13 December 2011

Privatisation Unit explains Umeme deal

The Director of the Privatisation unit has defended the 20- year contract that Umeme signed with the Government, saying it was one of the best deals in sub-Saharan Africa.

It was a good deal. If you ask people in any part of the world, they will attest to this. To me it was fair because the Government and Umeme negotiated the concession and agreed in principle to come up with whatever was in that contract, David Sebabi said last Friday.

Sebabi explained that the only challenge the concession faced was that it became effective at a time when Uganda was in a drought and water levels in Lake Victoria had receded to the extent of affecting hydro power generation at Kiira dam. The contract was signed on May 17, 2004 but became operational in 2005.

The receding water levels resulted in low power generation and thermal power producers like Aggreko, Jacobsen and Electromaxx had to come on board. However, the problem is that generating thermal power requires a lot of oil which made the electricity expensive, he noted.

Commenting on the figures that the Government was required to pay as compensation should either party default on the contract, Sebabi said the percentages were set as a disincentive for either party to initiate a termination. But he explained that the claim would only be on the amount invested but not recouped at the time of termination of the contract.

The Government is obliged to pay 120% of the total Umeme investment should it initiate termination of the contract.

On the other hand, in case Umeme chose to initiate the termination of the contract, the Government is still obliged to pay 80% of the total Umeme investment.

Luka Buljan, a consultant with Actis Capital the owners of Umeme, said the company had so far invested $130m in the power distribution system in the last seven years, but has only recouped about $7m.

In case either party chose to terminate the contract today, compensation is supposed to be calculated against the invested amount that has not yet been recouped, said Sebabi.

The regulator (Electricity Regulatory Authority) knows what investments have been made by Umeme. They are not paid for anything other than the investments. The buyout amount refers to only the investments made because the Government remains with the investments.

Sebabi warned that should the Government institute stringent conditions during the forthcoming review of the next seven years of Umeme's contract, the power distributor may walk out of the deal, leaving the Government with no option but to buy out.

Asked whether Umeme could assign its power distribution concession to another company, Sebabi said this can only happen if the Government decides to do so.

By Felix Osike and Chris Kiwawulo (The Newvision)