Growing import substitution and partial payment of a huge project debt incurred by government sharply boosted Umeme Ltd’s earnings during the first six months of 2021 amidst soft Covid-19 lockdown measures but political uncertainty surrounding the operational future of Uganda’s largest electricity distributor remains a nagging headache for investors.

The power distributor’s total sales revenues rose from Ush848.8 billion ($238.9 million) in June 2020 to Ush827.9 billion ($233 million) in June 2021 while net profit before tax increased from Ush32.2 billion ($9 million) to Ush69.6 billion ($19.6 million) during the same period.

Repair and maintenance costs also grew from Ush21.6 billion ($6.08 million) to Ush29.2 billion ($8.2 million) in June 2021 — a sign of rising network management pressure faced by the firm during the coronavirus lockdown period that forced many people to work from home alongside distance learning conducted over internet and TV.

Rising import substitution reported in the manufacturing sector is cited for remarkable sales revenue growth recorded during the first half of 2021.

Higher consumption

A drastic shift in the industrial sector has forced local manufacturers to invest in domestic production of certain inputs traditionally imported from Asia following severe border disruptions caused by stiff Covid-19 lockdown measures across the world has triggered higher electricity consumption rates, increased productivity and reduced import orders.

Bold commercial decisions taken by local industrialists in the aftermath of the Covid-19 pandemic have highlighted stronger resilience levels experienced in this sector in contrast to the education, transport, leisure and hospitality sectors that have nearly crumbled under the weight of hostile lockdown measures and difficulties in accessing government financial bailout funds allocated during financial year 2020/21.

Electricity sales volumes attributed to extra-large industrial users grew by 18 percent during the first six months of 2021 while power sales revenues rose by 16.4 percent during the same period under review. Electricity sales volumes registered by large industrial users increased by 14.2 percent while electricity sales revenues posted by this category increased by 11.5 percent during the first six months of 2021.

In comparison, electricity sales volumes among commercial users grew by 12.9 percent while electricity sales revenues captured in this category expanded by 11.5 percent. A total of 98 new industrial users were added to its power distribution network during the first half of this year compared to 751 commercial users registered in the same period.

“Import substitution is the way to go in this economy. But it is difficult to forecast industrial sector growth in the short term because of unpredictable Covid-19 lockdown patterns. Last year, all budgets allocated to government agencies were slashed by 33 percent and this disorganised many business growth plans in the private sector,” said Dr Martin Kyeyune, a senior executive at Roofings Group.

A payment of $9 million by government to Umeme towards partial settlement of the $16 million debt accumulated under the Electricity Connections Policy (ECP) also boosted the power firm’s earnings during the first six months of 2021. Under the ECP, rural citizens enjoy subsidised access to electricity through provision of free, connecting electricity poles and cables.

So far, more than 200,000 new electricity connections have been implemented under the ECP programme in various districts since the initiative was launched in November 2018. However, government’s failure to clear the accumulated project bill of $16 million forced Umeme to suspend field activities in September 2020.

But subsequent discussions paved the way for resumption of ECP programme activities in January.

The power distributor’s share price at the Uganda Securities Exchange dropped to a record low of Ush189 ($0.05) mid this month following exit by some foreign investors reportedly frustrated by delayed government clarity over the future of Umeme’s 20-year concession contract. Though the share price recovered to Ush215 ($0.06) in recent trading, investor jitters over the fate of its controversial contract have persisted among stock market participants.