Umeme buyout — What the Auditor General found

KAMPALA - The Auditor General, Edward Akol, has recommended to government to pay Umeme Limited $118.3m (sh432.9b) instead of $190.9m (sh698.6b), which had been approved by Parliament.

The Auditor General, however, said the buyout amount excludes $9.7m (sh35.5b) related to modifications that are work-in-progress at the end of the concession and will be subjected to verification by the Electricity Regulatory Authority (ERA) upon completion and submission of a report by Umeme. 

“In addition, there were other modifications that have been excluded for various reasons, such as incomplete support documentation, considered as repair and maintenance, among others,” the report said. 

Although Akol recommended that the Government pays Umeme $118.3m not later than March 31, 2025, he said ERA should verify the work-in-progress submitted by Umeme upon completion of the verification exercise. 

However, the report revealed that Umeme also owes Uganda Electricity Transmission Company Limited (UETCL), another government entity, sh542.8b as of March 13, this year. However, this figure is contested, as Umeme records indicate an outstanding figure of sh269.3b payable to UETCL as of March 21, this year, excluding the February invoice.

“Therefore, a reconciliation between UETCL and Umeme is necessary to resolve these discrepancies as at March 30, this year,” noted the report, a copy of which New Vision has seen. 

The special audit was done by Grant Thornton, a global accounting firm, that was contracted by the Auditor General to determine the accurate buyout amount at the end of the 20-year concession agreement between Uganda Electricity Distribution Company Limited (UEDCL) on behalf of government and Umeme. 

This was after the contract was not renewed. The report was presented on Thursday (March 27) to the Speaker of Parliament, Anita Among. Eng. Ziria Tibalwa Waako, the ERA chief executive officer, was present during the handover of the report.

Status of properties 

Regarding the land on which the distribution system assets sit, such as sub-stations and other facilities including wayleaves for distribution lines, a survey conducted between August 12 and November 22 last year, found that three properties could not be located. 

Electricity way leaves are legal rights over land ownership for overhead electricity lines and cable apparatus. 

The report also established that 20 leasehold properties were expired, while 35 properties handed over to Umeme at the start of the concession have never been used. 

It was further established that seven properties had no land titles, 57 properties were encroached on and/or disputed by a neighbour, while 19 properties are encroaching on neighbouring boundaries.

Akol, however, said there were no findings noted on the wayleaves for the distribution lines.

He, therefore, recommended that UEDCL should initiate the processes of undertaking land searches for missing properties, renew expired leases, obtain titles for untitled properties, recover or repurpose unused properties and resolve disputes and encroachments through legal means and boundary assessments. 

On inventories, the Auditor General said it was found that as at February 28, this year, they were valued at $28m (sh102.4b).

“We recomputed the evaluation of inventories and found it to be accurate,” Akol said. He further said a physical verification of the inventories from August 12 to October 11, last year, as well as between December 31, last year and February 28, this year, found that except for minor expected variances due to inventory movements, the inventory listings largely reflected what was in the stores and the items were in good condition and well kept. 

“The network assets were in good condition, except for the low voltage network. The non-network assets were also in good condition, with a few items considered bad and broken while sub-stations, service centres and office buildings were in good condition though some areas require repair, replacement or full renovation.

However, the spatial data on the assets is not up to date,” the report states. Akol recommended that UEDCL conducts repairs, replacements or renovation of facilities and updated spatial data to correct missing or inaccurate asset information. 

He said a review of the independent engineers’ report, dated February 20 this year, concluded that the distribution system, including the modifications that have been incorporated thereto, is in a condition and state of repair and maintenance. 

The Auditor General observed that this is consistent with prudent utility practices within the context of the deployed investments. However, he noted that the independent engineers reported some non-conformities on the distribution system. 

According to Akol, the environmental consulting firm’s report concluded that some hazardous materials were present on the network. However, he went on to say Umeme has developed and implements an environmental management system, which ensures that sufficient controls are implemented to prevent significant contamination of the environment by these materials. 

The audit also found 15 warranties and guarantees, in relation to the distribution system, of which 12 were deemed transferable. 

“The warranty by M/S Roke Investment International Limited was valid for 10 years and is not transferable and/ or assignable. Two warranties were provided by UEDCL to Umeme, considering that the distribution assets will revert to UEDCL and it will have to remedy any defects arising from the contract as the supplier,” the report stated.

MPS adopt report 

After being tabled by the finance state minister (general duties), Henry Musasizihe, the report was adopted by the MPs. On March 20, this year, Parliament adopted the proposal for the Government to borrow over $190m from Stanbic Bank for the buyout, but subject to confirmation by the Auditor General. 

Before adopting the $118.3m figure yesterday, Deputy Speaker Thomas Tayebwa, who was presiding over the House, urged the Government to put into consideration the special audit report when finalising with Umeme.

“This morning, the Auditor General submitted a special audit report, verifying and confirming the buyout amount of $118m, against the approved $190,” Tayebwa said. 

However, Kira Municipality MP Ibrahim Ssemujju protested the report and called for its scrutiny before it is adopted. “We have never passed a report of the Auditor General without the MPs reading it. We have accountability committees that deal with these reports. 

Have you waived those particular rules that (now) reports can be passed without MPs processing them?” Ssemujju asked. Leader of the Opposition Joel Ssenyonyi also questioned the move to adopt the report, saying by so doing, Parliament would be handing over its appropriation mandate to the executive. 

But Tayebwa guided that a special audit report, unlike annual reports, does not require to be referred to a committee. 

Tororo North County MP Geofrey Ekanya agreed with Tenywa, citing practices from neighbouring countries like Tanzania, Kenya and South Africa, where he said governments there do not wait for parliamentary approval before implementing such reports.

Stakeholders react 

Energy minister Ruth Nankabirwa yesterday reiterated the Government’s commitment to execute the Auditor General’s audit of $118m as the buyout amount, adding that Umeme is free to petition should they feel aggrieved. 

“We expect Umeme to have handed over to UEDCL by April 1, this year,” Nankabirwa posted on her X account. Earlier, Umeme had published a statement in which they put the buyout amount at $234m (sh857b), which they said must be paid by March 31, if the Government is to avoid penalties as outlined in the concession agreement. 

Umeme’s head of communications Peter Kaujju confirmed receipt of the audit report, saying they would decide the next course of action after reviewing it. 

When contacted yesterday, Attorney General Kiryowa Kiwanuka declined to comment, saying he needed time to read the audit report. However, while addressing Parliament last Friday, Kiwanuka defended the Government’s decision to secure the loan to buyout Umeme, saying any delays would attract penalties. 

UEDCL chairperson Francis Tumuheirwe reassured the public that the transition would be smooth. UEDCL managing director Paul Mwesigwa said they require $1b (sh4.02 trillion) for operational and capital costs over the next three years.