Did Uganda miss $38 million in tax from Actis-Umeme deals?

It is nearly a year after an Actis subsidiary sold its last block of shares in Umeme Limited, pocketing a gain of $129 million during its 11-year relationship with the power utility firm.

But now the Uganda Revenue Authority is interested in getting to the bottom of a series of Actis-linked share-sales, according to a four-month joint investigation by The Observer and the London-based Finance Uncovered.

Our investigation in these transactions suggests that Umeme Holdings, the Actis subsidiary which owned Umeme shares, was not charged capital gains tax on that profit in Uganda. It means Uganda may have missed out on a potential $38 million in tax revenue.

Our trawls through Umeme’s annual accounts and various corporate disclosures for the last seven years, and with the help of accountants both in Uganda and the UK also show that over seven years, Umeme transferred to companies linked to Actis $220 million in revenue from Umeme.

A substantial amount of this was made through management fee charges among related companies and higher interest fees on shareholder loans, among others.

Actis, the UK-based private equity firm, disputed that it received $220m from Umeme. It said a significant portion of loan proceeds and dividends were not distributed for Actis but were required for its “various other loan payments, transaction costs, fees and management”.

Actis also disputed that it made a $129m from selling its shares in Umeme. But the company did not deny that it was Umeme Holdings, its subsidiary which owned Umeme shares, that made the $129m gain.

The management fees were booked by related companies, while Actis charged Umeme a far higher interest rate on loans compared to the amount it borrowed from the World Bank’s International Finance Corporation.  

After we presented our findings to the URA, it told us it is now “following this case”. The URA’s interest was evoked by this investigation, which is supported by Public Services International Union, a global trade union federation.

Rosa Pavanelli, the general secretary at Public Services International, which commissioned Finance Uncovered the report, said: “To see a UK-owned, World-Bank-supported, privatized electricity corporation shuffling funds out of a developing country and into an offshore tax haven is appalling but unfortunately not surprising.”

“When public services are privatised, it’s always the people who pay the price as profits which should be dedicated to reinvestment are instead pumped offshore and skyrocketing user charges help line the pockets of multinational corporations and the mega-rich.”

It is likely that of particular concern to URA is whether Actis should have been charged capital gains tax when it sold its shares in Umeme during three separate transactions.


Umeme is an important company in Uganda. The company has managed to turn around what was a dark period in Uganda’s electricity industry to one of hope. In 2016, Umeme made more than 157,000 connections, increasing its customer base by close to 20 per cent.

The company has also managed to tackle illegal power connections by increasing the number of people who are on prepaid meters. At least 65 per cent of Umeme’s customers are now on prepaid meters, and this has contributed 16 per cent of the company’s revenues.

However, Umeme still has to make substantial investments in the power distribution network to further bring down the energy losses. The current energy loss, at 19 per cent, is still higher than many countries in sub-Saharan Africa. Energy losses contribute to high power tariffs.

Only 15 per cent of the 37 million Ugandans are connected to the national grid. That URA could be taking another look at Actis’ transactions, long after the private equity firm from the United Kingdom exited the market, is significant on a number of fronts.

First, it points to a possibility of Uganda missing out on huge sums of tax revenues that it can invest in poorly-funded sectors such as education and health simply because companies have become smarter in their attempts to pay less tax.

It also shows the grey areas in Uganda’s policies that URA faces when it is making tax assessments.

For example, while the sale of shares on the Uganda Securities Exchange, such as the Actis-Umeme transaction, is exempted from capital gains tax, a tax charge might be slapped on the deal if the shares are classified as a business asset and that the owner has failed to prove their residency in a jurisdiction Uganda has a double taxation treaty with.

There is no suggestion that Actis acted illegally during its sale of shares in Umeme. The company stated that “Umeme has paid very significant corporation tax throughout Actis’ investment period” and that both Actis and Umeme also paid significant withholding taxes on relevant payments over the years.”

To put the significance of Actis’ operations in Uganda in context, some bit of background is needed.

Umeme board chairman Patrick Bitature (L) with managing director Selestino Babungi


In 2005, Actis, on behalf of the Commonwealth Development Corporation, started managing Umeme Limited. Actis did this through its special-purpose vehicle, Globeleq, which was previously based in Bermuda, and later changed names to Umeme Holdings in Mauritius, a country Uganda has a double taxation treaty with and where corporation tax is capped at three per cent and capital gains tax is zero..

