{UAH} George Ojambo where are you? Your Electricity Economics Theory at Work

Gook this is what I told Mr. George Ojambo on Tue, 2 Mar 1999 18:26:25 -0500 (EST). He got so terribly annoyed with me to such an extreme that he disappeared from the forum. I had learnt that there was no way you could privatise public utilities  unless you wanted to run down the country and government - and what we hear between ERA and UMEME is just tip of the iceberg!

Read the proposal which i suggested then:

Bwanika's Proposal:

Let UEB under the prevailing above conditions, be deregulated as a middle way. In that case, UEB working together with the parliamentary committee on the economy and government, will remain a monopoly but * privately managed *in decisions making for generating electricity, using bidding methods as to where and which power plant will be built were for generating electricity in Uganda.

I was later to learn that people who were involved in the deregulation of UEB where all Lawyers and George Ojambo was also a lawyer of some sorts!

Do you know what, I was with Örebro City politics, and Örebro Energy ( city authority owned company) was sold to Norwegian Company which only after less than a year sold it to another company many million of Crowns in profit! From that time power bills that had been stable since 1990 jumped I remember to 460 kr from a mere 250 kr per month - it was winter and you can imagine the chaos then in that cold!

End of Story - read on

Bwanika

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From: Bwanika <[EMAIL PROTECTED]>

Subject: ugnet_: Is there any deal in hydro power production privatisation deal at all?

Reply-To: ugandanet@kym.net

Is there any deal in, hydropower production privatisation deal at all? 

a. What is deregulation; which is used interchangeably with privatisation?

b. What is privatisation; which is used interchangeably with deregulation?

Let me try to tell you what Mr. Ojambo said. (see below) He said, let UEB be deregulated into three sectors:

a) Generation

b) Transmission

c) Retailing (Distribution mine) 

Whereby no hydropower-generating firm etc. will be allowed to engage in more than one of the three functions above. He also never said that let the UEB be privatised because there is nothing to privatise. How can you privatise a single production entity?

But will the above mean that we have reduced the cost for power production and who pay or simply where does the money, which pays for various administrative and managerial entities managing different production and service entities come from?

Uganda is a developing country where incomes are very low to maximise profits in such manner.

UEB is the only sole producer of electricity in Uganda on a commercial scale though with some marginal subsidies. On the other hand it is a self-incurred problem through the inefficiency in the accounting section, systems administration, administrative and service section. More over the state is the largest debtor, which implies the government is intentionally killing off UEB without paying off debts promptly.

These debts could be traded off and UEB infrastructure could be utilised for providing Internet facilities to the 400'000 homes.

Therefore, in order to optimise profit and productivity, you can only change *management or organisation style* along private managerial line but not privatise its production section, since there still will be no competitors but only one producer, the UEB.

Isn't true that small-scale power producers are selling power to the national grid?

If we take what Mr. Ojambo suggests below it implies that we are set for two scenarios if we privatise.

a. We are going to increase the cost of management since UEB which was managing the three entities above will in this case be split into three units all with their own management costs thus the cost of electricity going up or remaining at the same price. It will be the consumer to suffer and exacerbating underdeveloped into this sector.

b. If the case is such that we are going to have different entities managing different production process of electricity, we'll be set to face, organisational and managerial problems, leading to high costs and conflicting firm interest which again leads to a or a duopoly.

The above, is based on a very basic argument. Electricity as an *essential consumption commodity* not easily provided because of the infrastructural  needs, for example not every firm in the electricity business can set-up their national electricity infrastructure will only make consumption of electricity  expensive for the peasant consumer.

Therefore, the argument that hydropower consumers can easily switch from one distributor to another is null and void. For the distributor will have to pay for delivering electricity from one given location to another since the distributor might not own the national grid. Those are extra costs, which costs will be levied on to the consumer plus some marginal profits to keep the distributing firm into business!

