The International Finance Corporation (IFC) the largest global development institution and a member of the World Bank Group, has reported, they are considering lending up to USD 70 million (UGX263.2 billion) to Umeme Limited.
Umeme is Uganda’s largest power distributor.
In a disclosure posted on their website, IFC said they plan to raise a senior loan for up to USD 30 million from IFC’s own account, and up to USD40 million to be mobilized from other lenders- altogether USD 70 million.
IFC said in the disclosure that the debt financing will be used to support “Umeme’s next 6-year (2019-2024) capital expenditure program, which will mainly focus on: network upgrades to enable load growth and additional connections to support uptake of new generation, safety/reliability enhancements, and implementation of smart meters to continue improving collections and reducing commercial losses.”
“The Project will support the growing demand for electricity in Uganda, and contribute to ongoing efforts to increase access to electricity. This will help fulfil the Government of Uganda’s efforts to improve electrification rate from the current 27% to 60% by 2027, and complement the significant growth (almost double) in generation capacity expected by 2020 (from 183MW Isimba and 600MW Karuma dams, and small solar/hydros),” said IFC in their disclosure.
“In addition, the Project has potentially significant indirect and induced effects on value added and employment as Umeme’s network expansion plan focuses on zones with high electricity demand and economic growth potential. Finally, it will improve resilience of the main distribution network in Uganda and reduce losses, through adoption of advanced smart technologies, adequate maintenance and upgrade of ageing assets,” added IFC.
IFC further said that by availing more affordable commercial and institutional financing, which is not readily available in the Ugandan market, Umeme will be enabled to “increase the average maturity of its loans and free up cash flow for Capex.”
“IFC’s involvement and proposed structure will also provide comfort to existing commercial lenders to potentially increase their commitment to Umeme,” said IFC.
This disclosure, coming at the same time as government’s confirmation last week that it will renew Umeme’s 20-year concession comes in handy and is a growing show of confidence in the power distributor.
The financing, if approved will bring, the total amount of lending to Umeme by IFC to USD185 million over the last 10 years. Umeme, which has previously been hailed by the World Bank as “by far the most successful Public Private Partnership “in the previous past has attracted up to USD 265 million in funding from the International Finance Corporation (IFC), Standard Chartered Bank, and Stanbic.
In a recent interview with CEO East Africa, Patrick Bitature the Umeme board chairman, said Umeme will need to invest up to USD450 million in capital expenditure (CAPEX) alone. He however added that to create a robust enough distribution network to last the country for over 20 years, Umeme will need to invest between USD1 billion and USD1.5 billion over the next five to ten years.
To date, Umeme has invested $627m (UGX2.4 trillion) into doubling the distribution network to over 34,000km from the 16,000km it inherited and grown customer connections by more than 4 times- from the 290,000 inherited to 1,291,811 by end of 2018.