The mess before Umeme’s coming, UEB blacks out

On Monday, March 31, 2025, Umeme will be exiting Uganda’s power sector after 20 years. New Vision will be tracing Umeme’s entry into Uganda and the impact it leaves behind. Here, we revisit the electricity sector of the early 2000s and the entry of Umeme.

At the turn of the millennium, Uganda’s demand for electricity was growing at an annual rate of 8%, yet little was being done to generate more. Uganda Electricity Board (UEB), which was managing the sector, was being split into three agencies following the enactment of the Electricity Act of 1999.

The end of UEB saw 1,700 workers go home and over 1,000 houses in Uganda’s major towns sold. It was hoped that the three agencies would create efficiency and improve connectivity.

The new agencies were: Uganda Electricity Generation Company, Uganda Electricity Transmission Company Ltd and Uganda Electricity Distribution Company Ltd (UEDCL). These were incorporated in early 2001. To oversee them, the Electricity Regulatory Authority had been created in 2000, with Frank Ssebowa as its first chief executive director.

On the generation front, things were not good. The country had only one main source of power, a 46-yearold Owen Falls Dam, that was generating 150MW after rehabilitation in 1996.

Countrywide, only 3% of the 22 million people had access to electricity.

On the socio-economic front, President Yoweri Museveni was preaching industrialisation and value addition to investors yet load shedding was the order of the day. The few factories in the country were not getting enough electricity yet on every foreign trip, the President was inviting investors to come to Uganda.

Getting a new connection was almost impossible.

Demand was outstripping generation, prompting the Government to start selling hope to the customers by dreaming of gigantic dams on the Nile, yet Uganda was too poor to finance them.

In the search for solutions, the Government reached a deal with American dam construction giant AES Corporation.

The deal was to build a 200MW power dam at Bujagali Falls to cost a whopping $500m. The money was to come from the World Bank and the African Development Bank. Museveni asked the Sixth Parliament to quickly approve the loan, but it dragged its feet.

Protests mire project

On the ground, things started going south. International environmental groups led by the International Rivers Network (IRN) partnered with local activists to block the dam.

Jajja Nabamba Budhagali, a spiritual leader who claimed to be a custodian of shrines around the falls, made his demands. The Busoga kingdom joined him. Environmental activists pointed their guns at the project, both locally and at the World Bank.

Lori Pottinger, an activist from IRN, said most of the electricity from the dam was going to benefit a few elite because most Ugandans could not afford it. The agreed rate for the power was to be at 4.9 cents of a dollar per kilowatt, which was a fair price given that Ugandans currently pay more than 12 US cents.

Water rafting companies cried about the impending loss of the beautiful Bujagali Falls. All sorts of theories were thrown around, one of which was that Uganda was going to suffer from too much electricity.

The National Association of Professional Environmentalists filed cases against the project.

In Parliament, then Rubaga South MP Ken Lukyamuzi summoned his best oratory skills to fight the project. He even wrote a damning letter to the World Bank, opposing the project.

Tourism enthusiasts did not want Bujagali to follow Ripon Falls in disappearing.

AES had hoped to complete the dam in 2004, but each day, the resistance grew stronger to the chagrin of Museveni.

More pitfalls

Soon, corruption cases sprung up. Politicians accused the project officers of bribing energy ministers Syda Bbumba and Richard Kaijuka.

AES Nile Power, the subsidiary of the US-based AES Corporation, became embroiled in local scandals.

Amid this, however, in early 2002, Museveni drove a bulldozer to break the ground for the Bujagali power project in Jinja. Project-affected persons were willing to move as 99% had been compensated and over 100 houses were constructed for them.

Just when the project was about to begin, AES dropped a bombshell. The firm had run into financial trouble and was quitting. It had sunk $75m yet work had not kicked off.

Eventually, the project collapsed, yet the power crisis was growing. Amid the AES debate, the Kiira power project was constructed and launched in 2000. Canadian firm Acres International did a feasibility study for this power station.

It was hoped that this new power station would generate additional power, but in the end, it was literally a spillway of the old Owen Falls dam.

Instead, water levels in the old dam fell, affecting generation in the two power stations.

Power generation at the Old Owen Falls Dam dropped.

Eng. Hilary Onek, who had earlier warned about the crisis, was vindicated as the new dam could not generate the projected electricity.

Uganda’s electricity crisis was worsening and by 2002, there was no end in sight.

That same year, South African firm Eskom was handed the Owen Falls Dam to manage for 20 years.

Meanwhile, the electricity network was also old and needed revamping. Load shedding was the order of the day; new connections were almost not there. Something needed to be done. Despite the reforms, Uganda’s power problems were worsening.

