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UMEME shares sale; More than meets the eye

Business

UMEME shares sale; More than meets the eye

Umeme Board Chairman Patrick Bitature

The recent sale of a major stake in Umeme holdings Ltd, earnings that were envied by many players in the financial sector and which were hailed by analysts as out-of-this-world’s current tough economic environment. So why would Umeme Holdings shareholders want to give away a piece of these supper normal profits.

Critics have argued that strategists at Umeme acted smart by entangling more Ugandans in the beleaguered company so as to spread the risks of any possible hostile actions against it by the government such as the recommended cancellation of their contract.

Although Umeme listed shares on the stock exchange last year, the company has continued to face pressure from the general public as well as from Parliament especially regarding its initial agreement with government.

Opponents argue that the agreement enables it to exploit Ugandans by ensuring it gets paid for not doing its work properly.

After a lengthy probe by the Parliamentary Ad hoc Committee on the Energy sector led by West Budama South MP Jacob Oboth Oboth last year, Parliament in March this year unanimously resolved that both Umeme and Eskom contracts with Uganda be cancelled.

Perhaps in an attempt to lessen the opposition to its business in Uganda, Umeme quickly floated shares in April with a specified target on institutional investors that resulted into NSSF and Investec Asset Management, a foreign investment firm, snapping  up majority of the shares on offer.

National Social Security Fund (NSSF) – Uganda’s biggest institutional investor less surprisingly deepened their involvement with Umeme by paying an additional Ushs 34bn, a move that has made them the third largest investor in the power distributor with 14.2%, behind UK’s Investec Asset Management which recently acquired 300m shares to own 18.47% of the company, besides Umeme Holdings retaining a 21% stake.  

Energy experts argue that by bringing in more Ugandans into the business, Umeme has succeeded in ensuring that it becomes more difficult for Parliament to take hostile positions against a company where more Ugandans stand to lose.

Dickens Kamugisha, the Chief Executive Officer of the African Institute for Energy Governance (Afiego) argues that: “It becomes very difficult for Parliament to put pressure on the executive to cancel Umeme’s contract because more and more Ugandans have gotten a piece of the power distributor.”  

Kamugisha argued however that NSSF management made a good business decision to invest in Umeme because of its guaranteed profitability thanks in part to its infamous contract with government.

However, he argued, this may not go down well, at least morally, with NSSF member savers who are being forced to feel proud of a company, whose profits come from their painful exposure to poor service delivery as well as a parasitic arrangement that ensures the government compensates it for losses it makes.

Institutional decay

Kamugisha argues that the more worrying aspect in the recent sale of Umeme shares are the growing institutional weaknesses characterised by corruption, poor oversight by parliament, the regulatory authority and the civil society in transactions across the power sector.

“[The sale of Umeme shares] is a reflection of the kind of institutional decay that is happening in the country. Parliament makes resolutions to cancel Umeme’s contract, but the executive ignores the recommendations and allows the transaction to take place.”

Kamugisha alleges that corruption has prevented government  from cancelling or renegotiating the agreement with Umeme, ‘because government officials have no incentive to do so’.

“Corruption in the energy sector is at its highest. That is why Karuma and Ayago dams were given to Chinese firms without a bidding process to ensure that the cheapest and most competent firm was chosen.”

Kamugisha argues that top government officials are benefiting from ensuring that Umeme’s is not put under any pressures including the need to re-negotiate its agreement.

He alleges that corruption and intimidation have so far stopped the high court in Kampala from hearing a case they filled against Umeme in 2010 for charging people using faulty meters and inflating costs.

He warns that the current trend of events threatens to have a bleeding catastrophe on the economy and undermine any benefits citizens would get from the country’s natural endowments.

“It is incumbent upon us as Ugandans to say enough is enough and we demand that the government renegotiates Umeme’s contract as well as other reforms in the energy sector.

“Without putting pressure on the government, no matter how many megawatts of electricity or barrels of oil that will be generated, the proceeds will end up in the pockets of a few politicians, technocrats and foreign companies that have signed the shady contracts.”  

Stephen Ilungole, Umeme’s Media Manager dismissed claims of Umeme’s intention to pull the rag under the feet of Ugandans.

Ilungole said: “..but government still had to okay the sale in the first place…Umeme holdings limited sought clearance from government, energy ministry and ERA, all of which were granted.”

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