Umeme concession payout falls to Sh44bn on investments

Umeme concession payout falls to Sh44bn on investments
Capital Markets

Umeme concession payout falls to Sh44bn on investments

Monday April 08 2024

Umeme Customers making electricity payments at the Kampala Umeme branch. FILE PHOTO | NMG

Uganda-based electricity distributor Umeme Limited has cut the value of compensation it expects shareholders to receive from the Ugandan government when the firm’s concession ends next year.

The firm, which has been cross-listed on the Nairobi Securities Exchange since December 2012, operates a 20-year electricity distribution concession from the government of Uganda.

The assets and operations of Umeme will be handed back to the government after the expiry of the concession in March 2025, with private shareholders getting compensated at the value of unrecovered capital investments plus a premium of five percent.

In the year ended December 2023, Umeme said the value of these unrecovered investments dropped to $339 million (Sh44.32 billion) from $407 million (Sh53.21 billion) at the end of 2022.

Using a forward-looking estimate, Umeme expects this buyout amount to drop to $283 million (Sh37 billion) by March 2025, which will account for the additional investment recoveries done between December 2023 and that date.

Read: Umeme stock rallies 40pc in a week on dividend plan

The company estimates that since the beginning of the concession in 2005, it has made gross investments worth $832 million (Sh108.8 billion), which is inclusive of ongoing capital works, and has in turn made capital recoveries worth $493 million (Sh64.45 billion).

“The buyout estimate is $339 million as at the end of 2023. The final outcome is subject to the level of investments over the remaining period and underlying capital recovery through the tariff,” said Umeme in an investor presentation on its 2023 full-year financials.

At the end of the concession, the terms of the deal state that Umeme will furnish the government of Uganda with an estimate of the expected buyout amount, and supporting documentation, not later than 90 days prior to the end of the term of the concession.

Following an audit of the buyout statement by the Uganda Auditor General, the government would be expected to pay the buyout amount in cash, plus the five percent premium within 30 days of the end of the concession.

Delays in paying out beyond the one-month window will attract interest at 10 percent per annum for the period between 30 and 45 days, 15 percent per annum if the delay runs between 46 and 90 days, and 20 percent per annum for a delay of more than 90 days, until the amount is settled in full.

Read: Uganda’s Umeme declares Sh1.5bn interim dividend

In the meantime, the shareholders have continued to draw down dividends from the firm.

Umeme raised its dividend by 22.4 percent for the year ended December to Sh2.66 per share from Sh2.17 per share in 2022. This was even as net profit fell by 92 percent to Sh408.2 million on account of an amortisation charge of Sh15 billion to meet accounting standards on aligning the value of assets to their remaining useful life.

Umeme’s main shareholders include the International Finance Corporation (IFC), which retains a 2.8 percent stake acquired during the firm’s 2012 Initial Public Offering.

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