Umeme Exit: The unanswered questions

KAMPALA - On Monday (April 31), Umeme handed over the management of Uganda’s electricity distribution sector to the Government after 20 years. 

To honour the concession agreement that was signed in 2004, the Government paid Umeme a buyout amount of $118m (sh432b) on the recommendation of the Auditor General (AG). 

This was lower than the previously estimated $190m (sh699b) that was approved by Parliament. Umeme had demanded $234m (about sh855b). 

On how the amount was trimmed down remains a mystery. Apart from this issue, there remain a number of unanswered questions on various issues after Umeme’s exit.

Will Umeme accept the $118m (sh432b)? 

Umeme had demanded $234m (about sh855b), but after verification from the Auditor General, the Government paid $118m (sh432b). 

On whether Umeme would accept the lower figure, the company said it will announce the next course of action after studying the issue. 

But what options does Umeme have in case it is not satisfied with the amount offered? 
According to the concession agreement signed in 2004, arbitration in London is where such a dispute should be handled. 

According to Section 9.3 of the support agreement that the Government signed with Umeme, any dispute involving $7m (sh25.6b) shall be taken for arbitration in London where each party will pay its own costs. 

The handling should be in line with the United Nations Commission and International Trade Law.

Umeme owes the government 

Throughout the buyout process, none of the parties mentioned the outstanding amount Umeme Limited owed the Government. 

According to the AG’s special report on Umeme, the company owes Uganda Electricity Transmission Company Limited (UETCL), another government power entity, sh542.8b as at March 13, 2025. 

The figure, however, was contested as Umeme records indicate an outstanding figure of only sh269.3b payable to UETCL as of March 21, 2025, excluding the February invoice. 

“Therefore, a reconciliation between UETCL and Umeme is necessary to resolve these discrepancies as at March 30, 2025,” the Auditor General said. 

The question, however, is why the Government did not put Umeme under pressure to have the money paid before they exited. When asked, finance ministry deputy permanent secretary and Deputy Secretary to the Treasury Patrick Ocailap said the pressure depended on the type of agreement signed. 

“That will be done when Umeme is paid. Umeme will pay its suppliers,” he said three days before the end of the concession. 

On when that will be done remains a question that is yet to be answered. Asked why Government has not put pressure on Umeme Limited to pay its debt with Government, UETCL chief executive officer Joshua Karamagi explained that these were two different contracts with different terms. 

However, he said Umeme has agreed to pay UETCL the right amount and has given it a payment plan. 

“Although they have contested the figure of sh500b, they have agreed to pay what they think is the right amount. The fact that the Auditor General has come up with the figure, it means the Government is aware and Umeme will pay,” he said. 

UETCL’s acting head of commercial, Jenkins Miiro, said Umeme has agreed to clear the debt but negotiations were still going on, on the actual amount.

What next for shareholders?

At the time Umeme’s contract ended, the company was listed on the Uganda Securities Exchange (USE) and was cross-listed on the Nairobi Stock Exchange (NSE). 

The biggest shareholder was National Social Security Fund with 23%. The others are Allan Gray, Kimberlite Frontier Africa Master Fund, Utilico Emerging Markets, Coronation Global Opportunities Fund, Bnymlb Re, The Africa Emerging Markets Limited, International Finance Corporation, Duet Fund, Investec Asset Management and Conrad Hilton Foundation. 

In a statement issued recently, Umeme said they would inform shareholders on the next course of action during the general meeting scheduled for May 22, 2025.

How much was in the Escrow account after 20 years? 

When Umeme and the Government signed the original agreement in 2005, the two parties agreed to open an escrow account in Citibank NA London in US dollars and Uganda shillings. 

It was for purposes of monitoring Umeme’s investments in the electricity distribution. On the account, it was the Government through its company Uganda Electricity Distribution Limited that provided the first money amounting to $5m (sh18.3b). 

The bank charges were $50,000 (sh183m) for the first year and $20,000 (sh73.2m) for the subsequent years annually. During the debate on the Umeme buyout two weeks ago, Maracha County MP Dennis Oguzu Lee (FDC) demanded an explanation regarding funds in the escrow account. 

“In the lease and assignment agreement, an escrow account was established where Umeme deposited rental payments and other incomes. To date, no one knows how much is in that account, yet these funds could be used for the buyout instead of borrowing,” Oguzu argued. 

Sources informed New Vision that the balances on the escrow accounts as at December 31, last year, were only $23,835 (sh87.3m) and $4,589 (sh16.8m). 

The source said there were no further deposits made by Umeme after 2013 and the Government does not know how Umeme closed it yet it was meant for monitoring Umeme’s investment. 

“The last significant activity on the account occurred in June 2013,” a highly placed source told New Vision.

Who owned original Umeme?

It was said the original owners of Umeme were South African distributor Eskom (44%) and Globeleq, a company owned by Actis of the UK (56%). 

Parliament’s committee that probed the issue between 2011 and 2012 discovered that Eskom South Africa and Globeleq of the UK may not have had any connection to Umeme.

According to the Company Act of Uganda, any foreign company intending to do business in Uganda must deposit with the company registry its original memorandum and articles of association from its home country. 

The committee said there was also no evidence of the two foreign companies granting anyone powers of attorney or company resolutions to show that they were interested in Umeme. 

It was also noted that Umeme won the electricity deal before it came into existence. 
The negotiations started in 2001, but Umeme as a company came into existence 11 days to the signing of the contract. It was incorporated on May 6, 2004, and it signed the contract 11 days later on May 17, 2004.

Capital gains tax of 2006  

When Eskom sold 44% of its shares to Globeleq in 2006, it did not pay capital gains tax to Uganda Revenue Authority (URA). 

Although URA said the sale was between two foreign companies, it was noted both Eskom and Globeleq which owned Umeme were locally registered and should have paid the tax. 

It should be further noted that when oil prospecting firm Heritage sold its stake in Uganda’s oil sector to Tullow in 2010, it was compelled to pay a capital gains tax of $400m (sh1.46 trillion) despite Tullow saying the deal was between two foreign companies. As to why Umeme was exempt remains a mystery.

Why did the Umeme buyout become an 'emergency'? 

In a letter dated March 12, 2018, President Museveni wrote to Irene Muloni, the then Minister of Energy and Mineral Development, asking her not to renew the contract. 
The President complained about the Umeme concession which he said had been messed up by what he called some elements in the ministry. 

“I am directing you to furnish me with the explanation on all these matters. In the meantime, there should be no question of renewing Umeme’s concession. Let us look for the cheaper way of modernising and expanding the transmission and the distribution lines,” the letter reads in part. 

While discussing the $190m (sh699b) payout loan request last month, several MPs demanded to know why all of a sudden, the exit deal had become an emergency when those in charge knew that the contract would not be renewed in 2018. 

During the debate, Leader of Opposition in Parliament Joel Ssenyonyi and Oguzu Lee argued that Government knew Umeme’s contract would end but instead waited for the last minute to “make it look like an emergency”. 

“I have information that the President who chairs your cabinet actually directed people he has delegated to work on this thing in 2022. We are now in a situation of emergency and you can imagine we received all these documents yesterday and even before we look at them, we are being asked to approve the money. What is the rush for? I read through these documents the whole night that is why I am raising these important issues that need to be answered,” the Maracha County legislator argued.