Analysts play down Ugandan vote to cancel power distributor's contract

KAMPALA, March 28 Fri Mar 28, 2014 4:41am EDT

KAMPALA, March 28 (Reuters) - Ugandan lawmakers have voted to adopt a report asking the government to terminate its contract with the country's sole power distributor, Umeme Ltd , for exaggerating its investments and failing in parts of its mandate.

However analysts said the government was unlikely to jettison Umeme, in part for fear the move would send a negative signal to potential investors. Parliamentary resolutions in the east African nation are not binding on the government.

"Ultimately I am sure the contract will not be cancelled," said Dickens Kamugisha, chief executive officer at the Africa Institute for Energy Governance, a research and consumer lobby group.

Umeme, which is also listed on the Kenyan bourse, is controlled by London-based private equity firm Actis and holds a 25-year power distribution deal.

The subject of the lawmakers' vote, a report by a parliamentary committee set up to investigate the country's energy sector, was passed after a vote late on Thursday.

"Umeme must go, they are just profiteering from Ugandans," lawmaker John Ken Lukyamuzi told Reuters.

The lawmakers accuse Umeme of enjoying a deal that is skewed in the company's favour at the expense of consumers. Umeme did not respond immediately, saying a statement would be issued later.

Umeme nearly doubled its pretax profit last year, helped by a surge in sales and new capital investments.

The company intends to spend about $440 million on a capital investment programme running from 2013 through 2018 that it expects to help revamp its distribution network.

Uganda has a generation capacity of about 550 megawatts, while peak demand reaches about 480 MW, the energy ministry says. Generation capacity is set to get a major boost around 2017 when the $1.6 billion Karuma hydropower dam on the River Nile is expected to come into service. (Editing by Duncan Miriri and David Holmes)

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