Umeme laughs last as Parliament tones down voice to cancel its contract

  KAMPALA: Whereas majority Ugandans have grown weary of Umeme’ performance ten years since it was “controversially” awarded contract, recent debate to cancel its contract yielded a sigh of relief until government made it clear last week the company is going nowhere.

 Debate on the UK Company’ fate on Parliament’ Order Paper for two weeks now has been recurrently deferred or skipped and it as now emerged that several MPs each allegedly pocketed a Shs5 million kickback to back off this discussion.

The bribery claims, the government chief whip Kasule Lumumba is investigating but Umeme in all circumstances with its contract expiring in 2025 will have the last smile.

 The Parliamentary debate was prompted by findings of the Ad hoc Committee on Energy (ACE) which was sanctioned by the Speaker of Parliament, Rebecca Kadaga in 2011 to investigate the nationwide electricity crises, several a making of Umeme.

 The ACE 159 paged report in conclusion recommended cancellation of the contract citing among others, the questionable manner in which contract was awarded, Umeme’ monopoly and concerns over the high electricity tariffs amidst poor service delivery and a faulty billing system.

 On the proposed day MPs were supposed to pass a vote of no confidence in Umeme, Ms Kadaga deferred the motion to the next day citing the lack of quorum and that was the last of it. Days following, topic has been on the Order Paper but among the last issues to be discussed and hence the continued postponement.

 Yet sympathizers (including bueauracrats) have maintained that rather than terminating government should instead review the concession and embark on yearly evaluation of the company’ performance to stimulate its efficiency, last week 15 MPs implored government to terminate it as soon as possible.

 The unsavory details

The government team led by Mr David Ssebabu, now director of Privatisation Unit in the Finance ministry in a reportedly all-expense paid trip (by Umeme) to the US capital Washington sealed some irreconcilable clauses in the concession which makes it likely unbreakable at the moment.

 Against this Mr Peter Nyombi, the Attorney General opined that because of such clauses premature cancellation of the agreement implies paying Umeme Shs371 billion [buyout amount], payable within 91 days or else attract additional 20 percent per annum money which is unavailable.

 Mr Ssebalu in the ACE report admitted their technical incompetence and lack of experience during the three years’ negotiations but also feigned ignorance of the terms and conditions of the agreements they signed.”

 The Energy Minister, Irene Muloni in a November 25 brief prepared for the NRM caucus said: “The Executive does not concur with this recommendation [to terminate].”

 She noted, “Instead, the Attorney General should study the agreements signed to establish irregularities, possibilities of violations and provisions for termination and advice the government accordingly.

 Ceteris paribus, Umeme Limited will in 2025 hand over the national electricity distribution network to the Uganda Electricity Distribution Company Ltd (UEDCL) but still Uganda would have to pay the company 106 per cent it spent on modifications to the network but would not have recovered through electricity tariffs.

 This is also provided for in the Support Agreement between Uganda and Umeme.

 Ibanda district Woman Representative, Margaret Kiboijana, referred to this situation as a ransom like

 “In case government initiates termination of the concession, the government will have to pay Umeme. Even when the concession comes to its natural end, the government will still have to pay Umeme. Either way, Uganda will lose. I support the termination.”

 The ACE also discovered that Umeme Limited was not in existence at the time of bidding and negotiation, and the company (Umeme) which finally signed the concession agreements is not the one that bidded.

 “The Umeme Limited that signed the concession agreements was formed eleven (11) days before the signing of agreements.  This means the negotiations for the power distribution concession agreements which normally take some months were prejudiced since ESKOM Enterprises was negotiating with itself through Paul Mare’ and that UMEME Limited was formed after negotiations were complete,” the report reads in part.

 Eskom (Pty) is a South African company which was already operating electricity generation at Nalubaale hydro power dam while Mr Paul Mare is also a South African national who had done assessments in unbundling of the Uganda Electricity Board (UEB), and worked for the former.

 A total of six companies took place in the bidding process but, “only a seemingly unregistered consortium of CDC Capital Partners and Eskom was accepted by government.

 This consortium never appeared anywhere thereafter but rather a new company in form of Umeme Ltd was incorporated on 6th May, 2004 with the principle objective of signing an agreement with government and subsequently took over management of the Uganda Electricity Distribution Company Limited (UEDCL) in 2005.

 Ms Muloni, then managing director of UETCL and penned signatures on behalf of government however said: “this does not matter right now.”

 The then Attorney General did not draft or advise on the agreements rather transaction advisors were hired for the job to the distaste of Uganda.

 The Monopoly power

In a December 3 correspondence, Ms Muloni noted that termination of the concession would affect the distribution of electricity since Umeme controls 97 per cent of the market.

 One of the key objectives of unbundling the Uganda Electricity Board (UEB) was to remove monopolistic structures and thereby create market conditions that would open up for competition and provision of quality services for customers.

