Umeme reports first half loss on provision for accrued revenues

Umeme Limited, Uganda’s largest power distributor, reported a loss in the first half due to impairment provisions for accrued amounts from the government.

The company recorded a net loss of Shs47.5bn in the first six months of 2017, against a Shs54.5bn profit a year earlier, according to interim unaudited results released on Friday. Revenue for the period rose 6.9% to Shs704.4bn, driven by a 6.7% increase in electricity sold and price adjustments.

Gross profit increased by 2.6% to Shs217.9bn, a result of a 9% increase in the cost of sales. Umeme said the rise in the cost of sales was influenced by a 9.6% increase in power purchase costs, with units purchased increasing by 4.5% to 1,630.7 GWh.

Umeme said the modification of its electricity supply licence by the Electricity Regulatory Authority in May had led it to make impairment provisions for previously accrued growth factor revenues, income taxes recoverable, and appeal costs recoverable. In total, the accrued revenues come to Shs115.3bn.

“The board and management have carefully considered the form of the mentioned Amendment 5 and noted that the modification to the Company’s Supply License no.48, as published, did not expressly provide a mechanism for the recovery of the associated revenues due to Umeme Limited,” Umeme said in the press release announcing the results.

“The Company, however, believes it is entitled to these revenues and is pursuing recovery of the accrued amounts from the Government of Uganda, in line with the principles of the Consent Judgement reached with the Electricity Regulatory Authority (ERA) on 17th May 2016.”

Umeme invested Shs99.1bn in the distribution network in the period, with focus on system expansion, new connections, energy losses reduction and improving distribution system reliability.

“The key projects implemented during the period include Moniko substation interconnection lines, Tororo-Nyakesi substation, Kakiri service area improvement and GeT-FIT switching stations at Kasese to evacuate power from the 5.5 MW Rwimi Hydro Power Plant,” it said.

The company also said it is in the final stages of appointing a strategic financial advisor to finalise a capital raising strategy in anticipation of large investments. The investments are required to prepare the “the electricity distribution infrastructure for the upcoming 783 MW generation capacity of Isimba and Karuma Hydro Power Projects.”

As a result, Umeme said it has notified the government on the “urgent need” to review its concession tenure; the utility operates a 20-year electricity distribution concession that went into effect on 1 March 2005.

Customer numbers in the period increased to 1,019,453, reflecting a year-on-year growth of 19%. The share of customers on prepaid meters also rose to 70.1% from 65% at 31 December 2013, while prepaid revenue as a share of total revenue increased to 20% from 16% at the close of 2016.