UPDATE 1-Umeme says Uganda won't cancel power contract despite vote

Fri Mar 28, 2014 9:27am EDT

* Parliamentary report wants contract cancelled

* Report says Umeme has not fulfilled mandate

* Umeme rejects report's findings (Adds Umeme comment)

By Elias Biryabarema

KAMPALA, March 28 (Reuters) - Uganda's sole power distributor, Umeme Ltd rejected a parliamentary report that said it had failed to meet its contractual obligations and said it was confident the government would not terminate its contract.

A report by a parliamentary committee set up to investigate the country's energy sector and adopted by lawmakers on Thursday asked the government to cancel Umeme's 25-year concession to distribute power in east Africa's third-largest economy.

The report accused Umeme - also listed on the Kenyan bourse - of exaggerating its investments and failing in parts of its mandate.

Parliamentary resolutions in the east African nation are not binding on the government.

Umeme said on Friday that it had fulfilled its mandate.

"The objectives of the concession, which included improved service delivery of electricity to customers, refurbishment of a dilapidated network as well as the creation of a stronger more attractive distribution function, have been achieved," Umeme said in an emailed statement.

"Our position continues to be that the government will not adopt such recommendations which will discourage private sector investment."

Some analysts have also said the government was unlikely to jettison Umeme, in part for fear the move would send a negative signal to potential investors.

"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.

In a stormy parliamentary session before the report was adopted, lawmakers accused Umeme of enjoying a deal that is skewed in the company's favour at the expense of consumers.

They also said the contract was a bad deal since it did not involve the country's attorney general.

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

Umeme, controlled by London-based private equity firm Actis, said earlier this week its pretax profit last year nearly doubled, helped by a surge in sales and new capital investments. Profit rose 89 percent to 115.2 billion shillings ($45.23 million) with revenue up 12.3 percent.

The company has said it 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 produces about 550 megawatts, while peak demand reaches about 480 MW, the energy ministry says.

The country's power output 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.

($1 = 2547.0000 Ugandan Shillings) (Editing by James Macharia and Erica Billingham)

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