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By Hanning Mbabazi
Kampala:The International Finance Corporation (IFC), a business arm of the world Bank for the private sector has earmarked a $70 million loan (shs 263B) for power distributor Umeme to upgrade the distribution network across the country.
According to a May 30 IFC disclosure that Spy Uganda has finally chanced on, the upgrade is meant to hasten additional connections exercise to the grid of consumers for the additional power being generated.
Additionally, the loan, which is pending approval by the IFC board of directors, will be spent on safety measures, enhancing reliability and reducing commercial losses.
Whereas IFC has a 2.8 per cent stake in Umeme, this latest loan it is lining for Umeme is not only a vote of confidence in the utility,but could prompt other lenders to come on board.
According to Umeme’s 2018 Annual Report, the company projects it will spend at least $450 million from 2019 to 2025 to scale and expand the distribution system to cope with new generation capacity and additional consumers.
The utility intends to finance the investments through both debt financing and shareholder equity.
In the case of debt financing, the extension of the distribution concession is critical for Umeme to mobilize the capital required for distribution network.
Umeme board chairperson, Patrick Bitature, said as much during the company’s Annual General Meeting in Kampala on May 9.
“To mobilize additional capital, the extension of the existing concession beyond 2025 becomes critical. I am pleased to note the willingness of the government to engage with the company and agree on terms of an extended concession,” Mr Bitature said then.
During the same event, Mr Richard Byarugaba, the Managing Director of the National Social Security Fund, said it was clear from Umeme’s 2018 Annual Report that the company had reduced on debt financing due to uncertainty on the concession renewal.
NSSF, which holds 23.2 per cent of the shares in Umeme, is the single largest institutional investor in the distribution company.
President Museveni in November 2018 wrote to the Energy minister, Irene Muloni, directing her to commence negotiations on renewing Umeme’s concession.
Still, the Ministry of Energy ministry has since constituted a technical team that will engage with Umeme’s representatives.
The government side is composed of officials from the Uganda Electricity Distribution Company Limited (UEDCL) – which leased the network to Umeme in 2005, Uganda Electricity Transmission Company (UETCL) – the company that buys power from generation plants and sells it to the distribution companies, the Electricity Regulatory Authority and officials from the Finance ministry and the Attorney General’s Chambers.
The investment is to provide debt financing for the 2019-2024, 6-year capital expenditure program of Umeme.
Umeme Limited is the largest energy distributor in Uganda, distributing 97 percent of all electricity used in the country. The shares of the stock of the company are listed on the Uganda Securities Exchange (USE) and are cross listed on the Nairobi Stock Exchange (NSE). As of December 2018, the company’s total assets were approximately UGX2.463 trillion (US$670 million), with shareholder’s equity of approximately UGX722.2 billion (US$196.3 million).
The IFC has a 2.8% shareholding in Umeme, and participated in the company’s initial public offering in 2012. As of April 2018, Umeme had 1,125,291 customers. Seventy percent of those customers were on the pre-paid metering system, known as “Yaka”.
By July 2018, prepaid metering covered an estimated 80 percent of all Umeme’s customers.
