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Uganda Power distributor Umeme in court over new ERA terms

Uganda power distributor Umeme has gone to court protesting the implementation of a variation of terms in its licence that could negatively affect its financial standing.

Umeme, which is listed on the Uganda Securities Exchange and Nairobi Securities Exchange (NSE) says that the modifications, which the regulator, Electricity Regulatory Authority (ERA) made between 2012 and 2013 in respect to computation of returns on its investments, tax reconciliation, energy distribution losses, tariff methodology and bill collection targets are critical areas in its business, yet it was not given ample opportunity to appeal before the changes were gazetted.

Umeme has appealed before the Electricity Dispute Tribunal seeking a judicial review, with the aim of having the modifications quashed. The case is slated for hearing on April 28.

“The amendment to the licence is oppressive and commercially unviable to the appellant. It fundamentally changes the yardsticks and benchmark of performance by the appellant under the electricity supply license,” Umeme’s court documents read.

ERA gazetted the amended licence following a mandatory review in accordance with the provisions of its Act of 1999.

“Any over or under recovery in relation to what was allowed in the tariff in any given tariff year shall be clawed back and be considered as part of the revenue requirement in the subsequent year,” reads the modification contained in the gazette.

The modifications mean ERA clawed back $14.6 million on account of excess energy sales and income taxes which Umeme did not pay to Uganda Revenue Authority (URA) but which consumers had paid in the retail tariff.

The practice in the past has been that ERA would allow the taxes to be included in the end user tariffs from which Umeme was obliged to pay URA. The amount was based on the projections of volumes of electricity that would be sold.

“We discovered that the differences between what we projected every year and what was sold was a lot particularly with the coming of Bujagali and other smaller stations. We changed the clauses that were making them earn undue benefits. So they will be paying income and corporate taxes to URA, and we refund them upon verification,” said Julius Wandera, ERA’s public relations officer.

Umeme is also dissatisfied with the tariff methodology which determines end user tariffs based on inflation, exchange rates and fuel costs without inviting public opinion through a forum.

In Umeme’s view, the move contravened the Electricity Application for Permit, Licence and Tariff Review 2007. The public forum would have showed public interests in the amendments.

ERA, however, will not budge. Last week, it announced a slight reduction on end- user tariffs under its new quarterly retail tariff system for the second quarter of this year.

All consumers have a reduction of $0.001.Current end user tariff for domestic consumers and commercial consumers stand at $0.2 and $018 cents respectively.

Umeme maintains that the change in tariff methodology is fundamental in the sense that it deviates from what was agreed in the concession.

Sources close to Umeme said that, change in methodology substantially affects the flow of revenues. It is argued that methodology was one of the things that government had assured Umeme would remain constant during the entire 20 years of the concession.

“We maintain that there was no such public interest benefits to the extent that they are significantly outweighed by the prejudice suffered by the appellant as a result of modification,” reads the court documents.

Umeme Ltd, is a major investment of Actis a registered company in the UK. Umeme came into the picture in 2005 when government privatised Uganda Electricity Board (UEB) and disbanded it into three companies: Uganda Electricity Generation Company Ltd (UEGCL), Uganda Electricity Transmission Company Ltd (UETCL) and Uganda Electricity Distribution Company Ltd.(UEDSCL).

In 2011, Uganda’s parliament appointed an ad hoc committee to investigate the electricity following complaints of exorbitant money paid to thermal electricity generators in form of subsidies, continued load shedding and unfair billing systems.


The report, which was adopted by the entire parliament, recommended that Umeme’s contract be terminated on the basis of underperformance. Government is yet to act on parliament’s move.

The East Africa Newspaper
13-April-2014

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