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Umeme Exit: Regulator predicts lower prices

Peter 28th Jan, 2025 Energy Pedson Mumbere
Umeme Exit: Regulator predicts lower prices

Engineers inspect a substation. Government anticipates the lower cost of production following Umeme's exit would lead to lower prices for the consumer. FILE PHOTO


Electricity Regulatory Authority (ERA) boss Ziria Tibalwa Waako, has predicted a potential 10% reduction in electricity tariffs when the Uganda Electricity Distribution Company Ltd (UEDCL) eventually takes over of the electricity distribution network from Umeme Ltd.

Speaking during a media engagement on the transition and its implications for tariffs, Waako emphasized the financial benefits of the government-led model.

“If government provides the capital for the Uganda Electricity Distribution Company, as I’ve shared, it comes in at a low cost of financing below 8% – somewhere between 4% and 8%,” she stated.

  • “Naturally, the tariff would reduce by approximately 10%, depending on the exact terms. However, should government not provide the capital for UEDCL, it means UEDCL will have to borrow. If this borrowing isn’t concessional, we’ll revert to private financing within the distribution network.”

UEDCL has officially been handed the electricity distribution license, positioning it to replace Umeme come April 1, 2025, with Umeme’s 20-year concession ending on March 32. It expects lower operational costs and tariffs by taking control of the distribution network.

According to Waako, private financing under Umeme’s concession attracted a 20% return on investment, significantly driving up costs.

  • “Currently, the cost of financing in the distribution segment is borne by Umeme's shareholders through a mix of equity and debt,” she explained. “Every capital investment in the distribution network has been earning a 20% return. This model has increased costs passed on to consumers.”
Umeme Exit: Regulator predicts lower prices
Umeme Exit: Regulator predicts lower prices

She further highlighted the government’s strategy to prioritize concessional funding. “The information we have is that government will finance the capital investments within the distribution network at a low cost of financing. With concessional rates below 8%, the cost of financing will be cut by more than half, translating directly into lower tariffs for end users,” she added.

While consumers remain pensive ahead of the looming transition, UEDCL’s re-entry into the distribution sector marks a pivotal shift in Uganda’s electricity landscape.

The Ministry of Finance, Planning, and Economic Development has committed to ensuring a seamless transition by funding UEDCL operations and settling Umeme’s outstanding investments, though the sources of the funds remain unknown.

The Office of the Auditor General is currently determining the buyout amount as per the Lease and Assignment Agreement. “The Ministry of Finance has pledged to provide the buyout funds on time to avoid any disruption in service delivery,” Waako noted.

  • The transition is also expected to preserve jobs within the sector, according to the regulator. “In previous transitions, over 98% of staff were retained by the government utilities,” Waako remarked, expressing confidence in a smooth handover process.
  • UEDCL’s return to managing the distribution network aligns with the government’s broader strategy to make electricity more affordable and accessible.

With current electricity tariffs among the highest in the region, this change is expected to ease the financial burden on consumers while improving service delivery.

By leveraging concessional financing and reducing reliance on expensive private capital, the government is poised to achieve a sustainable and cost-effective energy sector.

According to ERA, the transition also represents a significant opportunity for Uganda to redefine its energy infrastructure and prioritize affordability. The reduction in tariffs by approximately 10% is anticipated to not only spur economic growth but also enhance the quality of life for millions of Ugandans.

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