Umeme’s dispute clause trigger sends Uganda into uncharted territory

April 15, 2025 in Business, Companies, Energy by Editor

Umeme officials say they have doubled Gulu substation’s capacity to 10MW from the previous 5 MW to cope with the growing demand.

Erstwhile power distributor Umeme has triggered the dispute clause in its agreement with the Ugandan government, setting off a rollercoaster that could expose taxpayers to a steeper buyout bill, or erode returns for the firm’s stockholders.

In a notice published April 14, Umeme’s attorneys, Shonubi Musoke and Company Advocates, informed the public and stockholders that a dispute had been declared on April 11, over the buyout amount due to the company.

At the heart of the dispute is Umeme’s USD234 million claim for unrecouped investment, against a USD 191 million estimate by sector regulator Uganda Electricity Regulatory Authority. Although the government committed to pay USD 118 million that has so far been verified, declaring a dispute means no progress has been made towards closing the gap between the sharply contrasting figures and, gloves have potentially come off the hands.

“The Board of Directors of Umeme Limited wishes to inform shareholders and the investing public that the Company formally declared a dispute regarding the Buy Out Amount payable to the Company by the Government of Uganda.

“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 said; explaining that the dispute arose from the parties failure to agree on the final  buyout figure, following the handover of distribution network assets UEDCL.

Clause 9 of the Support Agreement allows either party to trigger international arbitration if negotiations fail to resolve a declared dispute.

The two sides now have 30 days—until May 11—to reach a settlement, failing which the matter will proceed to arbitration in London.

The dispute clause was designed to guarantee impartial resolution in such cases, a measure both parties have previously agreed to honour.

The standoff has unsettled investor sentiment, with Umeme urging caution in the trading of its shares.

The dispute also casts a shadow over what had been presented as a seamless transition from private to public electricity distribution.

That action sets the stage for intense negotiations that could ultimately lead to arbitration or even legal action if no resolution within 30 days after notice.

Besides the principle, Uganda is potentially exposed to huge daily penalties on the outstanding amount until full payment. Alternatively, if Umeme lost, shareholders would pick the tab for legal costs, money that would have needlessly eaten into their final settlement of accounts.

Umeme’s 20-year electricity distribution concession flipped back to government owned Uganda Electricity Distribution Company Limited UEDCL, at the stroke of midnight on March 31, 2025. As par the agrement, Uganda is supposed to buy back the business by reimbursing Umeme for investments in the network, whose value had not been recovered at the end the concession period.

Earlier, in public comments, energy minister Ruth Nankabirwa had said that the government had USD127 million on hand to pay Umeme, but had only transferred USD 118 million to Umeme’s account on March 28, because USD 9 million was pending verification. She further explained that resources to cover any additional claims were available because the government had already borrowed USD 191 million to cover Umeme’s exit, based on assessments by ERA.