Umeme Limited has issued a profit warning to shareholders, cautioning that it expects a net profit decline of up to 60% for the year ending 31 December 2020, compared to net earnings for the year ended December 2019. A notice by the electricity distributor credits the reduction in profit to the effects of COVID-19, regulatory lags and a suspension of the state’s free connections policy. In 2019, the company recorded a net profit of Ushs 139 billion ($37.88 million)
“The reduction in profitability is attributed to the effects of the Covid-19 pandemic, regulatory lag, and suspension of the Government’s free connections policy.”
The company, therefore, urges its shareholders and potential investors to exercise caution while trading its stocks.
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Suspension of Subsidized Connectivity Program a Blow to Umeme Limited
In June 2020, Umeme Limited paused connections under the Electricity Connections Policy (ECP), a 10-year government-subsidized last electricity connectivity program, after the government failed to pay $25 million for 105,412 connections. Umeme also called for reforms in the ECP to allow people who can pay for connections to access the service instead of waiting for the government.
The original policy which we have proposed to be revised didn’t put a safety valve saying if you can afford, do not wait. There is a likelihood that they [government] will open that valve such that those who can, and there are many who can, should not wait for government. They should pay.
Umeme Limited MD Selestino Babungi.
Under ECP, customers pay Ushs 20,000 ($5.5) for inspection, while the government finances the remaining connection fees, targeting to reach up to 300,000 Ugandans annually. Connection fees range between Ushs 98,000 ($26.7) to Ushs 2 million ($545).
In July 2020, the government suspended new connections under ECP as COVID-19 forced the state to realign its priorities and financial resources. According to the Daily Monitor, the suspension of ECP dropped applications for new electricity connections by 90% since December 2020.
Nevertheless, Umeme is optimistic that the recovery of the business environment and the government’s response to the pandemic will support better performance for FY 2021. The optimism is also likely supported by the ECP’s resumption in March 2021, with revised terms that allow those who are willing and able to pay for the services in cases where the government lacks resources to implement the policy.
Umeme Limited is listed on both the Uganda Securities Exchange (USE) and the Nairobi Securities Exchange (NSE).
