Monday, May 12, 2014

UMEME EXIT A LESSON



This week the controlling shareholder of power distributor UMEME announced it would be disposing of a significant portion of their interest in the company to pursue another venture in Cameroon.

British private equity firm, Actis Capital owns 60 percent of UMEME having sold 40 percent to the public in 2012.

Earlier this year parliament voted to cancel the UMEME concession citing irregularities in the way the concession was procured. Thankfully the resolution was not binding on government or UMEME.

With news that Actis Capital was divesting itself of a major portion of its holdings understandably led to speculation that the parliamentary action prompted the move. Umeme denies this but it is not inconceivable that the political risk that came with the resolution played a part. It takes time to organize such a sale and the parliamentary debate that resulted in the recent resolution stared three years ago, must have been factored in.

Since UMEME took over the concession their customer base has doubled to 574,000, with the amount of power going the same way doubling to 2118 gwh in addition the company was collecting all the revenues due to it, including from government. Last year revenues came in at nearly a trillion shillings.

These improvements have come at a cost with the concessionaire investing more $150m (sh390b). This number is interesting on two fronts. One, its a reflection of how derelict the network they inherited was and secondly, this is money would have been ploughed into the system by government were it the owner, money badly needed for infrastructure and social services but also knowing how government works would not have produced the efficiency improvements UMEME has shown during the same period but would have instead enriched a few individuals.

Whereas Actis says it is shifting its attention to bigger projects in Cameroon, its hard to see how an investment in a more stable market can beat the growth potential of the Uganda market where the supply constraints are being sorted out and there is only one person in every ten Ugandans with access to power.

"The truth is that while Actis has done well for themselves--not as well as they would have hoped had they seen out the full concession, Uganda was becoming a hazardous place to do business. Not only were they battling the small power thieves, well connected people, companies and government departments were in on the action too. As if that was not enough they had a government driven by political rather than economic considerations, that was often reluctant to back their business plan...

In addition they suffered rear guard action from regulators and parliamentarians who hung them out to dry or were hell bent on the throwing them out, regardless of the cost to the economy in lost momentum or compensation.

It is difficult to have sympathy for Actis. Capital is a coward and this is what they do. They provide capital, bring together the management expertise and develop projects with a clearly defined exit number in mind.

Two lessons emerge from this experience. 

One, in the absence of local comparable investors we need to be more supportive of investors like Actis. Secondly, that we need to have a more strategic vision of how we mobilize our own resources to be more meaningful players in our own investments. To illustrate of the ten largest shareholders in the UMEME share sale two years ago only NSSF and maybe the employees and directors and shareholders of UMEME represented Ugandans. Who is to blame when, the juiciest of our investments are snapped up by others?

2 comments:

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