info.afrindex.com
China-Africa Trade Information Service
info.afrindex.com
China-Africa Trade Information Service
photo from Internet
Electricity sector is one of the most profitable businesses in Uganda. However, it is disrupted by Chinese bid threatens for the second time in a decade.
Selestino Babungi’s shoes are not a very comfortable place to be at this time. As the Managing Director of Uganda power distributor Umeme, he has presided over the crest of the company’s growth in recent years, giving shareholders a healthy return on investment. But with official concern rising over nagging bottlenecks, Uganda’s electricity sector is groping for direction and Umeme’s shareholders and Babungi might be the fall guys.
A Chinese suitor has emerged out of the blue but rather than take the conventional path of buying into Umeme through the stock exchange, they have submitted to the government a $3 billion proposal to take over the transmission and electricity distribution business in Uganda.
In what is being carefully described by government officials as an unsolicited bid, China Electric Power Equipment and Technology Company (CET), promises to resolve the reliability and quality challenges plaguing the grid through a $3 billion investment in what it calls SMART grid technologies.
Details of just how much that can change were not immediately available but according to the last filings for 2017, Umeme had brought distribution losses down from a 38 percent peak in 2005 to 17 percent while transmission losses were down to 3.9 percent.
Uganda unbundled her electricity subsector ahead of liberalisation in 2005, with the promise that private capital would help revamp flagging generation and distribution. The new capital injections would also result into lower tariffs.
That situation is likely to get worse when another 780MW comes online over the next 12 months unless capacity utilisation improves in the manufacturing sector from the present 54 percent and domestic consumption goes up through grid extension.
“The focus on increasing supply is good but this needs to be complemented with increasing uptake. Otherwise tariffs may rise further if the current customer base had to meet the cost of new investments in generation,” says the official.
