Did you know that the Umeme tariff in your Yaka or postpaid meter includes many adjustment factor?.-the biggest contributors to the tariff that is responsible for clearing almost all our forest cover include; the principal and its corresponding 20% interest we paid for all investments made by Umeme on our behalf, the value of the electricity units lost from where they are generated up to your house or business premises, Umeme’s income tax, Operating and Maintenance of the Uganda Electricity Distribution Company limited (UEDCL) etc.
Using the Q4, 2016 period, Umeme bought a kilowatt hour or a unit of electricity at Shs. 260.9/= and sold it to you on your yaka meter Shs.696.9/= for a domestic consumer (This figure excludes 18% VAT). This big margin between buying and selling price borders treason or what in Luganda they call okulya munsi yo olukwe.
The distribution tariff is so high that you will probably never get a publication of the Weighted Average Distribution Tariff in Uganda under the Umeme regime.
They too publish a quarterly schedule of what an individual consumer pays during peak, off peak and shoulder demand periods. What we are about to see is the actual price that we as Ugandan consumers face as a group of different categories. If that price was known, we would have enough reasons to be angry with this unfair utility distributer,
For avoidance of doubt, at the time of signing the Lease and Assignment Agreement between Umeme and the Government of Uganda, there were significant challenges in management of the distribution network as well as the business aspects of vending electricity units.
In good faith, a mutually beneficial agreement was signed and indeed Government through a World Bank loan extended distribution infrastructure to Umeme equivalent to about US$40 million.
The grand mother of all problems that we face today came in form of an illegal meeting in which 6 people (including one who is in senior management of Umeme now) purported to represent Uganda and unilaterally “amended” the original concession agreement on 28th November, 2006.
The effect of this illegality was visited on the Ugandan electricity consumer has been remarkably treasonous especially on job creation, poverty and future non-oil economic growth.
The amendment circumvented an earlier good move by Uganda Investment Authority refusal to grant Umeme a tax exemption. From December 2006, the electricity consumers paid all the taxes on Umeme’s profit through the following year’s tariff. The worst was introduction of a “Regulatory Risk” where ERA was barred against the requirements of the Electricity Act (1999) from auditing Umeme.
All public contracts in Uganda with a value exceeding Shs. 200 million must first receive a no objection from the Solicitor General. In the current illegal contract, there was no such clearance. The question to the 6 gentlemen that included an international lobbyist shall always be that; who gave you authority to negotiate a bad concession amendment on our behalf?
Umeme- liability to Ugandans
From the illegal amendments, Umeme was entitled to a 100% refund on both technical and commercial loses. The moral issue was and still remains that the one who is supposed to upgrade the network to reduce energy loses is rewarded for reporting losses. If a third party was given the responsibility for investment in the network, the energy loses should have declined to about 10% by now.
It is also a fact that the last Auditor General’s report of 2004 before Umeme took over with all the reported inefficiency by UEB, EUDCL and Government Agencies refusing to pay, the combined technical and commercial loses were at 27%.
When the much efficient and praised Umeme took over, the figure of loses officially jumped overnight to 38%. At some point in 2006, it was reported to have reached a staggering 41%. When the famous Saleh report came out, Umeme overnight cut energy losses from 38% to 28%.
Who are the 6 prominent persons?
Kabagambe Kalisa the then PS Energy & Mineral Development (MEMD). He needs no introduction to the Energy and Minerals fraternity. An experienced man who was the helm of the sector for over 27 years. He conveniently chose not to involve any one from the Electricity Regulatory Authority in the negotiations with Umeme. He instead handpicked persons who would side with the problems we now face.
Eng Elias Kiyemba a Russian trained electrical engineer who always maintained that electricity is a luxury good according to the communist model and was fundamental in engraining government official policy documents.
The concept of planning for electricity development and that of constrained demand which has led to the current crisis are from him as artitect.
David Sebabi the then head of the privatization unit at the ministry of finance Planning & Economic Development. He testified that this group of prominent persons had the illegal powers to usurp the powers of ERA accorded by the Electricity ACT CAP 145 of 1999.