 The unbundling gave rise to the enactment of the new electricity Act of 1999, and the birth of Uganda Electricity Generation Company Limited (UEGCL), Uganda Electricity Transmission Company Limited (UETCL) and Uganda Electricity Distribution Company Limited (UEDCL).

 However, to-date monopolistic structures largely exist in distribution as a result of agreement struck by Umeme and government and observers point to this the origin of increased power problems in the country.

 Umeme’ head of communications, Henry Rugamba however stressed that monopoly was mitigated by the company opting for listing on the stock exchange to allow Ugandans own shares in it, while raising substantial monies to settle debts, finance investments and also ensure accountability to its customers.

 “Umeme is now owned by Ugandans so whatever happens affects us as one.”

 Ms Muloni though acknowledged the need to break this monopoly insisted, “It does not mean the termination of the Umeme concession.”

 The report implored government to open up distribution segment to other players to “bring about competition and the resultant efficiency and lowering of end-user tariffs” which Ms Muloni said is also for consideration.

 The company floated 622, 378,000 shares which constitutes 38.6% of the company’s issued share capital upon listing with a view of raising at least ShsShs171billion to pay off debts and use the other part of harvests to invest in distribution, which is another stumbling block to cancelling the agreement.

 Mr Wafula Oguttu, the MP of Bukooli Central, says inasmuch as he supports the termination of the concession, the company would be constrained in compensating Ugandans who bought shares during its initial public offer in November 2012.

 “Umeme is now partly owned by Ugandans. When we terminate this concession, Umeme will have no money to pay our people because Umeme has no assets in the country.”

 Exaggerated ‘recoverable’ investment costs

Umeme’s says it has invested at least $180 million (Shs468.6 billion at today’s exchange rate) in the distribution network over the last eight years.

 But MPs scorned this figure saying it’s inflated with a view of leveraging high compensation incase their contract is terminated.

 Mr Jacob Oboth-Oboth, the chairperson of the ACE, says were Umeme to have invested more, it would show through efficiencies.

 “If Umeme had invested as much money as it claims to have the technical losses would be low. End-user tariffs would equally be low,” he says, “Power outages still continue eight years since Umeme took over the network.”

 But Mr Rugamba maintained: “In March 2012 we had our first performance review with the Electricity Regulatory Authority and they confirmed all targets set in 2005 were met and exceeded.”

 He added, among others the company as of 2012 has connected at “least 55,690” to the national grid also cut energy losses from “38 percent to 28 percent”.

 According to the agreement, in case Uganda initiates the termination before the 13th year, it would have to pay Umeme 120 per cent of the total investment amount which wouldn’t have recovered yet through end-user tariffs.

 After the 13th year, the buyout reduces by two percentage points annually.

 Between 2005 and 2011, Umeme had remitted Shs129.7 billion to the government as corporation, pay as you earn, value added and withholding taxes.

 Jitters over Umeme’ performance 

Notwithstanding why it government is unlikely to terminate contract, the company has come under fire for failing to live up to its contractual obligations and focused on only making money through every means.

 Mr Dickens Kamugisa, of Africa Institute for Energy Governance [Afiego] said, “the issue of terminating Umeme’ contract has become a song of sorts which has been sang over the years but will never be launched.”

 He said the company has failed to increase electricity access, reaps heavily from inflating customer electricity bills, among others, this all as government looks on

  “We seem stuck between their contract and poor services but the powerful people who signed those useless clauses are still cashing-in, that is why cancellation is unlikely.”

 Similarly, the report faults the company for failing to continuously inflating power losses which are recoverable in the contract.

 “Uganda continues to post the highest distribution power loss levels in the region and one of the highest in the world standing at 28 percent by 2011, it notes.

 But as of 2013 Umeme put these losses at 27 percent but for each percentage point of power loss, Shs10 billion ($4 million) is lost annually which the company attributes to illegal connections, meter bypasses and collusions between customers and its staff, the weak laws and insufficient investments in the network.

  Sidebar

According to the Uganda Electricity Distribution Company Limited (UEDCL) Asset Verification report (September 2013), since 2005, Umeme has added Shs401.4 billion to the network.

 And of the 93.9 billion Umeme said it had invested in the network in 2012 alone, Shs45.7 billion “was disallowed” [by UEDCL].

 “The fact that they [UEDCL] reject something does not presuppose these guys [Umeme] are trying to do this [exaggerate their investment].”

 Mr Rugamba blamed electricity woes on the 1960’ power infrastructures and problems won’t go away its phased out.

 On the spot: Documents seen by this newspaper indicate that when UEDCL concessioned the distribution network to Umeme, the power losses were at 28 per cent not 38 per cent.

 So since 2005 to date, Umeme has reduced them from 28 per cent to 23.7 per cent. However the target set by as 21 per cent by 2013.

  But over the same period it invoiced the government Shs878.7 billion in rebates.

  Mr Rugamba also denied ever bribing any MP.