But the technology is there, though very expensive for low earning or cash strapped Ugandans. In such situations, we cannot have privatisation of electricity production or generation- because of the cost involved in Managerial, Organisational and Distribution of Electricity.

Do we like privatisation?

It is seems not. Why? Mr Vukoni writes an Italian company and the Arua catholic diocese wanted to produce electricity in Arua region. That means, UEB would have had another competitor in the production and selling of electricity in Arua. That means in return, we would have two producers and sellers, in that market. The result would have been, a clear cutthroat competition, with UEB placing the products in Arua market at the whims of market forces. Supplied at a specific price and the other electricity producers also offering electricity at a given price.  That is called competition, along competitive production potential. The consumer will be the winner since will decide from whom to buy electricity from.

Does the above work in real life, let us say, the above mentioned privatisation takes place? Given the circumstances, I have mentioned above, according to Mr. Ojambos' argument, I hope we will hit a dead end, if we follow Mr. Vukoni's argument.

 

1.   What will be the fate of public utilities, which use subsidised electricity in that region, for example; schools, hospitals, army installations etc.

 

2.   Can a private electricity producer meet what Mr. Ojambo called a *socially desirable outcome* i.e. welfare for electricity distribution for the lowly of society?

 

3.   What does the government, and parliamentary committee on the economy have to say about this situation?

4.   Who owns the national grid for electricity distribution?

We are just illustrating this phenomenon, the verdict is yours fellow citizens. Since the above can't work in real life, as prices for electricity and cost for it will be unmanageable, that is the sole reason why there are the three models, I am going to elaborate on here below to handle such complicated situations. This is what is called game theory for capitalist to earn money on unsuspecting consumers.

Now, Mr. Ojambo so well elaborated on the Betrand model /paradox, I have also expounded on what is called the Cournot model -- there is one remaining, which is called the Stackelberg model. I'll labour to throw light on how these three models, are used in real life since they are the * only three models * in economics, so far used in such situations of few market players and many consumers to attain a socially desirable outcome.

The difference between these three models, is such that the Betrand Model will work as Mr. Ojambo has so well illustrated for us. Where there are few producers, a sort of economic game is established --- that is where one restricts entry of other producers because of;

 

a.  Prices

b.  Quantity produced, or where are few produces can compete for the same market just as * followers of prices and quantity * set by the incumbents or dominant firm in the market. In most cases, these models are used where there are public utilities but does also happen in a market situation like the computer manufactures, Telephone companies, beer, soda, cigarette, computer and the clothing industry.

The Betrand model above will argue, since there are few producers in the market let firms * simultaneously set the price * so that they can serve their interest of *profit maximisation* or where they single handily can't produce but can, cover their *marginal costs* in order to remain into the sector. But remember there is no firm that will produce without making money.

The stupid argument in the logic, is such that, by setting prices simultaneously they can let the market determine the *quantity of products consumed*, let us say, Uganda's consumers will determine amount of electricity consumed in Uganda. This will never happen, with *public utility goods*, for it will only push customers out of the market but consumer will seek alternatives, simple and clear.

The producers have no idea of the *aggregated future demand* and the consumer is not aware of the * costs incurred by the producer*. More over the consumer care less about the producers costs since the good is essential, but what if they cannot pay for electricity what happens?

The above model in the real world, will lead firms to making sure, prices are above market prices. Hence making sure, prices do not go down, to force those firms involved out of the market or in that sense forcing them to under- utilisation of their fixed capital where prices are simultaneously set.

That is why states subsidies public utilities.

Since UEB has been so long into the market, UEB will be the price setter, which according to Stackelberg Model, any other hydropower producer has to follow.

What do other market players do in this case? They will say NO, instead through economic game theory ask UEB to incorporated them or the opposite thus take place hence a duopoly. This means any hydropower producing company will not belabour itself with price fluctuations or any other market uncertainties for instance worrying itself with:

a.  Profit- maximisation since it has a guarantee of payment from UEB

b.  Making production choices i.e. all electricity produced by any other entity has a sure buyer!

