Cabinet has approved a proposal from the Ministry of Energy in which government, through the Ministry of Finance, is proposing to borrow USD 190.9 million (UGX697.8 million) to fund the Umeme buyout.
Umeme’s 20-year concession is expected to expire next month, with government expected to pay the buyout amount within 30 days, failure of which, the money will attract interest until it is paid in full.
Government is proposing to borrow the money from Stanbic Bank and the matter is expected to come up for discussion tomorrow.
Government, through the Ministry of Energy had in 2022 proposed a phased payment plan through budgetary allocations, but was rejected by Parliament due to failure to present an audited report of Umeme investments and comprehensive payout plan.
The Auditor General has also been auditing Umeme investments, but the report is yet to be made public.
Umeme has been recovering a part of its investments through tariffs, with the balance of unrecovered investments expected to be recovered at the end of the concession.
In 2022, government indicated it would not renew Umeme’s at its natural end on March 31, 2025.
Government’s share of commercial debt has been increasing over the years, with experts warning that it risked crowding the private sector from the credit market.
Details in the Ministry of Finance Quarterly Debt Statistical Bulletin and Public Debt Portfolio Analysis indicate that whereas commercial public debt has been increasing it reduced to 19.78% from 20.03% in June 2024.
Commercial creditors such as such as Standard Bank (US$759.03m) and Trade Development Bank (US$314.59m) hold some of the largest stocks of commercial debts advanced to the Uganda government.
Commercial bank loans, which carry higher interest rates, reduced from 13.6% to 11.8%. This suggests a strategic reduction in high-cost borrowing, though Uganda still relies on commercial loans for quick access to financing.
Government borrowed UGX 6 trillion from domestic commercial banks, a slight drop from UGX 7 trillion in the Financial Year 2022/23.
Umeme buyout
In April 2024, Irene Batebe, the Energy Ministry Permanent Secretary told Parliament that close to US$215 million was required to acquire majority shares of power distributor, Umeme.
The move is set to give the government full control of the power distribution system, marking the end of a long standing private sector arrangement.
Bateebe added that the figure of the final buyout could either decrease or increase based on the Auditor General’s investigations.
At the same sitting, Members of Parliament called on the Ministry of Energy to take action and ensure a steady energy supply for Ugandans during and after Umeme’s exit.
The latest Auditor General’s report reveals that Umeme has continuously made investments leading to an increase in Financial Liability which government is supposed to pay in accordance with section 12 of the Support Agreement and therefore external funding is required for the buyout amount.
In 2022, Umeme indicated it had an accumulated investment of USD 760 million in the electricity distribution system.
Umeme’s half-year revenues for 2024 from contracts with customers increased by 7.1% to UGX 1.2 trillion billion from UGX 1 trillion in 2023. The growth in revenues was due to increased electricity sales volume, underlying tariffs and provision of construction services. \
However, the company’s operating costs increased to UGX 146 billion from UGX 112 billion in 2023 due to increased network repairs and maintenance costs, growth in business operations and increased cost of imported materials.
Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) increased by 7.6% to UGX 263 billion due to a 15.1% increase in gross profit and slightly lower operating costs As the Concession is coming to the end of its natural term in 2025, the International Financial Reporting Standards (IFRS) require alignment of asset amortization to the remaining period of the contract term.
Consequently, the amortization charge for the period increased to UGX 238 billion compared to UGX 210 billion for 2023. Finance costs reduced by 36.2% to UGX 16 billion following repayment of all term loans in December 2023, and our prudent management of working capital during the period.
Income tax charge for the period increased to UGX 11 billion compared to UGX 3.5 billion in 2023. The increase is due to performance on profit before tax for the period.
Umeme’s Profit After Tax (PAT) remained at the same level as 2023 at UGX 13 billion. Its net profit was impacted by accelerated amortisation of intangible assets. Umeme’s net profits hit 148 billion in 2022.