By Louis Namwanja Kizito
General Counsel Pixan technologies,
The “Umeme Concession Agreement” is a missed election discussion opportunity. It’s not news that Umeme is in the process of having its concession to manage power distribution networks in Uganda renewed.
Umeme has a team of well paid, and experienced negotiators facing off with the government. The government team comprises the Electricity Regulatory Authority, UEDCL, UETCL, Ministry of Finance, and the solicitor general.
What hurts is that politicians, on both sides of the political spectrum, did not make it a political issue during these campaigns, yet this Umeme concession expires in 2025.
It’s not insensitive to state plainly that this umeme concession has sucked the lifeblood out of the hard-pressed Ugandan that consumes power every day. It almost seems as though there was a conspiracy of silence from both government and the opposition.
Without political pressure, these negotiations will go on in a rather favorable environment for UMEME. I even doubt that in the course of these negotiations, the government will have the option of a “best alternative to a negotiated agreement’” (BATNA) as it’s called in negotiation theory
Part of the reason our electricity tariff is so high is due to the fact that the current Umeme concession gives umeme a whopping 20% return on investment (ROI).
Last week, a story published by the daily monitor ( a local daily newspaper) stated that in the ongoing negotiations, the government is offering Umeme 10%, however, umeme hopes for 13%.
The reason we have private players in such a strategic sector like energy dates back to the early 1990s when the World Bank and IMF arm-twisted the government with certain conditions before offering aid.
I have always insisted that these Structural Adjustment Programs are the worst thing to have befallen Africa because it was not in our interest. The umeme concession seems to vindicate this view
In a World Bank paper, titled “Learning from Power Sector Reform The Case of Uganda” – Policy Research Working Paper 8820, which is a product of the Energy and Extractives Global Practice part of a larger effort by the World Bank, I read something I found amusing, and I quote verbatim; “…the extension of the private concession model to financially unviable rural areas did not prove to be successful.
Access rates began to pick up only following the adoption of a revised approach in 2012, built around the government-led and donor-funded expansion of rural networks.” This was mentioned as the only weakness.
It completely ignores what some of us who live in areas of metropolitan Kampala go through. We contend with exorbitant charges per unit cost of electricity, coupled with umeme’s inefficiencies.
It’s possible that in order to justify its rather high unit cost, umeme must be either cooking its technical losses (TL) or Non-Technical losses (commercial losses).
Umeme has raised capital many times, either through debt or equity since 2012 when it did an initial public offering (IPO) on Uganda Securities Exchange. Recently, in December 2019, it acquired a $70m syndicated loan from 3 banks that includes Stanbic bank to get electricity from the new dams.
But who will forget the 2012 IPO that made them relinquish 40% of their shares that were ring-fenced for 20 big foreign investment companies.
This move cast an early trap for Ugandans to keep Umeme in the electricity distribution business, by making it so financially untenable for government to compensate umeme just to repossess any installations or investments that umeme sprawled countrywide.
I doubt these negotiations will bring down the tariff after 2025, and in any case, if umeme is still interested in keeping in business once the new concession expires after whatever years, I doubt the government will have the capacity to engage a new competitive company for the same service.
We are being held at ransom, and umeme has effectively established its tyranny on the “omuntu wa’ wansi.” (the common person) It’s in God’s hands now!!
We are entering the Fourth Industrial Revolution (FIR), and business models have to adapt to the internet of things that’s a characteristic of this revolution. Therefore, cheap power will be the bedrock of how easily the 4th industrial revolution takes off in Uganda.
However, the Umeme tariffs will make this transaction harder. The Fourth Industrial Revolution (FIR) will turn the power sector (PS) into a Blue Ocean Strategy market, and investors will have to adapt accordingly.
(Blue Ocean Strategy) focuses on capturing untapped demand through the creation of new products that make the competition irrelevant.
I am yet to sit down and calculate and find out whether mining bitcoin is financially viable in Uganda. Remember, mining bitcoin consumes so much electricity, which is currently expensive in Uganda.
Louis Namwanja Kizito
General Counsel Pixan technologies,