 

What is happening above is creation of an *indirect monopoly*, which these

World Bank proponents are said to want to break? Uganda wants to attain cheaper electricity through privatisation that is....if we can get it. Can we get it with Betrand paradox fellow citizens? The answer is NO.

Secondary, the Cournot Model will argue that since firms like UEB, AES are constrained by costs, like building a second national grid, production of electricity, management and organisation costs. (see Vukoni below) Then let AES Nile power, work together with UEB (marriage of convenience) such that they can

* Simultaneously set the Quantity of electricity produced * as per their production, managerial, organisational costs. The result will be a sort of cartel or create a monopolistic tendency or a duopoly, which implies these people, will be selling electricity at a price, which suits their profit making interests. (See Mr, Ojambo on the failure of British experiment) The results will be exactly the same, as above in the Betrand model, the only form of production in microeconomics of setting * prices and quantity * will differ in both situations.

 I wrote and I will repeat again, with such electricity deal, prices will never GO DOWN, since each of these firms that is UEB and any other power generating firm are fully aware of their economic interests, that is *profit maximisation* and not risk taking. Once still they have to meet their *production costs* which as of now are not known. Therefore, even if we deregulate UEB as we first saw in Mr, Ojambo's situation we'll still have costs incurred. Thus transferred to the consumer, a zero sum game. 

Thirdly, there is a Stackelberg Model which means, if AES Nile power were to go it alone will become a * follower * of the prices set by UEB. The sole reason why the WORLD BANK is adamant to privatise (?) UEB first not to force prices of electricity remain or go down as it seems would have happened will UEB remain in government hands. (See Monitor /Vision Tuesday, 02 March 1999. Kaijuka report)

So when UEB raises quantity of electricity produced, prices falls or the vis verse and that implies hydropower-producing firm has only one choice, to follow in whatever condition. Hydropower-producing firms would not like to be placed into this electricity market situation.

Hydropower-producing firms come to make money, it is not a Salvation Army, and the World Bank and IMF want a good fee paid on their debts on such investments. That is why Hydropower-producing firms would like a sure deal if they make money or not it will be paid all together because the agreement will be already in place.

The above situation, is very undesirable for economic game theory thus Hydropower-producing firms avoid it at all costs, since it puts them in direct competition and exposes them to a free market competition subsequently threatening their profits margin. Hence, there are seemingly friendly collusion, with UEB to form a sort of cartel or a co-operative game to manipulate ignorant Uganda consumers.

If one wants to understand this situation properly, take the example of IBM, Compaq, and Seimens. It is always IBM, which is the market giant the rest just jump on the bandwagon, however IBM inefficient the products are.

The whole situation is very controversial indeed. Therefore, there is only one solution as per hydropower production we only have to DEREGULATE the market but not privatisation if we have no other alternative.

Let hydropower-producing firms put their Future Production Calculation and

Estimations of Electricity Production in the free media, so that we, the people of Uganda, the prospective consumers, could analyse the cost and organisation under which such firms will provide us with electricity. It is not quite difficult to simulate such data if it does exist.  Hydropower-producing firms must have this calculation in place. Let them put all papers on the table for us common people to see.

Let the hydropower-producing firms show how their activities will substantially benefit Ugandans without extra costs.

Let the World Bank explain what it means by the* privatisation of UEB * and what that will result into and how it will benefit Ugandans.

Proposal:

Let UEB under the prevailing above conditions, be deregulated as a middle way. In that case, UEB working together with the parliamentary committee on the economy and government, will remain a monopoly but * privately managed *in decisions making for generating electricity, using bidding methods as to where and which power plant will be built were for generating electricity in Uganda.

In that case, we avoid all the maladies of complicated economic theories. In fact UEB should be the only *entity* entitled to borrow money for such ventures based, on their calculation of needs since they have the data at hand.

