Uganda MPs urge government to terminate Umeme's power contract
22 November 2013, 08:47
Kampala - A Ugandan parliamentary committee has recommended that the government terminate its contract with Umeme Ltd, the country's sole power distributor.
Umeme holds a 20-year electricity distribution concession in east Africa's third-largest economy. It is majority-owned by Actis, a London-based private equity investor in emerging markets with around $5 billion in assets under management.
In a report filed on Wednesday night by a committee set up to investigate Uganda's energy sector, lawmakers accused Umeme of exaggerating its investments in the sector and failing to reduce power losses, the difference between kilowatt-hours generated and those distributed to end-users due to problems such as theft and inefficiency.
"It is hereby recommended that the Umeme Limited power distribution concession be terminated," the report said.
Charles Chapman, managing director of Umeme, said the report's findings were no longer valid and that the company had reduced distribution losses from 40 percent in 2005 to about 24.5 percent this year.
"The report is a couple of years late, and most of the issues the Ad Hoc Committee addressed have lapsed, and the information is out of date," Chapman told Reuters in an e-mailed statement.
Chapman added that since Umeme took over, the average customer is now paying $240 per annum less.
Dickens Kamugisha, chief executive officer at Africa Centre for Energy Governance, questioned the veracity of some of the allegations against Umeme and said the report was unlikely to be acted upon.
"The government will not cancel the contract, because it knows that would be suicidal in terms of how much it has to compensate Umeme," he said.
The lawmakers said concession terms were heavily skewed in Umeme's favour in the contract, which was negotiated without the involvement of Uganda's attorney general.
The report said Uganda had committed to a "raw deal", with what it described as "scandalous provisions," including generous working capital allowances and compensation of Umeme for losses.
Umeme previously said it invested $130 million to revamp the distribution infrastructure between 2005 and 2012, but the lawmakers said its spending claims were unfounded.
"This exaggerated level of investment is aimed at upping Umeme's 'buyout amount' in case of early or natural termination of the concession," the report said.
Chapman said Umeme has vastly improved the network as a result of its investments.
"The facts are available for all to see: Umeme has so far saved customers $120 million in 2013 through reduced power theft and improved service delivery," he said.
Umeme entered the industry after the government decided to end a state monopoly in energy and turn it over to private players, who were expected to attract fresh investment and improve its efficiency.
Although the company has promised to rapidly expand the grid, cut losses, reduce power failures and stabilize the cost of power, widespread complaints have persisted about high tariffs, outages and faulty billing.
According to the energy ministry, Uganda has a production capacity of about 550 megawatts, while peak demand reaches about 480 MW.
Umeme, which is also listed on Nairobi Stock Exchange, started trading on the Ugandan exchange in November last year after selling 38 percent of its stock to the public.