- Uganda is bracing for a possible international arbitration showdown as Umeme contests the government’s compensation offer for its exit.
- Industry observers warn that such uncertainty could harm Uganda’s standing in international markets.
Uganda is bracing for a possible international arbitration showdown as Umeme, the private operator that ran the country’s electricity distribution network for two decades, contests the government’s compensation offer for its exit.
Officials have so far paid $118m to cover undepreciated and unrecovered investments, but Umeme contends it is owed a total of $234m. This leaves a $116m gap that both sides must close within 30 days.
Failure to do so would risk escalating the dispute to the London Court of International Arbitration, potentially raising doubts among foreign investors about Uganda’s ability to honour commercial contracts.
Umeme’s concession ended on March 31, when the company formally transferred operations to the state-owned Uganda Electricity Distribution Company. The arrangement dates back to the early 2000s, when Uganda’s power sector suffered from an ageing distribution grid, just 280MW of installed capacity and a track record of government payment arrears.
The World Bank offered escrow guarantees to entice private capital, reducing Umeme’s risk exposure. Critics of the deal, however, say it was lucrative for the company, while proponents point to the difficult circumstances under which it was negotiated.
The tug-of-war over the final buyout figure underscores the long-running tensions surrounding Umeme’s role. Peter Kaujju, the company’s head of communication, says Umeme is “providing evidence” of why it should receive more than the $118m already paid.
However, Energy Minister Ruth Nankabirwa has signalled that no large top-up is forthcoming, announcing at the handover ceremony that Umeme would receive an additional $9.7m for ongoing work and hinting at “another portion” subject to further scrutiny. “It will not be anywhere near” the $116m difference, she said.
Industry observers warn that such uncertainty could harm Uganda’s standing in international markets. “It will damage our international investment rating. We will be deemed a risky country. The earlier they settle, the better – it will save costs,” says Nathan Sunday, an economist at the Economic Policy Research Centre in Kampala.
Peter Twesigye, a researcher on power market reform at the University of Cape Town, echoes this concern, noting that perceived expropriation risk could add as many as 582 basis points to Uganda’s cost of capital, potentially lifting rates from 10 per cent to nearly 16 per cent.
The Electricity Regulatory Authority (ERA), which oversees the sector, maintains that it is not responsible for determining the final compensation figure. “We never determine the final figure,” says ERA chief executive Ziria Tibalwa Waako. “According to the concession agreement, the Office of the Auditor General determines the final figure.”
Various estimates were floated in the run-up to Umeme’s departure. Parliament approved a $190m loan, while the Ministry of Energy issued another figure, contributing to speculation.
Amid these financial disputes, the public has become increasingly sceptical of Umeme’s legacy. Dickens Kamugisha, chief executive of the Africa Institute for Energy Governance (AFIEGO), calls the concession “a big mistake” and believes its expiry “is very good for Uganda,” arguing that liberalising the electricity market prematurely saddled consumers with high tariffs.
Yet journalist Andrew Mwenda, a long-time commentator on Ugandan affairs, contends that the deal must be viewed in light of the sector’s dire state when Umeme entered. “Contracts are shaped by the circumstances in which they are signed,” he says.