Umeme comes in

In early 2004, the Ministry of Energy and Mineral Development put out an advert for any interested distributor to come in.

An entity representing Commonwealth Development Corporation from the UK and Eskom from South Africa responded and the Government leased to it the Uganda Electricity Distribution Company Limited on May 17, 2004.

A committee led by Gen. Salim Saleh later established that the procurement process was not followed in the Eskom and Umeme deals.

It was later on that they adopted the name Umeme, which was presented as an investment vehicle — Globeleq (56%), a subsidiary of Actis owned by the Commonwealth Development Corporation of the UK, and Eskom of South Africa (44%). The shareholders would change in the subsequent years.

Then finance minister Gerald Sendaula signed on behalf of the Government, Irene Muloni, now Bulambuli Woman MP, signed for UEDCL as its managing director, while former director David Grills signed on behalf of Umeme. The attorney general, Francis Ayume, died a day before the signing of the agreement.

The deal was shrouded in secrecy, but details would later leak, sparking off anger in the Government and private sector.

Museveni was not happy after learning about the details of the agreement that was further amended in 2006.

The Umeme concession was intended to improve the quality of service, increase investment in the rehabilitation and expansion of the power distribution network, reduce losses, increase new connections and provide reliable and affordable electricity to consumers.

According to the agreement, Umeme was supposed to invest a minimum of $65m in the first five years after the concession. Within the first 18 months, the company needed to have invested a minimum of $5m (sh9b).

In the agreement, signed on May 17, 2004, the Government could only terminate Umeme’s contract if it paid the company a buyout amount, which was over sh4 trillion then. In the buyout, according to the agreement, the Government would be required to pay Umeme over sh4.7 trillion if it defaulted on the contract.

The buyout amount was calculated against the cost of modifications/investments that were not depreciated and unrecovered by Umeme before the retransfer of the distribution system to UEDCL.

The invested amount ($102m) is multiplied by 120% annually from the initial period of investment (2006) up to the end of the 13th anniversary (2017). Thereafter, the money was to be reduced every year because the percentage multiplied by the invested money was also reduced by 2% per annum up to the end of the contract this year.

On the other hand, in case Umeme defaulted, the Government still had to compensate them over sh4.4 trillion. This compensation was 80% of the invested amount from 2006 to 2017.

Then, the money would increase every year as the percentage multiplied by the invested money also keeps on rising by 2% annually until the end of the contract in 2025.

Such clauses meant that the Government was to be stuck with the power distributors up to the end of the contract.

In the event of natural termination of the contract, the Government would have to pay 105% of the amount Umeme invested at the time of termination.

Natural termination of the contract is when the contract expires and the contractor (Umeme) claims they have not recouped their total investments.

The agreement also revealed that in case of termination of the contract due to circumstances beyond the control of both parties (Force Majeure), the Government pays 90% of the invested money.

Such circumstances include war, riots, strikes, crime, flooding, earthquakes or volcanic eruptions. The contract also obliged the Government to pay an interest of 20% per annum on any outstanding portion of the buyout amount, should 91 days elapse after the termination date until it clears the money in full.

This means that should Umeme’s contract be terminated under any circumstances, the Government would lose money.

During the 2004 agreement, Sendaula signed on behalf of the Government; Muloni signed for UEDCL as the managing director and Grills signed on behalf of Umeme.

However, when it came to the amended contract, where several clauses were completely scrapped and replaced with those favouring Umeme, in 2006, former finance minister Ezra Suruma signed on behalf of the Government. Muloni was still the signatory for UEDCL, while Paul Mare, the then managing director and Ian Williams, the then chief financial officer, signed on behalf of Umeme.

The 2006 amendment skewed the agreement against the Government. The hasty signing of the amendment was to avoid a costly situation, where Umeme walks out of the deal due to the Government’s failure to generate enough electricity as agreed earlier.

1,700 The number of Uganda Electricity Board workers that were rendered jobless after the entity’s dissolution.

Timelines

June 1999: Cabinet Approval of the Power Sector Restructuring and Privatisation Strategy Electricity Board Privatisation

November 1, 1999: Electricity Act passed by Parliament to dismantle UEB and create three agencies

April 2000: Electricity Regulatory Authority created to oversee the three new agencies

March 26, 2001: Uganda Electricity Transmission Company Limited is created.

April 1, 2001: Uganda Electricity Distribution Company Limited is created.

March 26, 2001: Uganda Electricity Generation Company Limited is created.

November 2002: Signing of Electricity Generation Concession with Eskom

May 17, 2004: Signing of Electricity Distribution Concession to Umeme

March 31, 2025: End of Umeme concession