Umeme eyes revenue boost from power loss reduction

Uganda’s power distributor, Umeme Ltd, plans to boost revenue by cutting transmission leakage losses to 15 per cent from the current 26 per cent in the next seven years.

Umeme’s MD Charles Chapman announced the plan on Tuesday as part of a marketing pitch for the company’s ongoing initial public offering (IPO).

The company has reduced power losses from a high of 35 per cent since 2009 when private equity firm Actis, the majority shareholder, signed a concession agreement with the Ugandan government.

The concession runs for 20 years from 2005 and there is a possibility of renewal for another 20 years.

“We expect the performance of the company to improve with electricity demand forecast to rise by 20 per cent per year with the growth in housing,” said Mr Chapman.

In Kenya, power system losses stand at about 16 per cent from a high of 24 per cent about a decade ago.

The IPO is open to East Africans, who the capital markets regulator is treating as domestic investors in the share sale.

Non-Ugandan investors, however, have to open central depository (CDS) accounts registered in the country to participate in the offer.

Umeme has reserved about 56 million shares, or nine per cent of the 622.4 million on offer, for employees as part of a staff incentive scheme.

Mr Chapman said the company would retain as a policy a dividend payment rate of half of the annual after-tax profits.

The IPO opened on October 15 and is scheduled to be concluded on November 7 with the announcement of results expected on November 14. Foreign investors have already fully taken up their offer following a book-building process that was used to set the IPO price.

Umeme also expects power generation to rise by 15 per cent with the coming on the grid of 258mw from Bujagali power station, a public-private partnership project between the government of Uganda and a consortium led Industrial Promotion Services (IPS), the infrastructure and industrial development arm of the Aga Khan Fund for Economic Development (AKFED).

With more production including from other power sources thereafter, another 10 per cent of power will be added to the national grid annually, Mr Chapman said.

At peak demand, Uganda consumes about 500 megawatts but the country produces 40-50mw more than that, opening an avenue for export to neighbouring countries.

The commercial exploitation of oil expected by 2016 should raise the gross domestic product by 12 per cent annually, which is in turn expected to have significant impact on the demand for power arising from more housing and consumer goods.

The company would also seek to increase the number of customers including those in rural areas, even though 70 per cent of the power it distributes goes to corporate entities. “We cannot ignore the political dimensions to power distribution. We will expand our network into rural areas although we really don’t have to since 70 per cent of our customers are large companies,” said Mr Chapman.