The Impact of Private Equity in Emerging Markets Case Study: Umeme ()

Umeme’s The Company Story

Umeme Limited was awarded a 20-year concession to operate, maintain and manage Uganda's electricity network after the Government of Uganda, sup- ported by the World Bank, unbundled the power sector into generation, trans- mission and distribution sub-sectors. Essentials Actis took over Umeme in 2009. network into an asset able to serve Uganda’s goals and accommodate its growing need Company: Umeme, www.umeme.co.ug Umeme’s distribution network consists of for energy (with demand rising at a rate of roughly 20,000 kilometers of high- and low- 10% each year) required a total overhaul. Region: Africa voltage overhead lines concentrated in the southeast of Uganda, between the cities of Financially, the company faced two additional Country: Uganda , and Jinja. Years of under- challenges: how to connect more customers Sector: Energy investment and Umeme’s tropical climate and to the grid in a country where only 7% of the fast-growing vegetation led to a dilapidated population (roughly 2.29 million people) had Business focus: Distribution of electrical infrastructure. Simply put, the poles were in access to electricity, and how to ensure the power to businesses and households a bad, unsafe condition. Transforming the electricity they did access was affordable. GP: Actis, a pan-emerging markets private equity investor committed to sustainable private sector growth (www.act.is) The Role Played by Date of investment: 2009 Private Equity Investment: Actis owns 100% of Umeme Actis viewed the investment in Umeme as an initiatives. These included a safety campaign Impact Highlights opportunity to acquire a controlling stake conducted via radio bulletins, talk shows and With support from Actis, Umeme has in a monopoly electricity-supply business print advertisements, as well as the creation of a connected more than 120,000 Ugandans in Uganda. To realize its investment, Actis national toll-free contact center to report service has pursued a four-part strategy to create interruptions and damaged or unsafe equipment. and 30 rural electrification schemes to its value and drive improvements in Umeme. electrical grid Finally, Actis helped Umeme secure a US$25 First, Actis leveraged its broad network of profes- million loan from IFC to help finance the Umeme has worked hard to bring down its sionals to strengthen Umeme’s management refurbishment program. This was no small contribution to the electricity tariff: Umeme and corporate governance. Actis appointed task, as historically there has been a shortage currently makes up less than 30% of the total a new Managing Director and four external of long-term capital available to fund power end-user tariff non-executive directors, including a respected projects worldwide. Umeme had to offer a Ugandan industrialist and entrepreneur as compelling investment thesis and tangible Actis, through Umeme, has invested over Chairman. In addition, an ESG board committee development impacts to secure this loan. US$100 million in Uganda’s electricity was established to ensure high-level focus on distribution infrastructure for network ESG-related issues, particularly safety. Umeme The Outcome improvements since 2005 recruited a licensed safety awareness training Since 2005, Umeme has added more than provider from the to serve as 100,000 new customers and is currently con- The number of electricity-related public the company’s Health, Safety and Environmen- necting over 50,000 new customers every year. fatalities, once common, has fallen as a result tal specialist and to integrate safety best prac- The company has connected over 30 rural of a combined approach of an extensive tices throughout the company’s operations. electrification schemes to the Umeme grid, school safety program and the systematic Second, Actis drove operational improve- and is working to help the government meet replacement of over 90,000 deteriorated ments in Umeme and accelerated network its goal to have more than 30% of the popula- electrical poles refurbishments; Umeme’s network will be tion connected by 2030. By implementing a substantially upgraded by the end of 2012. new billing system and improving the network’s performance, Umeme has reduced energy losses Third, Actis facilitated improvements in Umeme’s from 38% in 2005 to 30% in 2010, leading to community outreach and communications a long-term reduction in power sector costs.

September 2011 The Company View

“Our priority at Umeme is to look constantly for ways to improve customer service and safety, while increasing the reach of the energy supply to the people of Uganda. Actis’s involvement has helped to systemize our safety processes and has also significantly improved our management systems, corporate governance and “Umeme now boasts an impressive customer growth operations, helping us to build a record. Its commitment to improving public safety is positive trajectory of customer growth and satisfaction.” demonstrated by the significant drop in fatalities and the improvements to the network.” David Grylls, Director, Actis “Actis understands our twin goals of extending energy supply and focusing on customer service and safety. Its Beyond the Bottom Line involvement has been Umeme has demonstrated its commit- fundamental in helping ment to having a positive impact on the community it serves through a number us to achieve these of projects. At the most basic level, since goals.” Actis’s investment, all workers now use Personal Protective Equipment, and over Charles Chapman, 90,000 sub-standard poles have been CEO, Umeme replaced. Previously unsafe sub-stations are now boxed in, and traditionally un- insulated overhead conductors are being replaced by much safer aerial bundle conductors. to help victims of the Kampala bombing in 2010 Umeme safety experts continue to visit schools voluntarily gave over 36 liters of blood. throughout Uganda to educate children and youth on electrical safety. When poles and live wires do Importantly, Umeme’s investment activities have fall down, members of the public are now quick to acted as a stimulant to the Ugandan economy. call the 24-hour emergency toll-free number. While To date 1,000 new jobs have been created for local previously it could have taken half a day before the Ugandan firms as they find work from Umeme. area around the pole was made safe, response times Growth in Total Customer Connections have been drastically reduced; 400 as of 2010 the response time was less than 30 minutes. 380 Umeme is also a pioneer 360 in corporate social respon- 340 +34% sibility efforts in Uganda. It donated UGX10 million 320 (US$5,000) for humanitar- (in thousands) 300 ian relief efforts after the Bududa landslides and Number of Connections 280 Umeme employees anxious 2005 2006 2007 2008 2009 2010 Year

The Emerging Markets Private Equity Association (EMPEA) is an independent, global membership association whose mission is to catalyze private equity and venture capital investment in emerging markets. EMPEA’s 290+ members include the leading institutional investors and private equity and venture capital fund managers across developing and developed markets. Contact us at www.empea.net Email: [email protected] Phone: +1 202 333 8171