Umeme, an electricity distribution company, announced on 2 June that it will take its quarrel with the Ugandan government to an arbitration court in London, after weeks of unsuccessful negotiations. Umeme ran Uganda’s distribution network for twenty years until its contract expired in March. The company says that it is owed $292m for the unrecovered costs of its investments. The government has already paid out $118m and says it owes nothing more, unless additional costs are revealed by an ongoing audit.
The dispute follows the government’s decision to take control of electricity distribution back into state hands – the latest twist in a long-running debate about who should pay, and who should profit, in the quest to power Africa. Since the 1990s the World Bank, in particular, has been urging African governments to break up state utilities and bring in private capital. Uganda became the first country in Anglophone Africa to turn over electricity distribution to a private operator when it granted a concession to Umeme in 2005.
But the government now thinks that the best way to bring down electricity prices and widen access is to return responsibility to the Uganda Electricity Distribution Company Limited (UEDCL), a state-run firm, at least for a few years until another private investor is found. The decision will be watched by other countries, including Ghana, which is preparing to invite private participation in its own distribution network.
Private power
The dominant model of electricity reforms draws inspiration from the policies adopted in the 1980s by free-market governments in Chile and the UK. National utility companies, which produced power and delivered it to households, would be unbundled. Separate firms would handle generation (at power plants), transmission (along high-voltage power lines) and distribution (from substations to users). The markets would be opened to private players.
Proponents argued that this package would enable competition, attract investment and enhance efficiency. Sceptics worried that tariffs would rise and that any gains would be captured by foreign shareholders, not by citizens.
The full package of reforms was rarely implemented. By 2016 only 6 countries in sub-Saharan Africa had both unbundled their power utilities and invited private sector participation. Another 23 had made one
of these reforms, but not both, and 19 retained vertically integrated, state-owned utilities without any role for the private sector. World Bank researchers concluded in 2017 that “the model is much harder to adopt than originally believed.”
Uganda was one of the most enthusiastic reformers. In the 1990s, when it was weighed down by debt, it had little choice but to follow the advice of the World Bank and other donors. At the same time a group of officials in the finance ministry, who were true believers in economic liberalisation, were pushing for change from within. Foreign capital began to supplant the state in everything from coffee to banking.
The drive for reform in the electricity sector came “50/50” from World Bank pressure and internal deliberations, says Fred Kabagambe-Kaliisa, who was the top civil servant at the Ministry of Energy and Mineral Development from 1997 until 2016.
What nobody doubted was that something needed to be done. The state-run Uganda Electricity Board (UEB) was struggling to keep the lights on and was losing money because many of its customers, including government agencies, were not paying their bills. The whole country had just 280 MW of capacity and was using about as much electricity as the English town of Milton Keynes.
Between 1999 and 2005 the government implemented a flurry of energy reforms, breaking up the UEB and contracting a private consortium to build and operate a new dam on the Nile. It also awarded a concession to run the distribution network to a newly-formed company called Umeme, which at the time was majority-owned by Globeleq, a subsidiary of the British government’s CDC (a development finance institution now renamed British International Investment).
The arrival of Umeme would not create competition, since it would have a near-monopoly. So why not try to turn around the state-run utility instead? “The overriding point was capitalisation,” argues Kabagambe-Kaliisa. “We saw an opportunity of the private sector coming in without really creating a liability on the government balance sheet.”
Hundreds of millions of dollars flowed in. In 2012 Umeme listed on the Uganda Securities Exchange, with a cross-listing in Nairobi. By 2023 some 39% of its shares were held by Ugandans, including the National Social Security Fund, which manages the pensions of more than 700,000 citizens.
But just because investment was being financed by the private sector did not mean that it came free. On the contrary: as part of the concession agreement, the government had guaranteed Umeme a 20% rate of return on new investments as long as it met its targets, together with a suite of other goodies. The contract had been negotiated during a severe drought – Uganda relies overwhelmingly on hydroelectric power – and Umeme was the only bidder after others dropped out. The government was in a weak position to bargain.
The main way that Umeme would recoup its investments was through the tariffs it charged to users. Those are set by an independent regulator, created as part of the reforms. Prices were hiked dramatically in the early years and, after adjusting for inflation, were still higher for households in 2024 than they were when Umeme took over. Uganda became one of the few African countries where tariffs are sufficient to cover operating costs, with enough left over for Umeme to pay dividends and service its debt.
Affordability was among the concerns behind a parliamentary inquiry and an investigation by the president’s influential brother, Salim Saleh, who concluded that the concession was a bad deal. Ordinary
Ugandans were feeling it in their pockets. “I don’t know why… the price of electricity is too high,” sang Bobi Wine, at that time a musician and now a popular opposition leader.
Return of the state
With time the quality of service improved. Losses from theft, unpaid bills and technical faults fell from 35% when Umeme took over to 17% last year. The company’s customer base rose from 250,000 to 2.3m over the same period – although it largely served urban areas, where it could make more money, and half of Ugandans still lack electricity access.
The commercial dependability of Umeme also encouraged private firms to invest in expanding generation capacity, argues Peter Twesigye, a former manager at the company who now researches energy policy at the University of Cape Town.
But that was not enough to convince Yoweri Museveni, the president since 1986. After defending Umeme for many years, he was starting to lose patience. The political mood was shifting too, as state-led industrial policy came back into fashion around the world and an older generation of free-marketeers left the stage. Talks over renewing the concession led nowhere and the contract was allowed to expire.
“The government’s plan is to implement a more cost-effective and publicly accountable electricity distribution model,” writes an energy ministry spokesperson in an emailed response to questions. “This will allow the government to reinvest in infrastructure, respond more directly to service concerns and ensure the electricity sector supports broader economic transformation – including industrialisation and rural electrification.”
A spokesperson for Umeme writes that “it has been a thrilling 20 years of service” which delivered lasting impact to a sector that had previously been “dysfunctional, inefficient and commercially unviable”.
With the expiry of Umeme’s contract, the government is obliged to pick up the tab for certain investments the company has made which have not yet been recovered through tariffs or transfers. The two sides cannot agree on the relevant criteria or how much those investments are worth.
Twesigye, the researcher, says that competing estimates hinge on several factors, such as how to deal with investments made without explicit regulatory approval or adequate supporting documentation, how to account for infrastructure that was inadequately built and how to distinguish between capital and operating expenditures.
He also notes that the buyout amount will determine the value of the undepreciated assets being taken over by the state – so although a low figure would save the government money, it would weaken the balance sheet of UEDCL, the state-run distribution company which is taking over.
A change of direction?
Some in Uganda point out that the government could have taken control of distribution more cheaply by buying a 27% stake in Umeme, given that its own social security fund already owns 23%. Others worry about how UEDCL will be run.
“The culture of governance of private sector companies is more efficient than public sector led entities,” argues Twesigye. The latter, he says, are more easily influenced by elite networks of politicians and military officials. In truth the private sector is hardly immune to corruption either.
If state entities are poorly run, it is at least in part due to years of neglect, argues Dickens Kamugisha of the Africa Institute for Energy Governance (AFIEGO), a Ugandan NGO that works on energy policy.
“I don’t think [Umeme’s] operations here were relevant and effective and useful to Ugandans,” he says. “But I had thought as a government they would ensure UEDCL is in a better position.”
The ministry spokesperson says that UEDCL will run electricity distribution until “around 2028”, at which point the government will decide whether to retain its services or explore a new kind of public-private partnership. Only then will it become clear if the departure of Umeme marks a decisive reversal of the policy course set in the 1990s, or just another milestone on the road.
