the internal review which is in advanced stage could have partly sparked off the president’s letter following reports that sections of the review seem to be satisfied with Umeme’s performance.

James Banabe, the Acting Director Energy Resources, whose directorate is charged with conducting Umeme’s internal review as well as hiring an external consultant, could not be reached on phone for a comment about the status of the review.

While Umeme has reportedly improved in terms of efficiency, Energy ministry officials have been urging it to bring down power losses. Power losses have gone down from 21.3 percent in 2014 to 19.5 percent in 2015 but the government wants the losses to go down to 14.8 percent this year. Power losses are a major contributing factor to the high power tariffs paid by the consumer.

Umeme’s latest estimates indicate that distribution losses reduced to 17.2 percent in 2017 compared to 19.0 percent in 2016.

“Whereas the energy losses recorded in the first half of 2017 were 17.5 percent, losses in the second half averaged 16.9 percent,” reported Umeme in its 2017 financial statement.

URN