Uganda: Govt Offering Umeme 10 Percent Return On Investment in New Concession

21 January 2021

Government has offered a 10 per cent return on investment (ROI) in the ongoing negotiations in which power distributor Umeme is seeking a new concession.

Umeme's current 20-year concession expires in 2025.

Multiple sources close to the matter, who preferred anonymity due to the sensitivity of the negotiations, said government has put a 10 per cent offer on table, which will be a revision from the 20 per cent under the current concession.

"The return on investment government is offering is 10 per cent. We are negotiating. It is not a take it or leave it case. The rate of return is among the issues being negotiated so it is still on until we conclude," the source said.

Umeme is currently operating under a 20-year lease and assignment agreement, in which it manages assets of Uganda Electricity Distribution Company Limited until 2025.

While most of the tenets of the new concession have been determined, the return on investment and duration of the new concession subsections continue to be contentious, dragging the negotiations for months.

The negotiations, sources say, had gained momentum before elections but were put on hold during the campaign season because some of the negotiators were involved in the election process in one way or the other.

Sources, however, said that even while it is a negotiation, government seems to have no sentiment towards awarding a much higher return on investment beyond the 10 per cent.

Government has in the past been criticised for negotiating a concession that some Ugandans have said put the country in an awkward position with most remedies in case of a dispute working in favour of Umeme.

The 20 per cent return on investment, among other factors, has been and remain a key concern over the concession period.

However, government has over the years justified the agreement, saying the conditions under which Umeme inherited the distribution subsector were dire.

The distribution network, government has previously said, which was characterised by a dilapidated infrastructure, among others, offered very little advantage on which it could negotiate a better deal.

On the duration, government is offering the power distributor 15 years of added operations

However, sources said, Umeme is asking for more.

"Government is offering 15 years and of course Umeme wants as high as they can get. Umeme wants 18 more years," the source said.

However, Daily Monitor could not independently verify the proposed offers.

The negotiations are bound to a period not exceeding 20 years as spelt out in the Electricity Act of 1999, the law that operationalised the Electricity Regulatory Authority, the overseer of the electricity subsector players.

According to part five of the Electricity Act section 45, a licence in the sector cannot exceed 40 years.

"Subject to any other provision of this Act, a licence shall remain in force for the period specified in it, but that period shall not in any case exceed 40 years from the date of issue," the Act reads in part.

This means that Umeme, having been awarded a 20 year licence in 2004, and started operation in 2005, can only extend its licence for another 20 or less years.

Mr Selestino Babungi, Umeme managing director, yesterday told Daily Monitor, no stand had been taken as negotiations are still ongoing.

"No position has been reached on the concession. Everything is still under negotiation, nothing has been agreed upon on those two elements," he noted.

State Minister for Investment Evelyn Anite said it would be premature to comment on the matter.

"The details of the negotiation are not for the public at the moment," she said, noting that government is, however, in the next concession concerned about lowering power tariff, boosting power availability and reliability.

The negotiations are expected to end within the first half of this year in the aftermath of the elections.

The team

The negotiating committee is composed of bureaucrats from Energy and the Finance ministries, Attorney General, Uganda Electricity Distribution Company Limited, Uganda Electricity Transmission Company Limited, and Electricity Regulatory Authority. UEDCL is represented because it is the agency that in 2005 leased the distribution network to Umeme while UETCL is represented because it sells power it buys from generators to distribution companies.

ERA is the sector's regulator while Attorney General provides counsel to government.

Umeme, too, has constituted a team that is representing it in the negotiations.

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