Navigating New Horizons: Umeme Buyout Approaches

By this time next year, Umeme, a prominent utility brand in Uganda, may have new owners and possibly a new name. With the decision to let the 20-year concession expire, the government is preparing to buy out the electricity distributor, which is listed on both the Kampala and Nairobi stock exchanges.

Despite Umeme’s efforts to negotiate, the government, through the Ministry of Energy and Mineral Development and Uganda Electricity Distribution Company Limited (UEDCL), is reclaiming control. UEDCL has assured that it is well-prepared for this transition, distinguishing itself from the defunct Uganda Electricity Board (UEB) that preceded the sector’s liberalization.

In February, UEDCL Managing Director Paul Mwesigwa expressed confidence: “Our staff, the board, and management are fully prepared for the responsibilities that lie ahead.” UEB’s poor investment and management in the past contributed to its failure, leading to the urgent privatization and unbundling of the sector, which critics argued favored Umeme.

Umeme’s latest financial report indicates a commitment to facilitating a smooth transfer of assets and settlement of the buyout amount, set to finalize in March 2025. This is the first instance where the government is buying a profitable entity, as opposed to rescuing a failing one. The company can sell assets back to the government at 105% of book value, with full payment due by April 2025.

As the buyout date nears, stakeholders are closely watching the transition. Some view it as a relief, including President Yoweri Museveni, who has long criticized high electricity tariffs. Despite Umeme’s significant investments and profit generation, the President’s focus remains on reducing tariffs to support industrial competitiveness.

The Uganda Manufacturers Association has highlighted the need for more favorable electricity tariffs to stay competitive. However, a recent study suggested that low tariffs alone might not significantly boost industrial consumption.

Umeme has played a crucial role in transforming Uganda’s electricity sector, with investments exceeding $800 million since 2005. The company’s Yaka system has improved cost management and revenue, though recent financial results show a decrease in profit due to amortization and winding down activities.

As Uganda transitions from a model of privatization to renationalization, the process will bring significant changes for customers, employees, contractors, and investors. The shift from a private enterprise to a parastatal may introduce new challenges and political dynamics. The efficiency of service delivery and job security for Umeme employees are key concerns.

Contractors and suppliers face uncertainty about their ongoing relationships with UEDCL, while shareholders, especially international investors, are concerned about the buyout price. The government has yet to finalize the budget for the buyout, with recent clarifications indicating the need for thorough verification before allocating funds.

Efforts to ensure a smooth transition and continued high-quality service are critical. There are also rumors of potential Chinese investment, which could influence the process.

For the buyout to be successful, it must avoid controversies such as influence peddling and favoritism. Ultimately, the goal is to complete the transition in the public interest, maintaining investor confidence and ensuring a seamless handover.