Electricity generation company, Eskom, whose tenure ends next year without renewal, expects the government to pay some $2 million dollars (about 44 billion Shillings) in compensation for unrecovered investments, while Umeme is yet to reveal how much it expects.
Umeme still has at least two years running on the 20-year concession that it won in 2005 and is yet to confirm a figure of recoverable investments expected to range between $300 million and $500 million The revelation by Umeme that the government will not renew its contract in 2025 drew some questions among the public and shareholders regarding the cost of the exit.
Unlike Eskom, whose fate was already determined and made official last year, the debate over Umeme’s contract renewal has been on for about four years now, but there were even calls for it to be terminated as early as 2013. The Chief Executive of Eskom Uganda, Thozama Gangi, says that the US$ 2 million are subject to an audit by the Auditor General now underway before it is paid out.
This is part of the money that Eskom will have invested in its operations during the 20-year operation of the Kira and Nalubaale power stations and is yet to recover it. The companies recover their investments through the tariffs they charge on the power they sell, but any invested amount that is yet to be recovered when the concession is either revoked or not renewed on expiry is recovered from the government.
The Auditor General’s report would respond to fears by the public that the companies are inflating the investment costs to rip off the government. The investment areas by Eskom include the repairs and strengthening of the power dams whose lifespan was nearing the end but have now been extended, according to Stephen Byaruhanga, Eskom’s Chief Finance Officer.
The same contract terms apply for Umeme, which recoups its investments from the revenues from tariffs levied on the electricity consumers. Earlier this year, it estimated that they were yet to recover about 300 million dollars and that this could range between that and 500 million dollars (more than 1.7 trillion shillings).
The Permanent Secretary, Ministry of Energy and Mineral Development, Irene Batebe, also confirmed that the ministry, together with the Auditor General, would undertake a valuation of the companies’ investments to determine any outstanding obligations by the government.
The company has concentrated on rehabilitating the dilapidated and aging distribution network that it inherited from the defunct Uganda Electricity Board, while the government terms for Umeme also included reducing the cost of power and power losses.
Losses were estimated at about 40 percent and this has consistently declined, with the trend only disrupted in 2020 during the COVID-19 pandemic-induced lockdowns, which made Umeme ask for a review of the targets by the regulator in vain. But the head of Legal and Regulatory Affairs, Blessing Nshaho says the losses have currently fallen to 13.6 percent and should fall further by end of the contract.
Nshaho says they will continue executing their investment plans this year and through the remaining life of the contract, and these should see the power supply reliability, accessibility and affordability improve.
The exit of the two companies is part of the government rationalization of its agencies aimed at improving service delivery by curbing overlapping and duplication of roles and reducing public expenditure, among others.
The operations and assets that have been managed by these companies will be repossessed by the state enterprises; Uganda Electricity Distribution Company Limited (UEDCL) and the Uganda Electricity Generation Company (UEGCL).
The Ministry of Energy and Mineral Development has directed UEDCL and UEGCL to make appropriate arrangements for the transition. However, the government is in the process of forming a single entity; the Uganda National Electricity Company, which would consolidate all these activities.
Ruth Nankabirwa, the Minister of Energy and Mineral Development, says that this was a directive by President Yoweri Museveni to form a state enterprise with private sector participation under a Public Private Partnership as an option. “To this effect, I call upon the parties to the concession agreements to ensure a smooth transition of all the relevant responsibilities and asset handover in close coordination with this Ministry,” the Minister said.
She said the Ministry would spearhead the transition process and engage all concerned parties, including the shareholders, to ensure that the government’s decision to end the concession naturally is executed reasonably. The Ministry has already constituted a Joint Committee to handle the Eskom Concession and is in the process of making a similar arrangement for the UMEME concession.
The respective Committees are tasked with the planning and management of the end of the concessions to ensure seamless handover of the operations of the assets and settlement of any outstanding financial obligations. “Government is committed to avail the necessary financing to ensure it fulfills its obligations in the related agreements,” says PS Irene Bateebe.
On the capacity of the new entities to operate the assets that the private companies will leave, Batebe said the government companies will be helped to manage them.
“UEDCL and UEGCL will be supported to enable them to manage the transition period and operation of the concessions as happened with the 50MW Namanve Thermal Power Plant that has reverted to UEGCL in 2021.” Paul Mwesigwa, the Managing Director of UEDCL is also sure that they have the technical ability to carry on having been in chard of similar operations in areas not covered by Umeme.
For Eskom, UEGCL is absorbing 126 out of the 127 staff of the exiting company and this should help them carry on from where the South African-based company stopped.
CFO Byaruhanga says for example that they have invested a lot in the skilling of the staff, 98 percent of whom are Ugandans.
The committee set up by the ministry to oversee the transition will also ensure that shareholders’ interests are catered for. Umeme, through the Uganda Securities Exchange and the Nairobi Securities Exchange, has 6,067 shareholders as of May 2022.
Earlier Bitature assured the shareholders that if the government terminated the contract, the company would be compensated and that in case of the contract not being renewed, the recoverable investment would be enough to cater for their claims. According to the law, a company winding up is supposed to pay off all claims like loans and suppliers, and then the rest of the proceeds from the assets are divided amongst the shareholders.