Uganda Power Company Warns Cost Cuts to Hurt Distribution Plan

(Bloomberg) -- Uganda’s main power distributor has warned that proposed cost cuts will limit its ability to meet the government target of doubling the number of electricity connections within six years, according to people with knowledge of the matter.

Umeme Ltd. is opposed to a proposal by the electricity regulator to cap its operational and maintenance costs at $42 million annually, the people said, requesting not to be identified because the matter is not public. That compares with $64 million that Umeme spent last year.

The Electricity Regulatory Authority, which approves tariffs partly based on distribution costs, has been under pressure to lower prices to support President Yoweri Museveni’s plan to boost manufacturing. In March, the regulator said tariffs would drop by as much as 17% this year as new power plants start generating.

The government and Umeme, whose main shareholder is the state-controlled National Social Security Fund, are set to negotiate a new cost plan for the next six years, according to the people. Umeme argues that the government’s proposal doesn’t take into account its target to more than double the number of customers connected to the network to 3.4 million, the people said.

READ: Chinese-Built Plants to Help Lower Uganda Power Rates by 17%

The company plans to double its technical staff, build more sub-stations and open more service centers to enable it connect 300,000 new customers to the network annually. Uganda wants to increase its access to electricity to 60% of the population by 2027 from 26.7% currently.

Umeme increased its investments by 29% to 147 billion shillings ($40 million) in the six months through June from a year earlier, as net income rose slightly to 61.2 billion shillings. The company has 1.4 million customers and is negotiating with government to extend its 20-year concession due to expire in 2025.

To contact the reporter on this story: Fred Ojambo in Kampala at fojambo@bloomberg.net

To contact the editors responsible for this story: David Malingha at dmalingha@bloomberg.net, Alastair Reed

©2019 Bloomberg L.P.