Then the same above structure; parliament, UEB and government will be used on district level to seek firms on a competitive basis for the distribution of electricity throughout the country. Then we can attain efficient, customer friendly methods of distribution and production/ generating of electricity.

 

Bwanika.

 

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Mr. Ojambo writes:

Subject: ugnet_: AES Nile power are broad-day light thieves.

Date: Tue, 2 Mar 1999 18:26:25 -0500 (EST)

From: George Ojambo <[EMAIL PROTECTED]

[Let it be known that privatisation or deregulation does not mean that the

electric sector will be free of Government Regulation. Even in Britain where full-scale privatisation was implemented, the sector is still subject to a very complicated price cap regulation. Let it also be said that electric woes in Uganda may not all end with the onset of a competitive electric regime.

Now, you are of the view that duopolies are inherently evil. I tried to guide you to a very interesting and famous outcome called \"the Bertrand paradox\". 

When I stated my preference of deregulation over privatisation, I had this

paradox in mind. What does it say? It states that as long as you have more than one player in the market/industry, that is a duopoly situation (contrast with a monopoly) you can always achieve the same outcome in prices and welfare as would be the case with perfect competition (many players). This can be shown with simple calculus, which I will not do here at least for now. Accordingly, what the Bertrand paradox shows us is that given the nature of the electric sector, we do not need ten companies, but a minimum of two would give us the socially desirable outcome. Think of Bell and Nile beer-it is a duopoly relationship, but I doubt whether any of them has any market power.

This is the Bertrand paradox at work. ]

 

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http://www.observer.ug/index.php?option=com_content&view=article&id=34588&catid=38&Itemid=68

How Umeme made free money, but could face tougher times

Business

Tuesday, 28 October 2014 21:53

Written by Jeff Mbanga

• ERA recovers Shs 37bn in tax revenue
• Umeme makes an extra Shs 32bn on additional power sales
• Umeme says it could lose $50 million in seven years if ERA wins
• ERA claims Umeme Holdings share-sale violates license requirements

After years of raking in free money through inflated projections of some of its costs, Umeme is finding it difficult to make easy money, with the company in the process of making one last stand against government's proposals on how electricity tariffs - the power supplier's main cash cow - should be set.

The Observer has looked at dozens of documents – some of which are labeled 'strictly confidential' – that show the Electricity Regulatory Authority's dissatisfaction over how Umeme made free money, even when the company enjoyed a cool 20 per cent investment return over and above its costs.

That tension has boiled over to the Electricity Disputes Tribunal, where the two institutions have for the last two years contested the manner in which power tariffs should be set. The tribunal resumes tomorrow after a three-week break, and could have the matter resolved before the end of this year.

At the centre of the dispute are two items that ERA says Umeme has exploited to set higher power tariffs for its own financial benefit: the income tax and power purchases. As part of the agreement with government, Umeme is allowed to factor all its costs within the power tariff. The company sets the tariff by making projections of its costs based on what it spent the previous year. It sends that figure to ERA for approval.

However, ERA discovered that Umeme's submission of the amount it intended to pay in, for example, income tax for a given year, which it factored in the electricity tariff, was usually higher than what it reimbursed government, leaving Ugandans with the burden of paying higher power bills.

The tax numbers are startling. For example, in 2008, Umeme wrote to government and said it expected to pay a tax of Shs 12.1bn that year, which it wanted integrated into the power tariff. Instead, Umeme paid only Shs 2.9bn that year, with the rest of the money going to its coffers. The widest variance, however, came in 2011. In that year, Umeme said it would pay Shs 18.8bn in income tax.

But when URA finally received Umeme's income tax filings for that year, the company had only paid Shs 3.5bn, while the other Shs 15.3bn had been pocketed. By the time ERA added up the tax numbers from 2005, when Umeme's 20-year concession started, to 2011, Umeme had made an extra Shs 37.3bn in revenue from setting a higher tax within the power tariff. Umeme disputes these numbers, and says the figure is lower.