Paul Mare formally a billing specialist in ESKOM South Africa who was sent to be the first expatriate Managing Director of Uganda Electricity Board (UEB). He proceeded to oversee the unbundling of UEB, where generation of electricity at the Owen falls complex was handed over to his employers ESKOM. Transmission was left to Uganda under UETCL headed by Eng Elias Kiyemba and distribution under UEDCL was left to him as it’s first Managing Director. UEDCL under his leadership then proceeded to sign a concession agreement with UMEME LTD to hand over the assets of the distribution grid?
Sam Zimbe currently the number two in the UMEME management in charge of operations only next to the Managing Director, Mr. Selestino Babungi. Mr. Zimbe as at the end of 2016 personally owned 0.38% of Umeme, the company he was negotiating with on behalf of Government.
Who is Umeme?
Umeme as we knew it in 2005 made their super normal profits and run away to other virgin African destinations. We now know that the original major owners of Umeme Holdings, which owned Umeme limited already run away as the concession period is running out.
Much earlier in 2006, Eskom one of the founding 2 major partners in Umeme pulled out of the concession without official notice. Their pulling out alone would have invalidated the concession. No capital gains tax was paid for that farm out and ultimately the Solicitor General is not known to have formed an opinion on the new structure of Umeme and the concession.
Last year, 2016 in December, Actis, a British company and parent company of Umeme Holdings sold out its remaining shares. Actis was right to look for an unsuspecting investor, offload their shares and run away because Umeme owns nothing here in Uganda. All the distribution infrastructure they are using belongs to UEDCL, the dividends given to shareholders are not commensurate with the profitability level and in 7 years’ time, UEDCL will take over what belongs to it.
So what did NSSF that is said to own 23% buy in Umeme? What does Umeme own that NSSF is supposed to report about owning?
On the investments made by Umeme, we have 2 very different figures by ERA and another by Umeme. One of them is surely a liar and in the end, the one to pay for such lies in the consumer.
ERA claims, although you will not easily get a publication from them stating that Umeme’s cumulative investments in the distribution network so far stands at US$371.7 million. On the other hand, Umeme in its own 2016 annual report states US$500 million. This massive discrepancy of US$128 million will come back to haunt us as a country if not worked on now. The discrepancy would probably never have occurred if the Auditor General was not impliedly barred by the illegal concession amendment from auditing our very own assets that are 100% owned by EUDCL.
Why Umeme should not borrow on our behalf
Umeme is not on the truth side of the level of investments made so far. Sadly, after almost 13 years of grappling with high tariffs, that only US$149.6 million has been recovered. Conservative estimates from experts put the required level of investment in the network at US$ 800 million to enable a successful off take of Karuma, Isimba, Kiba and other dydros.
If for 13 years, we have only recovered US$149 million for Umeme, then we need another model that excludes the company in order to upgrade and reconstruct our distribution infrastructure deficit. Umeme has to be ignored because the 20% interest rate (professionally referred to as Return on Investment) is for money lenders not for lenders of liquid entities like states. We can borrow as a country at 2% not 20%. Why pay more if we can do it ourselves at much cheaper rate? Why?
The negative effect of the mountain high tariffs on the economy in terms of jobs and economic opportunities is not in dispute. On average, 45% of all business overheads go to paying Yaka bills. If a business is to meet high rent costs, electricity costs and fuel costs, such business can’t with ease recruit additional workers to employ our youths. That business also can’t pay decent wages to match inflation, while Umeme gets an inflation adjustor in their tariff setup.
The real reason why we should never think of ever renewing Umeme’s contract is that Uganda has built capacity to operate and manage the distribution network efficiently. Out of the top 20 workers in the Umeme management team, about 17 are Uganda nationals including the Managing Director. UEDCL owns the infrastructure and some reasonable management team too.
Common sense would dictate that at midnight of 28th February, 2025, our outstanding talent of Ugandans now managing Umeme will be absorbed by their real parent, UEDCL. Just like a Ugandan team is doing wonders at National Water and Sewerage Corporation, we can have another winning team at UEDCL.