Uganda power utility recently saw its profit after tax dip 69 percent. Now, President Yoweri Museveni has put its concession renewal in doubt after publicly criticising the company.
In his speech during Labour Day celebrations at State House Entebbe, the president took a swipe at the company -- the second in seven months -- just two days after it published its 2020 annual report, which shows regressed key performance indicators.
President Museveni said Umeme was failing industrialisation and as a result, affecting job creation because electricity tariffs were high.
"They went behind and then brought something called Umeme. What is this for? A private company, looking for profits, you make it a middleman between the generation of electricity and the final consumers, including the factories which you want to create jobs. What's this, what are you looking for?" he said.
The president said power for industrial parks will now "go straight from generation," and be "transmitted direct, not through Umeme" -- a threat that denies the utility significant revenue from a segment of bulk consumers of electricity.
"Oh, Umeme will collapse... if it collapses, my mother died and I buried her. Also Mr Kaguta died. People die and society goes on. So if Umeme dies, that's their mistake," President Museveni added.
Umeme's profit after tax for the year dropped to Ush43.1 billion ($11.1 million) in 2020, from Ush139.2 billion ($36.8 million) in 2019, translating into lower earnings per share of Ush26.5 compared with Ush85.7 for 2019.
The 2020 profit is the lowest the company has posted in nine years, resulting in depressed dividend per share of Ush12.2, a significant drop from Ush41.34 recommended for 2019.
The dip is due to a significant drop in revenue, while operation costs increased as a result of putting in place safety measures against the Covid-19 pandemic, which disrupted the company's operations, finances and supply chains, according to managing director Selestino Babungi.
Revenue decreased by seven percent to Ush1.66 trillion in 2020 compared with Ush1.77 trillion in 2019, while cost of operations increased by six percent to Ush226 billion ($63.8 million) due to Covid-19 related costs and network maintenance expenses. The utility also registered an increase in power losses to 17.5 percent in 2020, from 16.4 percent the previous year, on account of limited field activities due to restrictions on movement and the increased pending ECP connections due to limited government funding.
Over the past three years, Umeme has been uncertain about the renewal of its 20-year power distribution concession, which started in 2005, and President Museveni had directed that it should not be renewed upon expiry in 2025.
The president now blames the company for high electricity tariffs, which are pushing industrialists' costs through the roof, while the utility rakes in profits year after year because of a favourable 20 percent return on investment.
Sources familiar with the matter said the government wants to review Umeme's contract, but at revised terms of a 10 percent return on investment over a 15-year concession, while the utility wants a longer period.
The company did not immediately respond to our queries on its position on the concession renewal.
This is however not the first time the president has expressed his disappointment with Umeme.
In his October 9, 2020, Independence Day public address he said; "We are working hard to evacuate power from Karuma dam to the manufacturing hub and [to] export excess power. There is a group called Umeme. These are private people who want to make high profits. Can you make high profits from bone marrow and then we survive? We are debating that. If you are looking for high profits, there are areas you can go to."
"When it comes to electricity, this is a strategic issue. We now have enough electricity, that can be sold cheaply to the manufacturers but people who want to make business are the ones pushing it up," he said. The following day, President Museveni met with Umeme's team to negotiate new terms.
Umeme board chairman Patrick Bitature who led the utility team to the meeting said that many financiers of the company had pegged long-term funding on the concession renewal.
Simon Mwebaze, general manager at UAP-Old Mutual Financial Services, said that based on its return on investment terms, Umeme's financials have always looked good, but the utility is nervous about the government's push to lower this, as it impacts on the company's performance on the stock exchange.
"Institutional investors need clear clues from those discussions before revaluing its share price and contemplating new investment actions on that counter. A case in point is the annual return on investment targeted from Umeme's operations," he said.
Demand for power among commercial and medium industrial consumer segments dropped by nine percent.