To be fair, Umeme cannot be faulted for failing to come up with the exact projection of its costs. However, the margin of error in the figures it presented was usually so wide it pointed to potential abuse by the power firm over the privilege it enjoyed.

On energy purchases, Umeme used almost a similar trick. ERA has found out that over the years, Umeme had purchased more power than it had projected. ERA has recovered up to Shs 32bn ($11.8m) from Umeme's accounts as a result of an increase in the energy purchase the company had made.

If ERA had not intervened, the authority said Umeme would have placed higher electricity tariffs and made Shs 351bn ($130m) through energy purchases between 2013 and 2018. Ugandans pay one of the highest power tariffs in Sub Saharan Africa. Domestic consumers pay a tariff of Shs 518 per KwH, which is $0.19, far higher than the Sub Saharan Africa average of $0.13.

Uganda produces about 800MW of power today, which is shared by less than 15 per cent of the population, far below the Sub Saharan average of 24 per cent, according to the World Bank. At the tribunal tomorrow, ERA, through its lawyers, Ligomarc Advocates, will push for amendments on Umeme's license, especially on how the tariff is set and the inclusion of a reconciliation mechanism if there is a difference in the financial figures of the income tax and energy purchases.

The reconciliation mechanism would offer ERA the power to always claw back any revenues that Umeme made outside what it had projected, and probably bring electricity tariffs down. The lawyers are expected to argue that the revenues Umeme is reaping from the income tax and energy purchases are not special benefits for meeting its performance targets.

"The use of projections without providing for reconciliation mechanisms results in an unjustified windfall for [Umeme] whenever the actual outturn exceeds the projection. This creates an additional and unjustified burden with the tariff to the consumer," Benon Mutambi, the chief executive officer of ERA, wrote in a witness statement, dated March 7, 2014.

Umeme is expected to make strong objections. The company says it is acting within its license requirements. If anything, Umeme warns of dire consequences if ERA continues to dip its hands into this revenue kitty. In its application to modify its licence to ERA, published in February this year, Umeme complained that ERA's continued pursuit of those extra revenues leaves it with two options: "forgo an equivalent amount of the capital investment, or borrow more money.

The combined impact of these modifications, in increasing Umeme's costs and reducing its revenues from future addition electricity sales, places a serious strain on Umeme's ability to raise sufficient debt finance, on commercially reasonable terms."

Life could turn out tougher for Umeme given that the escrow account, one of the company's fallback positions remains empty because the Uganda Electricity Distribution Company Limited is too broke to meet its part of the deal of financing that account.

In fact, Mutambi, in September 2013, accused Umeme for illegally tapping into the escrow account after the company argued that it had not recovered all its costs. He said Umeme had been compensated for its costs in the tariff, and therefore it was "erroneous" for the utility firm to withdraw money from the escrow account as that amounted to double recovery.

History

So, how did Umeme find itself with all these benefits? Why did ERA allow all the things it accuses Umeme of to go on for so long?

The answers can be traced back to the first few years of Umeme's operations in Uganda. Before Umeme came to Uganda, the energy industry had been mired in all sorts of scandals. The Uganda Electricity Board, then the managing body for the sector, was saddled with high debts, poor management, and political interference.

On top of that, UEB was the regulator, the generator, and distributor of power, roles that pointed to a conflict of interest. UEB was also choking from a huge number of redundant staff, so much so that when the body was unbundled into three separate companies in 2001, more than 300 staff were laid off. Power theft was at its most rampant, while a number of government institutions blatantly refused to clear their power bills.

Even the available power, which was exposed to theft, was not enough, with less than 5 per cent of the population getting access to electricity. Matters were not made any easier when AES, the American firm that was awarded the deal to build the country's biggest power plant, the 250MW Bujagali project, in 2001, pulled out two years later after being implicated in a corruption scandal back home.

