Pull the plug... and pay Umeme $65m fine

Moves to throw the switch on Uganda’s current power distribution concession have come unplugged.

Reason: the taxpayer could bleed as much as $65 million in exit fees to the concessionaire.

Sources familiar with recent plans by the Ugandan parliament to force an end to the four-year marriage with power distributor Umeme say the substantial exit penalty contained in the small print of the concession agreement, would see the consumer tariff almost double as the utility attempts to recover the loss.

The cost is provided for in the agreement, which for example obliges the government to settle the unamortised investments and the unrecovered amounts among other costs if both parties fail to agree.

Privatisation Unit officials say that in the unlikely event that a decision to terminate the concession is reached, it would also have a direct high-risk implication on other Independent Power Producer projects ) in the energy sector.

These projects, especially the 250MW Bujagali power station’s business plan, are hinged on the premise that the distribution and supply system, going forward, will be managed by a private party.

Equally, reverting to the original state monopoly as suggested by some parties would require additional public investment in the network.

These costs would again have to be recovered through additional consumer tariffs.

The mounting criticism of Umeme’s power distribution performance was fanned by a recent inquiry whose report said the distributor had unnecessarily raised the consumer tariff by as much as 44 per cent, translating into Ush188 per unit of power consumed.

Those facts notwithstanding, all investment promotion agencies The EastAfrican sounded out said terminating Umeme’s contract would be a policy reversal that would erode investor confidence in Uganda.

“For Uganda to develop, we need the private sector in infrastructure development. We are living in a global village and competing for investors, so termination will not be helpful in any way,” said Jim Mugunga, public relations officer at the Privatisation Unit.

Uganda has a liberalised investment climate that allows foreigners to pursue investments of their choice with limited government control and no official restrictions on financial accounts. 

“Buying off the concession would not solve our problems, rather it would multiply them. In any contract, it is worthwhile to sit at the table and review the circumstances,” said Mr Mugunga.

Ministry of Energy officials who would not go on record for fear of contradicting their new boss, Hillary Onek, said the best option was to review the concession.

“We know Umeme has had its problems, but we should try to help them instead of terminating their contract,” said one official.