The government of Uganda will have to part with USD215 million to acquire majority shares of power distributor, Umeme, when the power distributor’s 20-year contract comes to a close in 2025.
Irene Bateebe, the Permanent Secretary of the Ministry of Energy and Minerals Development told the Committee of Environment and Natural Resources on Tuesday, 11 April 2023, that as of December 2022, the buyout price was at USD215 million.
She also told the Committee that the government-owned Uganda Electricity Distribution Company Limited (UEDCL) requires USD158 million to enable it to invest in the distribution system over the next three years, to reduce the final buyout amount payable to Umeme.
“On an ongoing basis, Umeme is investing and ERA has a recovery mechanism where they recover part of this investment from the tariff. The Umeme concession and the asset remained on the books of UEDCL and the agreement provides for an option where UEDCL can come in and invest today,” she said.
She said that if they attract concessional funding through UEDCL, the government can invest and gradually reduce Umemes’ investment and therefore the amount claimable. Bateebe added that the figure of the final buyout could either decrease or increase based on the Auditor General’s investigations.
She also said that UEDCL which will replace Umeme needs a capitalization of USD64 million to build its capacity ahead of the exit.
Dr. Emmanuel Otala, the Chairperson of the Natural Resources Committee, expressed the need for the Ministry of Energy to take action and ensure that Umeme’s exit does not affect the electricity supply.
He tasked Minister of State for Mineral Development, Hon. Peter Lokeris with the responsibility of finding a solution and providing clear information about who will take over after Umeme.
Bukimbiri County Representative, Hon. Eddie Kwizera tasked the ministry to provide their strategy for handling the exit of Umeme.
In an 8th December 2022 Umeme reassured stakeholders that it will perform its obligations until the natural end of the concession agreement.
“As disclosed in its Prospectus at the Initial Public Offering, subsequent Annual Reports and Public Disclosures, Umeme Limited holds a 20-year Concession from the Government of Uganda, whose natural term expires on 30th March 2025. The concession is enshrined in several binding Concession Agreements. 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. The Company 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,” the company said.
The power distributor reported that as of December 2022, it had 1.75 customers million and reduced energy losses to 16.8%.
Over and above the over USD215 million needed to buyout Umeme when the contract expires in March 2025, the government requires another USD64 million to capitalise its owned distributor- UEDCL, to ready it to take over after Umeme.