Corporation and capital gains tax in Uganda is 30 per cent. In 2009, Actis managed to attract a loan of $25 million from IFC. The interest rate on the IFC loans are usually charged according to the London Interbank Rate. The IFC loan was charged at five per cent.

By 2011, this entire loan had been drawn down. In late 2012, IFC bought shares worth $4.9 million during Umeme’s initial public offer as Actis started offloading some of the shares it held in the company.

After Umeme had fully paid back the IFC loan in 2013 using borrowed funds from Stanbic bank and Standard Chartered bank, it yet again borrowed another $70 million from the IFC later that year.

Throughout the years, Actis has managed to use related companies in part of the transactions with Umeme. At one point or another, Umeme Limited has hired and paid related companies such as Umeme Holdings Limited, Umeme Management Services Limited, Globeleq Expatriate Services Limited and Globeleq Advisors Limited, all of which are controlled by Actis.

There is nothing illegal about this. However, institutions such as URA continue to struggle to assess whether these transactions are charged in accordance with the market price or otherwise known as arms-length.


In 2012, Actis floated 39 per cent of Umeme Ltd in what was one of the biggest Initial Public Offering on the Uganda Securities Exchange at the time. Some $65m was generated and Actis stated this cash went to pay off debt. The remaining proceeds from the share sale were reinvested in the business.

At this point, Actis still retained 60 per cent of the business and Umeme Ltd continued to make profits, on which it paid corporation tax to the Ugandan treasury.

The second sale saw 45.7 per cent of Umeme stake sold for $98m in 2014. This left Actis with a 14.3 per cent stake.

In the last two months of 2016, Actis disposed of its last remaining shares in two separate transactions. Uganda’s National Social Security Fund bought 7.5 per cent of Umeme at a 7 per cent discount to the Umeme share price at the time. NSSF paid Actis $16.9m for the shares, according to its statement at the time.

Applying the same discount to the final 6.8 per cent holding, we estimate that Actis received $14.5m. This figure is possibly a slight underestimate.

In total, we found Actis received $194.4m from the sale of shares in Umeme. But excluding the proceeds of the 2012 Umeme float, we estimate Actis might have profited on its exit to the tune of $129.4m.


Actis also derived revenue from Umeme from interest it charged on a $27m shareholder loan. According to Umeme’s 2011 accounts, interest was charged at 12 per centper year.

In the three years to 2011, according to Umeme’s accounts, interest totaled $11.2m, which went to Actis. The level of interest was double what the International Finance Corporation charged Umeme on a separate $25m loan.

We asked Actis why it charged Umeme such a high interest rate. It stated that it is “completely normal for a subordinated loan to have a higher interest rate than senior loans”.

But there are strong indications that Actis saw the shareholder loan as a way of extracting revenues from Umeme. In Umeme’s prospectus prior to its 2012 float on the Uganda Securities Exchange, Actis stated that Umeme has “paid an increasing level of shareholder loan interest for the past three years as a means of distributing cash to shareholders.”


One possible reason for charging Umeme “an increasing level of shareholder loan interest” was because Actis did not take dividends from Umeme until it floated on the stock market.

But after the firm floated, it received close to $10m in dividends through its ownership of shares between 2012 and 2015.

We came to this $10m figure by identifying the total dividends paid to shareholders as disclosed in Umeme’s cashflow statement. We then calculated how much of this total dividend figure would flow to Actis according to its shareholding at the time.

Actis did not comment on this $10m figure.


Umeme accounts show that an Actis-owned entity, Globeleq Expatriate Services, received $5.44m in management fees from Umeme. The bulk of these fees were between 2010 and 2015.

Actis said virtually all the income from these fees went to pay Actis managers. We asked Actis how many managers shared this $5.44m fee, but the company declined to answer. The company declined to give a specific answer but suggested “it was a significant number across a large range of roles and responsibilities”.

Actis says “Umeme and Actis entities paid 100 per cent of taxes due”.


This story was a cross- border collaboration between The Observer’s Watchdog and Finance Uncovered, an organisation in London that trains and supports journalists to cover illicit flow of money.

© 2016 Observer Media Ltd