Umeme Profit Bliss

According to the 2013 financial results for power distributor Umeme, shareholders will smile their way to their bank accounts come June 2014. The results, which were released on March 24, show that profit after tax shot up to Shs 84 billion from Shs 57 billion in 2012, an increase of Shs 27 billion in just 12 months.

Not many companies can record such profitability in the current economic conditions. Earnings before interest, tax, depreciation and amortization (EBITDA) grew by 27% to Shs 149 billion from Shs 117 billion in 2012.

Total assets as of Dec.31 increased by Shs 133 billion compared to December 2012 – reflecting an 18% growth. Shareholders’ equity shot to Shs 286 billion from Shs 239 billion in 2012. Total dividends paid totaled to Shs 37 billion, composed of a final dividend for 2012 of Shs 24 billion and interim dividend for 2013 of Shs 13 billion.

Subject to the approval of the shareholders, the directors recommended a final dividend of Shs 16.8 per ordinary share subject to withholding tax for all shareholders registered on the book at close of business on June 6, 2014. An interim dividend of Shs 8 per share was paid in December 2013. The total dividend for the year will thus amount to Shs 24.8 per share. If approved, the outstanding dividend is to be paid on or about June 30, 2014.

Patrick Bitature, the board chairman, said the excellent performance was underpinned by a surge in sales and new capital investments. Also, new connections, more power supply and the prepaid metering system supported this growth. Some 52,000 customers are now on the pre-payment metering system (Yaka), while the construction of three new sub stations and lines, use of e-payments and better response times also supported the performance. The pre-paid system is less costly to administer and less prone to power thefts.

The company concluded a debt financing package of $190m comprising loans ($170m) and working capital ($20m). The financing package was a syndicate between International Finance Corporation (IFC), Standard Chartered Bank and Stanbic Bank Uganda. The funds are be used to support the projected capital investments.

Bitature said the company, which is listed on both the Kenyan and Ugandan stock exchanges, is focused on continuing to revamp its distribution network and investing in new technology as part of its $440 million capital investment programme for the 2013-2018 period. Umeme is partly owned by Actis, while NSSF is one of the top investors in Uganda.

Regulatory concerns:

On the regulatory environment, Bitature said they were on course to achieve their regulatory targets. He said the Electricity Regulatory Authority (ERA) has now implemented amendments to the supply licence, and as a result, the company had recognised revenues of Shs 37.8 billion that are not currently being recovered through the tariff. But to the company’s disaantage, the Escrow Account is currently not funded contrary to the concession arrangement they reached with the government. The lease and assignment agreements require Uganda Electricity Distribution Company Limited (UEDCL) to establish an Escrow Account in order to compensate Umeme in the event of certain contingencies, including government non-payment of electricity bills and ERA non-compliance with the terms of Umeme’s electricity licences in establishing the retail tariff.

The Escrow Account would also serve as security for government obligations under the support agreement. However, the lease payments to UEDCL, which were formerly used to fund the Escrow Account from time to time, have inexplicably been excluded from the retail tariff by ERA.

But notwithstanding the removal of the lease payments from the tariff, UEDCL is nevertheless obliged to fund the Escrow Account to the required minimum balance, in accordance with UEDCL’s obligations under the Lease and Assignment Agreement. Bitature said they were seeking legal redress to have these issues resolved.

Umeme has also filed a tariff adjustment application pursuant to Section 7 (Change of Law) of the Supply License, on the grounds that the company is entitled under the provisions of its licence to be compensated for any additional costs resulting from ERA’s introduction of new amendments. The change of law remedy, giving rise to the tariff adjustment application, is based on ERA having introduced amendments to the Umeme licences, which depart from the tariff methodology agreed on at the outset of the concession. The company has nevertheless submitted a tariff adjustment application “without prejudice to the disputes process.”

The company has faced fire from Members of Parliament over its contract in recent months, which they said was unfavourable to Ugandans. However, Bitature suggested that the company would not be deterred from utilising the contractual remedies available to it under the concession agreements to seek compensation for any unrecovered costs incurred as a result of new amendments to the legal instruments

Source : The Independent

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