6 December 2017

Uganda: UEGCL Sees Higher Profits Ahead

Kampala — Uganda's electricity generation company, UEGCL, has slipped back into loss making territory a year after it registered a substantial profit in 2015 but the executives say the company has better days ahead.

Financial records released in Kampala on Nov. 23 show that the company, which switched its annual report and financial statements from the calendar year into July-June financial year, thanks to requirements of the Public Finance Management Act 2015, recorded Shs 13.9bn loss for the 18 months ending June 30, 2017 compared with Shs 5.4bn profit recorded in the 12 months ending Dec 2015. In 2014, the UEGCL made a huge loss of Shs 9.5bn.

The company cites a big drop in profitability to the under-billing of the South African firm, Eskom, which manages and maintains some of its assets - the 180MW Nalubaale and the 200MW Kiira power stations in Jinja.

Incorporated by the Ministry Finance, Planning and Economic Development in 2001 as a public limited company following the unbundling of the Uganda Electricity Board (UEB), UEGCL is charged with generation of electricity in the country.

Proscovia Margaret Njuki, the Chairperson of the Board of Directors at UEGCL said as much as the company, under the concession and assignment agreement has the right to bill Eskom for debt service, depreciation, return on equity and administrative costs; the tariff structure approved by the Electricity Regulatory Authority does not include administrative costs.

This means that UEGCL's assets under concession are not able to generate enough revenue / cash to recover their carrying amount, she said.

She said the company is currently working with the government to ensure that this anomaly is addressed. Eskom's concession is expected to end in the next five years.

The company also recorded a drop in revenues from Shs54bn in 2015 to Shs17.5bn citing a write-off of long outstanding debts of Shs30.9bn from Uganda Electricity Transmission Company Limited (UETCL) and the government assets which are no longer achievable, also known as, write back liability worth Shs 42bn.

Consequently, the decline in revenue reduced the shareholders equity from Shs 465bn to Shs452bn during the same period under review, signaling the company's ability to discharge its liabilities in the normal course of business. However, UEGCL's assets increased from Shs1trillion in 2015 to Shs3.29trillion in 2016.

This development comes at the time the Auditor General, John Muwanga, is questioning UEGCL's failure to enforce compliance by Eskom with regard to non-repair works at two turbines and cracks on Nalubale dam and Power house as well as delayed execution of 13 projects since 2013.

It also coincides with the company's formulation of a new five year strategic plan for the period 2018 to 2023 set to be launched in December 2017. The plan is aimed at putting the company on a new platform of growth and development, which in turn will translate into sustainable and affordable electricity to the economy and the socio-economic transformation of the population.

Progress of Karuma and Isimba construction

Harrison Mutikanga, the Chief Executive Officer of UEGCL said there was significant progress in the construction of Karuma (52%) and Isimba (76%) hydro-power plant projects.

He said the progress was in part as a result of the re-invigorated monitoring and supervision by UEGCL team with support from the Project Steering Committee (PSC) set up by President Yoweri Museveni last year to streamline project implementation. Both projects are planned for commissioning in the course of the next financial year (2018/19).

He also revealed that the works on the 48MW Muzizi hydropower dam is in advanced stages of tendering for construction works while Nyagak III (6.6 MW) power project attained financial closure, and is set to move on to the next phase of construction.

Finance Minister, David Bahati, said the government is happy with the UEGCL activities especially in the construction of new dams saying they will lower the cost of doing business and also leapfrog the country into the middle income status.

Future outlook

Njuki said they are optimistic that the company will continue to grow despite operating in a challenging economic environment.

"Despite the challenges associated with the ageing infrastructure, we have planned for short and long term investments to ensure the asset continues to operate in order to keep the tariff low," she said, adding that the timely delivery of hydropower plants under construction will grow the company's future revenue as electricity supply increases from the current 853MW to 1686MW BY 2020.


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