Authorized battle as Uganda takes again the facility

Umeme, an electrical energy distribution firm, introduced on 2 June that it’s going to take its quarrel with the Ugandan authorities to an arbitration court docket in London, after weeks of unsuccessful negotiations. Umeme ran Uganda’s distribution community for twenty years till its contract expired in March. The corporate says that it’s owed $292m for the unrecovered prices of its investments. The federal government has already paid out $118m and says it owes nothing extra, except extra prices are revealed by an ongoing audit.

The dispute follows the federal government’s determination to take management of electrical energy distribution again into state palms – the newest twist in a long-running debate about who ought to pay, and who ought to revenue, within the quest to energy Africa. Because the Nineteen Nineties the World Financial institution, specifically, has been urging African governments to interrupt up state utilities and usher in non-public capital. Uganda grew to become the primary nation in Anglophone Africa to show over electrical energy distribution to a non-public operator when it granted a concession to Umeme in 2005.

However the authorities now thinks that one of the simplest ways to convey down electrical energy costs and widen entry is to return duty to the Uganda Electrical energy Distribution Firm Restricted (UEDCL), a state-run agency, at the least for just a few years till one other non-public investor is discovered. The choice might be watched by different international locations, together with Ghana, which is making ready to ask non-public participation in its personal distribution community.

Non-public energy

The dominant mannequin of electrical energy reforms attracts inspiration from the insurance policies adopted within the Nineteen Eighties by free-market governments in Chile and the UK. Nationwide utility corporations, which produced energy and delivered it to households, could be unbundled. Separate corporations would deal with technology (at energy crops), transmission (alongside high-voltage energy strains) and distribution (from substations to customers). The markets could be opened to non-public gamers.

Proponents argued that this package deal would allow competitors, entice funding and improve effectivity. Sceptics frightened that tariffs would rise and that any positive aspects could be captured by international shareholders, not by residents.

The total package deal of reforms was hardly ever applied. By 2016 solely 6 international locations in sub-Saharan Africa had each unbundled their energy utilities and invited non-public sector participation. One other 23 had made one

of those reforms, however not each, and 19 retained vertically built-in, state-owned utilities with none position for the non-public sector. World Financial institution researchers concluded in 2017 that “the mannequin is way more durable to undertake than initially believed.”

Uganda was probably the most enthusiastic reformers. Within the Nineteen Nineties, when it was weighed down by debt, it had little alternative however to comply with the recommendation of the World Financial institution and different donors. On the similar time a gaggle of officers within the finance ministry, who had been true believers in financial liberalisation, had been pushing for change from inside. Overseas capital started to supplant the state in all the things from espresso to banking.

The drive for reform within the electrical energy sector got here “50/50” from World Financial institution strain and inner deliberations, says Fred Kabagambe-Kaliisa, who was the highest civil servant on the Ministry of Vitality and Mineral Growth from 1997 till 2016.

What no one doubted was that one thing wanted to be achieved. The state-run Uganda Electrical energy Board (UEB) was struggling to maintain the lights on and was shedding cash as a result of a lot of its clients, together with authorities companies, weren’t paying their payments. The entire nation had simply 280 MW of capability and was utilizing about as a lot electrical energy because the English city of Milton Keynes.

Between 1999 and 2005 the federal government applied a flurry of power reforms, breaking apart the UEB and contracting a non-public consortium to construct and function a brand new dam on the Nile. It additionally awarded a concession to run the distribution community to a newly-formed firm referred to as Umeme, which on the time was majority-owned by Globeleq, a subsidiary of the British authorities’s CDC (a improvement finance establishment now renamed British Worldwide Funding).

The arrival of Umeme wouldn’t create competitors, since it could have a near-monopoly. So why not attempt to flip across the state-run utility as a substitute? “The overriding level was capitalisation,” argues Kabagambe-Kaliisa. “We noticed a chance of the non-public sector coming in with out actually making a legal responsibility on the federal government stability sheet.”

A whole lot of tens of millions of {dollars} flowed in. In 2012 Umeme listed on the Uganda Securities Trade, with a cross-listing in Nairobi. By 2023 some 39% of its shares had been held by Ugandans, together with the Nationwide Social Safety Fund, which manages the pensions of greater than 700,000 residents.

