India’s Tata Consulting Engineers, which is currently assessing whether Umeme Limited has satisfied government’s conditions, is expected to continue with its assignment even after a recent letter by President Museveni questioned the impact of the power firm’s 20-year concession, writes JEFF MBANGA.
Tata was commissioned by the Electricity Regulatory Authority (ERA) and is to analyse the performance of Umeme, especially its investment in the network.
The Indian company is expected to hand over the report to ERA within the next two months. Thereafter, ERA is expected to use the report to set parameters for Umeme for the next six years starting 2019.
Tata’s assessment comes at a time when some industry players got the president to cancel Umeme’s contract. The lobbyists, according to different sources, are said to have influenced President Museveni’s recent letter.
Negotiations between ERA and Umeme over new terms of its concession, which is expected to wind up in 2025, are slated to start in July this year. Some of those negotiations are expected to focus on how the two calculate the investments that are supposed to be recouped from the power tariff, which is currently a bone of contention.
The process of reviewing Umeme’s contract is critical and nearly everyone should be interested because it ultimately determines how much is paid for electricity.
In 2011, ERA hired South Africa’s Parsons Brinckerhoff Africa Ltd (PB) to review Umeme’s performance. The report questioned some of Umeme’s investment figures, which were to be recouped from the power tariff.
The report showed that there were less investments by Umeme than what was being factored into the tariff. Umeme disputes the contents of that report. Nevertheless, ERA used some of PB’s findings to justify its push for a modification of Umeme’s license.
The financial impact of PB’s report came to light recently when Umeme released its accounts for 2017, where it showed that it had recorded an impairment provision of more than $31 million due to the modification of its license.
The modification of Umeme’s license, which was done in May last year, means the company lost some revenue from the capital investments it made in energy purchases from Uganda Electricity Transmission Company Limited.
Umeme’s net profit for 2017 dropped to $9.8 million, from $38.6 million in 2016 partly due to the high financing costs.
MPs meet Umeme over investments
Meanwhile, Selestino Babungi, the Umeme managing director, put up a spirited defence of the company’s impact on the power industry during a recent meeting with legislators from parliament’s Natural Resources committee, saying much of the criticism against the company was unfair.
Top of the legislators’ concerns were the power tariff and the energy losses. They blamed Umeme for failing to bring down both figures to fairly acceptable levels.
The legislators were meeting different players from the power industry at Lake Victoria Serena resort to take stock of the current situation, where more energy projects are expected to come on line amid challenges in the power distribution network.
Umeme officials said the burden of bringing down both the power losses and the power tariffs cannot be solely left to the company. They said there is need for intervention from other institutions.
Alex Byaruhanga, the chairperson of the Natural Resources committee, said the targets are being missed. He said: “By now, technical losses should be at around seven per cent, according to the original agreement.”
Babungi admitted that the losses and tariffs were still high but that the company was playing its role in influencing a drop.
“We are here to tell the MPs that they should come up with stringent laws for power thieves; secondly, people are complaining of higher tariffs, the regulator should explain that,” he said.
A lot of Umeme’s 2018 budget is a continuation of the work the company had been carrying out in 2017. Described as “work in progress”, Umeme is to spend $49 million for this component. A substantial amount of this is expected to go in improving the network.
The meeting at Serena also touched the tetchy issue of whether Umeme’s concession should be renewed. There was discussion on whether Uganda Electricity Distribution Company Limited had the capacity to take over.
Joseph Katera, the managing director at UEDCL, told the parliamentarians that the company can handle Umeme’s task, although they lacked the kind of investment capital that was needed for the network.