The World Bank, which had agreed to finance the plant, also pulled out of the project. With the collapse of the Bujagali project, government was desperate to reduce its role in the energy sector and hand that task to a private investor.

In March 2005, Umeme was handed a 20-year concession to be Uganda's main power distributor. Umeme had just been created 10 months earlier through a consortium between Eskom Enterprise Limited PTY and Globeleq (Conco) Holdings of Bermuda.

In 2006, Uganda faced its biggest power shortage. A long spell of drought led to a drop in water levels at Lake Victoria, where much of the power generation was taking placing. Power generation dropped by more than a half. A schedule to ration power supply was instituted. Some areas went an entire day without power.

A number of factories that could not stand this madness relocated to other countries where power was available. The power problem almost brought Uganda's economy to its knees. It is at that point that Umeme threatened government that it would terminate the concession and leave the country if the power shortage, which threatened its revenue streams, continued.

Uganda was in a desperate corner. The country made some concessions to Umeme, which, it now turns out, the company would later use to its advantage.

Special provisions

With its business at risk, Umeme proposed some amendments to its supply license back in 2006. Umeme requested government to give it the freedom to make forecasts on energy purchases, which it would factor in the power tariff.

The deal was simple: if government failed to generate enough power that Umeme needed to supply and make its return on investment, the company would be compensated. However, if power generation improved beyond what Umeme had projected, the consumers would be relieved through lower tariffs. Government agreed to the conditions.

ERA, by that time, was barely five years old. The regulation of the sector was weak. And they were about to get a painful lesson from a company that had just received more than enough freedom to set power tariffs.

Power supply improves

Between 2006 and 2010, Uganda was in a race to save its economy from buckling under the weight of less hydroelectricity. The country invited companies such as Aggreko, Jacobsen and Electromaxx to produce the far more expensive thermal power. The companies demanded for subsidies before they could switch on their generators.

While Uganda was looking for money to deal with its energy problem, the World Bank's Multilateral Investment Guarantee Agency was channeling millions of dollars to Umeme through Globeleq's office in Bermuda. Bermuda, an island dripping with all sorts of illicit financial flows, is known to be a tax haven. Companies, some dubious, open up offices there mainly to pay lower tax on their investments.

There is no evidence, however, that pointed to Globeleq engaging in any illicit financial activities while it channeled money to Uganda. In October 2009, Globeleq Holdings changed its names to Umeme Holdings Limited which moved its head office to a nearer tax haven, Mauritius, a country that has a double taxation treaty with Uganda.

Thereafter, the United Kingdom's Commonwealth Development Corporation, which was the main shareholder in Globeleq, transferred its stake to Actis, a private equity firm, to take over Umeme Holdings Limited. Heavy rains were back in Uganda, which spurred electricity generation, while other smaller hydro power plants had been launched. The 250MW Bujagali power project had just been revived and approved.

The situation had normalised. Things had turned for the better that government, in 2009, set up a five-man committee, led by the president's brother, General Salim Saleh, to look at Umeme's investments in Uganda. The team was suspicious of Umeme's investments and wanted that verified, among other things.

(That report, which had a damning assessment of Umeme, would later be criticised by some government officials, and shelved. Members of Parliament would have the same suspicions over Umeme and have said as much in another disputed 2013 report about the energy sector. )

In 2010, government decided to stop the special provisions that Umeme enjoyed. That decision would lead to a long protracted battle.

Payback time

When government decided to end the special provision period in 2010 in order to reconcile the projections Umeme made, and also change the way the tariff was set, the company decided to block that move. Umeme, according to the documents The Observer has seen, first pointed to the agreements it signed with government.

"Some of those agreements contain provisions which restrict the Authority from amending or modifying the Tariff code regulations in a way that affects the financial position which Umeme enjoyed," the company wrote to ERA in 2012, and even threatened to terminate its license if the regulator got its way.

