UMEME EXIT AND THE END OF AN ERA

As of writing this column Umeme’s 20 year concession will come to a close today Monday, 31^st March.

Last week the Auditor General submitted his final report putting what the government owes to Umeme as a final pay out at $118m, below any previous estimates. According to Umeme the government owes them $234m, previously the Auditor General had estimated the payout at $201m, while Electricity Regulatory Authority (ERA) the overseer of the concession had put their figure at $127m.

The payout is compensation for assets not fully paid for through the tariff.

It was curious how the discrepancies between all the players were so wide and I guess this will be resolved in the fullness of time.

It has been an interesting journey and a test case for the management of such Private Public Partnerships (PPP), as we will probably need to do more of in the future.

At the tail end of the privatization process, at the end of 1990s, the big infrastructure companies like Uganda Electricity Board (UEB) and Uganda Posts & Telecommunications Corporation (UPTC) came up for sale.

Unlike previous privatisations for which it was enough to liquidate, sell their assets or sell them as is, these companies demanded different treatment.

In the case of UEB a total overhaul of the electricity sector was required to attract funding into the sector.

"For starters the tariff had to be raised, as the prevailing tariff, around US4cents a unit at the time,  did not allow for the sector to be run sustainably, leave alone promise a return for intending investors...

Critical too to the reforms was the breakup of UEB into its constituent parts – generation, transmission and distribution. This was done because it was easier to get investment for parts of the company rather than the whole. As has proved true.

Billions of dollars in investment have been sourced by government and private players in the generation and distribution sector. Government has had to follow suit with comparable investment in the transmission part to keep up with new interest up and down stream.

Umeme came in at a time when we were suffering day long power cuts and as if that was not enough, around that time the water levels on Lake Victoria fell dramatically, affecting power generation at the Kiira-Nalubale power station.

Government opted for expensive thermal power, which raised tariffs even higher and saddled government with trillions of shillings in subsidies to the sector to keep the power tariff manageable for the paying public.

It is only when Bujagali came on line 2012, with the sector seeing surplus generation capacity for the first time in decades, eliminating loadshedding, did Umeme really take off. It should be noted that Bujagali’s commissioning was delayed almost 10 years as politicians and environmentalists threw roadblocks at every turn of its development.

With increased generation Umeme had to ramp up the last mile distribution grid, accelerating account numbers to around two million currently from the 300,000 they inherited.

Of course once it is done everybody jumps up and says it was not that difficult after all, anyone could have done it.

But there certain key things that allowed Umeme to do what UEB could not do.

For starters the managers of Umeme were only dealing with one part of the electricity chain, albeit the crucial one, because if Umeme was not paid transmission and generation would not have been paid. It should be noted that the installation of yaka in 2011, which Umeme were initially reluctant to undertake, because of the huge initial capital outlay, has with a single stroke increased billing to almost 100 percent.

In addition the higher tariff  Umeme has enjoyed has allowed them to not only maintain the grid but expand it almost five fold during the concession to 70,000 km from the 16,000 km they inherited.

Secondly, Umeme has been able to invest almost $800m over the last 20 years, because on the strength of the balance sheet, go to the market to source funding, and not rely on treasury for funding. This was critical for speed of execution of many of its programs...

It helped too that with increased digitization greater efficiencies have been enjoyed that UEB could only dream about. Though on the other hand the profit motive can be a strong incentive to push innovation and early adoption of new technologies.

Unfortunately the concession seems to have come to an acrimonious end. But the management of Umeme can leave l knowing they have set bar against which its successors will be measured. Umeme may have benefitted from being measured against the low bar of UEB, the same will not be the case for its successor.