Umeme Disputes Government Buyout Offer, Threatening Arbitration

Umeme Limited has officially contested the buyout figure offered by the Ugandan government for its electricity distribution assets following the end of its 20-year concession. In a public notice issued on Monday, the power distributor revealed it served a formal notice of dispute to the Ministry of Finance on April 11th.

This action triggers a 30-day negotiation period as stipulated in the 2005 agreement that governed Umeme’s operations. The crux of the disagreement lies in the government’s valuation of the buyout amount, which followed the March 31st handover of the electricity distribution network to the state-owned Uganda Electricity Distribution Company Limited (UEDCL).

Umeme estimates its unrecovered investments at a substantial $234 million. However, a special audit commissioned by the government and conducted by the Auditor General arrived at a significantly lower figure of $118 million, equivalent to approximately 430 billion Ugandan shillings.

Energy Minister Ruth Nankabirwa has firmly stated the government’s position, saying, “The Auditor General has audited and determined $118 million as the buyout amount.” This figure was adopted by the Energy Ministry, rejecting both Umeme’s initial valuation and a previously considered estimate of $190 million (approximately 700 billion Ugandan shillings).

At the heart of the dispute is whether the government has fulfilled its obligations under the 2005 agreement, which mandates compensation to Umeme for investments made during its tenure that were not fully recovered. Umeme argues that the $118 million valuation significantly undervalues its capital expenditure over the past two decades and violates the terms agreed upon in the original concession. The company highlights that it invested over $600 million in upgrading the electricity network during its concession period.

The 2005 agreement includes a provision for international arbitration should negotiations fail. If Umeme and the government cannot reach a settlement within the 30-day negotiation window, which ends on May 11th, the matter could be referred to arbitration in London.

Amidst this uncertainty, Umeme has issued a cautionary note to its investors. “Shareholders and investors are advised to exercise caution when dealing in the Company’s securities until the outcome of the Dispute is known,” the company stated.

This dispute introduces a layer of uncertainty into the government’s transition to public electricity distribution. While the government has presented the takeover by UEDCL as a move to reduce electricity costs and regain control of the national grid, the unresolved buyout claim raises significant questions about transparency, the protection of investors, and Uganda’s approach to public-private infrastructure partnerships. The outcome of the negotiations, or potential arbitration, will be closely watched by both local and international stakeholders.