7 January 2019

Uganda: Markets Players Mull Umeme's Future

Investors and players in the energy sector are raising questions over President Yoweri Museveni's directive to Umeme to renegotiate the concession agreement it signed with the government.

In November, President Museveni ordered Energy Ministry to renegotiate the 20-year power distribution agreement the government signed with Umeme Ltd in 2005 with a view to bringing down high electricity tariffs.

This move offered Umeme executives relief following months of uncertainty surrounding the president's position on the concession deal.

"The government's decision to renegotiate the concession agreement instead of terminating it is good for long-term investments being made in the sector," said Selestino Babungi, Umeme managing director.

Though the president's memo did not give details on the renegotiation strategy, questions are being raised over key policy issues likely to guide any negotiations between government officials and the power distributor.

"We are yet to receive instructions on how to proceed on that matter," said Julius Wandera, manager for Consumer and public affairs at the Electricity Regulatory Authority (ERA).

Mr Wandera added that the responsibility for renegotiation of Umeme concession lies with the Uganda Electricity Distribution Company Ltd, which is under the Ministry of Finance.

Share price

Despite the relief enjoyed by the company and its shareholders, Umeme's shares traded at the Uganda Securities Exchange, posting a stable price coupled with thin volumes and turnover.

The company's share price has remained flat at Ush320 ($0.085) for the past two weeks while retail investors have dominated trading activity on its counter since October.

For example, the counter traded just 1,000 shares valued at Ush320 ($0.085) each on December 27, 2018, according to a USE trading report.

In contrast, Umeme's share price stood at Ush410 ($0.1) in April 2018 shortly after the president's memo that questioned the economic value of the concession deal was leaked via social media.

Dull trading witnessed on the counter is partly blamed on its dividend book closure date, lack of clarity over the renegotiation process and low market activity traditionally witnessed during the festive season, market sources said.

Umeme declared a half-year dividend of Ush12.7 ($0.003) per share while the USE book closure date was fixed on December 20, 2018.

Shareholders listed in the share registrars' books by that date will be paid dividends on January 11, according to a USE notice.

"We met with the Umeme management team in August 2018 and their position on the future of the concession agreement has not changed.

"In light of new developments, we are considering another meeting in January to help us internalise latest government moves and what they mean for our clients, the company and the energy industry as well," said George Mulindwa, general manager at GenAfrica Asset Managers Uganda Office.

Electricity blackouts

Thorny issues likely to feature in the contract renegotiations are frequent electricity blackouts experienced in upcountry towns.

Much of the national electricity supply network remains dilapidated due to the slow pace of investment by Umeme in spite of a huge capital expenditure budget announced in 2015.

Three years ago, the power distributor committed $340 million for new network investments ranging from transformers, sub stations and main supply lines across the country, but many consumers in upcountry towns still complain of regular power cuts.

This has led to higher running costs incurred on standby diesel generators utilised by hotels, schools, factories and supermarkets.

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