At the end of March 2025, power distributor Umeme will go back to its immediate supervisor Uganda Electricity Distribution Company Ltd (UEDCL), the distribution concession it has held 20 years and the associated assets.
With that, the curtain will fall on a company that has been loved and loathed in almost equal measure, and one of the luminaries in Uganda and Africa’s dalliances with liberalisation of the energy sector.
The jury is still out on just how much Umeme has contributed to the development of Uganda’s electricity subsector. While the distributor was only the tip of the radical policy reforms that preceded the concession, their success was premised on how Umeme would perform. If it had failed to deliver the anticipated efficiency gains, the reforms themselves would have been in jeopardy.
Two decades on, Umeme can at least be credited with turning electricity from a favour to the public into a business with a self-reinforcing motivation to succeed.
From less than 0.2 million connections and a penetration rate less than 10 percent when it came in, Umeme leaves the stage with 2.2 million connections and distribution losses trimmed down from nearly 40 percent to just over 16 percent today.
It has also entrenched a service culture where consumers don’t have to beg for service or endure inordinate outages. Fundamentally, Umeme weaned the market off subsidies, putting the subsector on a self-financing footing.
Being the interface between the industry and the market, Umeme has often taken flak for failures for which it was not the primary culprit.
Although its 20 percent return on investment was a sore point, an overlooked fact was that the high end-user price was a summation of economic inefficiency in the up — and midstream of the system, the perception of country risk and its impact on Umeme’s cost of finance as well as its own mark-up.
That set the tone for populist political action that was biased towards repossession rather than renegotiation and extension of the concession.
UEDCL, therefore, faces a tall order as it prepares to retake the distribution mantle, and it is projecting to borrow $435 million in the short term.
Part of that money will go to buying out the concession from Umeme. Some will go to urgent investments in network upgrades.
Although it is promising a return on investment of just four percent, barring adjustments to the feed-in tariffs by the upstream players, lower consumer tariffs might be a promise easier made than delivered.
At an average cost of $6 million per megawatt, Uganda’s electricity is costly by design and leaves little room for manoeuvre.
Financed 85 percent by loans that must be recovered from the tariff and yet generating more power than is consumed, the prospect of lower tariffs is at best a decade down the road.
Because the high tariffs are largely the result of structural impediments, UEDCL’s immediate focus should not be reduction but rather maintaining or bettering the service standards set by Umeme.
The most important issue to consumers is availability of power regardless of price. Unlike Umeme, being a public enterprise, UEDCL will be more vulnerable to political interference, with all its negative connotations. To that end, it should be careful what promises it makes to the public.
