March 13, 2018, President Yoweri Kaguta Museveni crossly wrote to Energy Minister Hon Irene Muloni asking how Umeme’s technical losses remain high at 17% yet the firm claims to have $500m in distribution infrastructure to address this hitch.
Museveni directed the Minister to source two companies that can take over Umeme and provide power at a cheaper rate.
He was displeased with Umeme for overcharging Ugandans and having the highest cost of power in the region, while Uganda even exports electricity to neighbouring countries like Rwanda and Kenya.
Umeme, while signing the concession agreement in 2005, the Auditor General had calculated that Umeme’s losses both technical and commercial would stand at 28% but the President was shocked to learn the figure had been inflated to 38%.
Museveni’s realization was the figure shot up after Umeme officials colluded with Ministry of Energy officers in a secret meeting in U.S.
Against this backdrop, TrumpetNews through an investigation established that Umeme violated the agreement signed in 2005 by amending the original concession (agreement) and removed the obligations it initially had after a year of operation.
Umeme distribution license was issued on 1st March 2005 by the electricity regulation authority based on an earlier signed concession agreement that specifically amongst others stated
The agreement was Umeme would invest in the distribution grid owned by Uganda electricity distribution company UEDCL
The power firm further would take over the already financed ADB and IDA loan financed worth $11 million and shs36 billion whose disbursement in terms of transformers and substations and feeders had by 2005 brought down the technical and commercial losses to 28% from 36% as highlighted by the auditor general audited accounts for the year 2005 of UEDCL signed off by Auditor general John Muwanga.
Our investigations revealed that Umeme, in the agreement obliged that;
That Umeme would pay taxes to URA.
That Umeme Efficiency in further reducing the losses would be its revenue source.
That Umeme would be subject to regulation by the electricity regulatory authority (ERA) under the electricity act of which the core principle was that all electricity tariff setting was the preserve of ERA subject to UMEME defending any such tariff change requests.
The above primary core points in the original concession agreement were aimed at ensuring the proper supervision of the concessionaire and made it a viable contract at the time.
Breach
The investigation conducted by this website indicate that just after one year in November of 2006 six individuals (both from Umeme and Energy Ministry) met, negotiated and signed off the first 0f four Amendments to the original concession agreement that all but removed all the above obligations UMEME initially had.
The 2006 Amendment undertook the following;
It identified what they termed as “regulatory risk” to Umeme and removed many of the powers the regulator (ERA) had of supervising Umeme.
It included compensation for technical and financial losses to Umeme within the tariff and later subsidies from the consolidated fund thereby raising the tariff and giving leeway to UMEME to disregard the need to be efficient in order to earn profits and accorded them a revenue base in terms of compensating them for whatever loss they declared.
It allowed Umeme to collect taxes paid to URA in any previous financial accounting year, from electricity consumers in the subsequent financial year a method of tariff setting not in consonance with the electricity act proscribed method of tariff setting.
It allowed Umeme leeway in loss declarations by giving them a loss threshold of up to 38% for which they could be compensated up from the 28% loss level at the beginning of the concession that had been audited as a result of the ADB and IDA financed loss reduction program started in 2001 and referred to above increasing the energy sector financial requirements also known as the tariff by $40 million annually given that each 1 percentage loss is equal to $4 million annually.
This website also gathered that as political pressure on the sector increased due to the increasing tariff compensations to Umeme a new relief was introduced in the form of Tariff Relief Rebates, an accounting procedure on the invoice of UETCL to Umeme in which loss compensations plus any other tariff adjustment requirements were deducted at source from Umeme payments to UETCL for electricity bought from the later by the former.
These tariff relief rebates spiraled from 2007 when they started at 3 billion shillings monthly to 2011 May when they peaked at 13 billion shillings monthly.
Contacted in relations to this matter, Minister of Energy Irene Muloni, referred this website to Electricity Regulatory Authority (ERA).
“The regulatory body is the one that licensed Umeme and has all the information from the time the agreement was signed up to date,” she said before ending the call.
By press time no official from ERA was available for a comment.
More efforts to reach Umeme publicist Stephen Illungole were unsuccessful as he couldn’t answer our repeated calls.