Electricity distributor Umeme Ltd has set aside US$70million (Ush230billion) to upgrade its infrastructure network this year despite having just six years to the end of their current concession.
Industry Investment Resources

Umeme sets aside US$70 million for network upgrade despite contract uncertainty

Electricity distributor Umeme Ltd has set aside US$70million (Ush230billion) to upgrade its infrastructure network this year despite having just six years to the end of their current concession.

The company, in 2005, was given a 20 years concession to maintain, manage and distribute power in Uganda, which concession is due to end in 2025, six years from today.

“Now that Isimba Dam is on board with 183MW of electricity, we cannot sit and look on without making more investments into our networks to be able to distribute that power. Every year, we invest between US$60 million to US$70 million, which we are going to invest in this financial year in order to meet our obligations,” said Selestino Babungi the Umeme Ltd Chief Executive Officer during the announcement of their 2018 Financial Year Results at Protea Hotel.

Despite the uncertainty in the extension of the concession, Babungi is hopeful that the government will finally extend their contract to allow them to get cheaper long term financing.

In February this year, Uganda’s Finance minister Matia Kasaija directed the Ministry of Energy and the Attorney General to finalise negotiations for the extension of Umeme’s concession before March.

In the letter Kasaija wrote, he directed the Energy Ministry and the Attorney General to create a technical team to engage and finalise negotiations concerning the Umeme concession.

“This is to request you to nominate a technical team from all agencies herewith copied to commence and finalise negotiations under the Umeme concession within one month,” read the letter Kasaija wrote.

With March almost coming to an end, little or nothing has been done to guarantee the extension of Umeme’s contract.

Babungi, who was releasing the audited financial results for the year ended 31 December 2018 said Customers connected to the grid, within the Umeme footprint, increased by 14.8% to 1.3 million compared to 2017.

“Over the 7 year period to 2018, Umeme exceeded the regulatory customer base target by 0.3 million customers (30%). We acknowledge the need to accelerate the connections rate under the Government’s Electricity Connections Policy to achieve the National Development Plans,” added Babungi.

He said the energy losses for 2018 were 16.6% compared to 17.2% for 2017 and were 27.3% in 2011.

“Over this regulatory cycle, energy losses have reduced by 10.7%. Through the introduction of prepaid metering, improvements in quality of service and open platforms for electricity bills payments, the Company achieved an average revenue collection rate of 99% over the seven-year cycle.

“Collection of revenues is critical for the cash flow needs of the entire electricity supply Industry, as it ensures that cash flows up throughout the entire electricity supply chain. During the year, Umeme paid UShs. 1,067 billion to Uganda Electricity Transmission Company (UETCL) for electricity purchases,” stressed Babungi.

He said Umeme’s operating cost per customer, over the last 7 years, has reduced by 30% (in

nominal terms).

“For 2018, the operating cost per customer was UShs. 174,665 compared to 177,092 in 2017. This was achieved through the use of technology, the roll-out of pre-paid metering, increase in customer connections and efficiency in business operations.

“Umeme continues to focus on improving efficiencies that benefit our customers in the form of reducing energy losses, increasing revenue collections and reducing operating costs.

“During the year, the Company began a 4-year process of integrating its ICT platforms. Deployment of technology will improve decision making, the internal control environment and drive greater efficiencies at work.

“During the year, we successfully rolled out the first 2 modules of our new Enterprise system SAP Hana (Financial and Materials Management) on time and on the budget,” said Babungi.