Umeme used some numbers to prove its point. The company argued that for every $1m of investment that is not included in the tariff, it would lose $31,000 of revenue each month. For an annual capital programme, it added, this equated to just under $1m per month.

"In simplistic terms, the amendment, as proposed by the Authority would reduce Umeme's free cash flow by approximately $50m over the next seven years. This would reduce Umeme's ability to make capital investments and would result in Umeme being in breach of multiple financial covenants under its loan agreement with the IFC (International Finance Corporation, the finance arm of the World Bank).

The company added: "Umeme's view is that the disadvantages it would suffer based on some of the proposed modifications outweigh the benefits of the public interest."

ERA would not relent. Instead ERA sought a different way of setting the tariff – pegging the rate to inflation, the exchange rate and fuel prices. Umeme also had reservations about this method. And yet, Umeme's resistance is not the only problem that the regulator faced.

ERA, it now appears, suspected that Umeme was not just inflating its tax and energy purchase projections; The company was doing the same with its other costs. In 2012, a consulting firm from South Africa, Parsons Brinckerhoff Africa (PTY) Ltd issued a report for ERA that showed how Umeme was very likely to balloon some of its future costs, which it intended to pass on to consumers through the tariff.

For example, according to the report, Umeme said it would spend Shs 57.4bn in staff costs for the year 2015, and yet PB's opinion is that the figure would be Shs 42.3bn. Umeme also said it would spend Shs 15.1bn in repair and maintenance costs in 2015, and yet PB says the amount will actually be Shs13.9bn. Umeme objected to the report's findings.

It might not be easy for ERA to pin Umeme on these numbers. The authority has already complained that Umeme was reluctant to send its financial data to the authority whenever a verification exercise took place.

In September 2013, ERA's boss Mutambi, wrote to Umeme assuring the firm that "The failure/refusal by Umeme Limited to submit monthly statistics which are vital data for use in reconciliations impedes and inhibit the Authority's mandate to prescribe the end user electricity tariffs."

Tough times ahead?

If Umeme's half year results to June 2014 are anything to go by, then perhaps the company could face some tough time ahead. The company recorded a drop in net profit of Shs 38.2bn ($14.1m) in the first six months of 2014 compared to Shs 47.3bn ($17.5m) over the same period last year.

Yet, these numbers have done very little to dampen the mood on the Umeme counter at the Uganda Securities Exchange. This point was made clear in the first two weeks of this month when investors dashed for the company's share, driving the price to a new high. Deals worth billions of shillings were being inked in a day, something that is rare at the securities exchange.

For example, on the second day of October, an investor bought four million Umeme shares at a deal worth Shs 2bn (about $740,000). Five days later, an even bigger stake was bought. An investor cashed in Shs 21bn (just more than $8 million) and walked away with slightly more than 42 million shares of Umeme.

And less than a week later, a block of 14 million Umeme shares changed hands in a deal worth Shs 7.17bn ($2.6 million). These deals saw Umeme's share price shoot to a new high of Shs 510, up from its Initial Public Offer price of Shs 275 two years ago.

A top chief executive officer of a brokerage firm told The Observer that it was likely that investors were targeting the stock in anticipation of the half year dividend of Shs 9.4 that the company will be issuing a few days before Christmas. What the investors might not know is that ERA has also written to Umeme over the manner in which Umeme Holdings divested its stake, which led to a new company, Investec, to become a majority shareholder.

ERA says that by Umeme Holdings relinquishing its majority stake, it has violated the terms of its licence since the company might not be able to make critical decisions about the sector. That battle over Umeme and ERA is quietly picking up storm, with meetings taking placing between the two institutions.

For now, the attention is on the power tariff, the power supplier's cash cow, where ERA intends to bite a sizeable pound of Umeme's flesh.

je...@observer.ug

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Bwanika Nakyesawa Luwero

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Bwanika Nakyesawa Luwero

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