However simply because funding was being financed by the non-public sector didn’t imply that it got here free. Quite the opposite: as a part of the concession settlement, the federal government had assured Umeme a 20% price of return on new investments so long as it met its targets, along with a set of different goodies. The contract had been negotiated throughout a extreme drought – Uganda depends overwhelmingly on hydroelectric energy – and Umeme was the one bidder after others dropped out. The federal government was in a weak place to discount.

The principle method that Umeme would recoup its investments was via the tariffs it charged to customers. These are set by an impartial regulator, created as a part of the reforms. Costs had been hiked dramatically within the early years and, after adjusting for inflation, had been nonetheless larger for households in 2024 than they had been when Umeme took over. Uganda grew to become one of many few African international locations the place tariffs are adequate to cowl working prices, with sufficient left over for Umeme to pay dividends and repair its debt.

Affordability was among the many issues behind a parliamentary inquiry and an investigation by the president’s influential brother, Salim Saleh, who concluded that the concession was a foul deal. Bizarre

Ugandans had been feeling it of their pockets. “I don’t know why… the value of electrical energy is just too excessive,” sang Bobi Wine, at the moment a musician and now a well-liked opposition chief.

Return of the state

With time the standard of service improved. Losses from theft, unpaid payments and technical faults fell from 35% when Umeme took over to 17% final yr. The corporate’s buyer base rose from 250,000 to 2.3m over the identical interval – though it largely served city areas, the place it might make more cash, and half of Ugandans nonetheless lack electrical energy entry.

The business dependability of Umeme additionally inspired non-public corporations to put money into increasing technology capability, argues Peter Twesigye, a former supervisor on the firm who now researches power coverage on the College of Cape City.

However that was not sufficient to persuade Yoweri Museveni, the president since 1986. After defending Umeme for a few years, he was beginning to lose persistence. The political temper was shifting too, as state-led industrial coverage got here again into style around the globe and an older technology of free-marketeers left the stage. Talks over renewing the concession led nowhere and the contract was allowed to run out.

“The federal government’s plan is to implement a less expensive and publicly accountable electrical energy distribution mannequin,” writes an power ministry spokesperson in an emailed response to questions. “It will permit the federal government to reinvest in infrastructure, reply extra on to service issues and make sure the electrical energy sector helps broader financial transformation – together with industrialisation and rural electrification.”

A spokesperson for Umeme writes that “it has been an exciting 20 years of service” which delivered lasting affect to a sector that had beforehand been “dysfunctional, inefficient and commercially unviable”.

With the expiry of Umeme’s contract, the federal government is obliged to choose up the tab for sure investments the corporate has made which haven’t but been recovered via tariffs or transfers. The 2 sides can not agree on the related standards or how a lot these investments are price.

Twesigye, the researcher, says that competing estimates hinge on a number of components, equivalent to the best way to take care of investments made with out express regulatory approval or enough supporting documentation, the best way to account for infrastructure that was inadequately constructed and the best way to distinguish between capital and working expenditures.

He additionally notes that the buyout quantity will decide the worth of the undepreciated belongings being taken over by the state – so though a low determine would save the federal government cash, it could weaken the stability sheet of UEDCL, the state-run distribution firm which is taking up.

A change of course?

Some in Uganda level out that the federal government might have taken management of distribution extra cheaply by shopping for a 27% stake in Umeme, provided that its personal social safety fund already owns 23%. Others fear about how UEDCL might be run.

“The tradition of governance of personal sector corporations is extra environment friendly than public sector led entities,” argues Twesigye. The latter, he says, are extra simply influenced by elite networks of politicians and army officers. In reality the non-public sector is hardly resistant to corruption both.

If state entities are poorly run, it’s at the least partly as a result of years of neglect, argues Dickens Kamugisha of the Africa Institute for Vitality Governance (AFIEGO), a Ugandan NGO that works on power coverage.

“I don’t suppose [Umeme’s] operations right here had been related and efficient and helpful to Ugandans,” he says. “However I had thought as a authorities they might guarantee UEDCL is in a greater place.”

The ministry spokesperson says that UEDCL will run electrical energy distribution till “round 2028”, at which level the federal government will determine whether or not to retain its companies or discover a brand new sort of public-private partnership. Solely then will it turn out to be clear if the departure of Umeme marks a decisive reversal of the coverage course set within the Nineteen Nineties, or simply one other milestone on the highway.