UMEME concession to renew – for now
Uganda’s largest power distributor, Umeme Limited, is expected to have its concession renewed when the on-going negotiations with government are concluded, insiders say, most likely before the year ends.
At the heart of the negotiations is when the concession can be renewed and under what terms.
Although the 20-year concession acquired by UK’s CDC expires in 2025, the power distributor needs a renewal now in order to commit funds required to overhaul the distribution network.
Previously, estimates by Ugandan energy sector planners indicated that $ 1.2 billion would be invested into the network over 10 years but in November last year, government revised the figure upwards to about $ 2 billion.
This investment is required urgently in light of the extra power coming on board following the completion of major power dams—the 600 MW Karuma power dam and the 183 Isimba power down which are set to be commissioned in December and August respectively.
Uganda is faced with a bizarre situation brought on by a weak distribution network that is concentrated in the urban sprawl of Kampala and Entebbe. Currently the country has excess power attributed to the inability to reach most areas – if only to boost demand for electricity use.
|Large Industry (GWh)||Commercial (GWh)||Medium Industry (GWh)||Domestic (GWh)||Total Umeme Sales (GWh)|
Umeme (base model) projected sales – source ERA
With the coming online of cheap power from northern Uganda the options are either to stimulate enough domestic demand or export more power to the region. The first option requires aggressive expansion of the distribution network.
This is where the government hopes new terms with Umeme can help.
Government wants the concession varied to drive down costs (of new investment in distribution)
Under the current concession, Umeme is guaranteed a rate of return of about 20 percent. Government is looking to drive this down to about 12 percent. But Umeme insists this is too low.
If negotiations fail – government planners have already warned it could jeopardize energy generation economy itself by forcing Uganda to reschedule construction of power dams and imperiling loan repayment contracts associated with them.
There is optimism the two sides will reach a deal because Umeme’s biggest shareholder now is Uganda’s social security fund (23 percent). This makes the company virtually a local one.
Uganda hardly has any indigenously owned companies in the electricity sector despite a government policy on increasingly local content and local ownership. Only one local company Electromaxx is a player in the sector which receives the fourth highest spend in the Uganda budget.
However, the government sources suggest is not taking off the table breaking the concession up if the terms for progressive investment in distribution are not met as it affects the entire energy economy given Umeme’s position as a virtual monopoly.