UMEME to enhance funding for ongoing capital investments to boost efficiency

After registering a 33% growth profit after tax to UGX64 Billion in six months, UMEME Limited has opted to increase funding capital projects that are underway to completion in a bid to stabilize efficiency.

The profits according to the top leadership of the company will also be used to pay scheduled terms debts and improvement of customer experiences in the market which they say will also affect dividend payment for shareholders.

The company’s net debts according to UMEME were down 20% to Shs268bn as of the end of 30^th June 2022 compared to Shs 337bn on December 2021 following the scheduled repayment of Shs90bn on its long-term borrowing.

The Board Chairperson, Dr. Patrick Bitature said that in spite of the economic recovery that has been on course, the challenging global environment in the wake of the geopolitical conflicts has led to inflation, supply chain disruptions, depreciation of the Uganda Shilling, an increase in interest rates and a generally weaker operating environment that is projected to impact our customers’ purchasing power and our cost of operations.

The Managing Director, Selestine Babungi said that the electricity sector remained resilient and posted a 9% increase in energy demand, due to the opening of the economy in January this year.

Dennis Kakembo, Managing Partner and Energy Practice leader at Cristal Advocates, said, “Inflation is likely to rise further during the last six months of 2022. The Uganda shilling has depreciated quite a lot against the US dollar of late and the fact that the local currency usually depreciates significantly against the US dollar in September every year might affect Umeme’s operations because of huge foreign currency exposure in its debt profile and procurement value chain.”

Net operating cash flow increased by 21.7 % to Shs187.4bn as compared to Shs154bn in 2021 supported by improved cash collections, improved profitability, optimized working capital, and lower financing costs in the period. It also invested Shs55.9bn in the distribution network in line with its capital expenditure program for 2022.

Umeme’s electricity sales increased by 9% to 1,875 GWh amidst a reduction in energy losses to 17.1% compared to 17.9% for 2021, as power consumption in the domestic, commercial, medium, and large industrial consumer segments posted double-digit growth. However, growth in electricity consumption in the extra-large industrial category was flat at 0.7%.

Electricity sales to customers increased by 3% to Shs 876.4 billion as compared to Shs 849.2 billion last year.  Despite inflationary pressures in the economy, operating costs reduced by 6% to Shs 115bn as compared to Shs 123 billion in 2021 supported by reorganization of the business during the period and efficiency gains from our continued investments in technology.

At the tail end of 2021, the Minister of Energy and Mineral Development, Ruth Nankabirwa, said the government would in 2022 pilot a five U.S. cents (Sh182) per unit tariff in two industrial parks – Lao Shen in Kapeka and MMP in Buikwe – before it could consider rolling it out to other industrial parks where manufacturers are concentrated.

“During the piloting period,” Nankabirwa said through a press statement, “consumption of electricity in the two industrial parks is expected to increase to offset the revenue shortfall that would result from supply electricity at five U.S. cents per kilowatt-hour.”

She added that if the consumption did not cover the shortfall, the government would consider subsidies.

The government reasons that once power tariffs – one of the key for in production reduce substantially, some companies currently based in countries where power charges are comparatively higher would relocate to Uganda.

And when they establish factories here, it would create job opportunities for many of the restive youth currently searching for work and that would reduce the likelihood of them turning to crime to make ends meet. Employment also lessen the chances of the youth warming to the political opposition.

The Government has also capitalised the Uganda Development Bank with Sh636 billion to lend to medium and large-scale businesses at 12% interest per annum –which is six percentage points lower than what many commercial banks charge for loans dominated in Uganda Shillings.

Still on reducing the cost of doing business, the Government is revamping the old metre gauge railway from Malaba Border in Eastern Uganda to Gulu in Northern Uganda and Kasese District in South Western Uganda to lower the cost of hauling either raw materials or finished products across Uganda.Uganda’s current electricity generation capacity stands at about 1,250Megawatts but consumption stands at slightly above 650 megawatts during peak hours.

The amount of electricity produced is expected to increase to over 2,000MW by end of 2022 with the addition of the 600MW Karuma hydropower dam, Kikagati (16MW) and Nyamagasani I (15MW), and other small hydropower plants.

Umeme Limited is Uganda’s main electricity distribution company, listed on the Uganda Securities Exchange and cross listed on the Nairobi Securities Exchange. The Company operates a 20 year electricity distribution concession effective 1st March 2005, from the Government of Uganda. After the electricity sector reforms in 1999, Uganda adopted a single buyer electricity sector model, where Uganda Electricity Transmission Company Limited (UETCL) is the System Operator, responsible for the purchase of electricity from all Independent Power Producers, import and export of electricity and being Umeme’s sole supplier.