Investing For Socio-economic Transformation ANNUAL REPORT 2019 ANNUAL REPORT 2019 REPORT ANNUAL UMEME LIMITED About the Umeme 2019 Annual Report Umeme is pleased to report to shareholders and As delegated by the Board, the Audit Committee stakeholders on the performance of Umeme for oversees the financial reporting and internal control the year ended 31 December 2019. systems, external audit, internal audit and risk management framework. The Company applies the In this report, we review our financial, operational, International Financial Reporting Standards (IFRS) economic, social, environmental and corporate and complies with the Capital Markets, Listing governance framework and performance for the Obligations and the Companies Act 2012. year ended 31 December 2019 and other material developments up to the date of the publication of The Board is accountable for the integrity and this report completeness of the Annual Report and any additional information. The Board approved the The report provides insights to the future of the annual financial statements on 20th March 2020. electricity supply industry and key material issues that the directors consider likely to impact on our ability to meet our targets and achieve good long- range prospects and business sustainability. Contents 1. List of Acronyms and Abbreviations iv 2. Strategic Report 2 2.1 Our Business 2 2.1.1 About Umeme Limited 2 2.1.2 Uganda’s Electricity Generation Capacity 3 2.1.3 Our Vision, Mission and Values 4 2.1.4 Administrative Structure 5 2.1.5 Key Shareholder Information 5 2.2 Our Distribution Footprint 6 2.3 Corporate Information 8 2.4 Performance Highlights at a Glance 9 2.5 Business Review 10 2.5.1 Key Performance Statistics 10 2.5.2 Business Efficiency and Operational Performance Review 11 2.5.3 Financial Performance Review 16 3. Chairman’s Report 18 4. Managing Directors Report 22 5. Corporate Governance 26 5.1 The Board of Directors 26 5.2 The Management Team 32 5.3 The Corporate Governance Statement 36 5.4 The Governance Structure 36 5.5 Board Committees 39 5.6 Board Meetings 41 5.7 Principal Risks and Uncertainties 43 6. Business Sustainability 46 6.1 Economic Sustainability 47 6.2 Environmental Sustainability 52 6.3 Social Sustainability 53 7. Financial Statements 63 7.1 Report of the Directors 64 7.2 Statement of Directors’ Responsibilities 67 7.3 Independent Auditor’s Report 68 7.4 Statement of Profit or Loss 73 7.5 Statement of Other Comprehensive Income 74 7.6 Statement of Financial Position 75 7.7 Statement of Changes in Equity 76 7.8 Statement of Cash Flows 77 7.9 Notes to the Financial Statements 78 7.10 Supplementary Information 141 LIST OF ACRONYMS 1 AND ABBREVIATIONS AGM Annual General Meeting BST Bulk Supply Tariff Capex Capital Expenditure CGU Cash Generating Unit DOMC Distribution, Operating and Management Costs EBITDA Earnings Before Interest, Tax, Depreciation and Amortisation EIR Effective Interest Rate ERA Electricity Regulatory Authority ESG Environmental, Social and Governance FVOCI Fair Value through Other Comprehensive Income FVTPL Fair Value through Profit or loss GDP Gross Domestic Product GoU Government of Uganda HVE Total Energy Purchased IAS International Accounting Standards IFC International Finance Corporation IFRS International Financial Reporting Standards IFRIC International Financial Reporting Interpretations Committee ISA Internal Standards on Auditing IT Information Technology LED Light-Emitting Diode LV Low Voltage MV Medium Voltage NSSF National Social Security Fund OBA Output Based Aid OCI Other Comprehensive Income Opex Operating Expenditure PSP Power Supply Price P&L Profit and Loss PV Present Value RQ Reconciling Amount SHE Safety, Health and Environment SMT Senior Management Team SPPI Solely Payment of Principal and Interest TOU Time of Use UEDCL Uganda Electricity Distribution Company Limited UETCL Uganda Electricity Transmission Company Limited URA Uganda Revenue Authority Ushs Uganda Shillings US$ United States Dollars VAT Value Added Tax WHT Withholding Tax WIP Work In Progress IV Umeme Limited Annual Report & Financial Statements 2019 STRATEGIC 2 REPORT Our Business About Umeme Limited Umeme Limited is Uganda’s main electricity distribution As an electricity distributor, Umeme is licensed to Company, listed on the Uganda Securities Exchange and distribute and supply electricity to customers operating cross listed on the Nairobi Securities Exchange. between 33kV and 240 volts. This mandate involves; operation, maintenance and upgrade of electricity The Company operates a 20-year electricity distribution distribution infrastructure, electricity retail and provi- concession from the Government of Uganda that took effect sion of related services. The sector is regulated by the on 1st March 2005. After the electricity sector reforms Electricity Regulatory Authority (ERA), whose mandate in 1999, Uganda adopted a single buyer electricity sector includes setting operating standards, sector monitoring model, where Uganda Electricity Transmission Company and setting appropriate end user tariffs. Limited (UETCL) is the System Operator, responsible for the purchase of electricity from all Independent Power Producers, import and export of electricity and being Umeme’s sole supplier. Government of Uganda Electricity Regulatory Authority (ERA) Licence for Ownership UEGCL UETCL Distribution Supply Support UEDCL Licence Licence Agreement Trans Bujagali Operator Lease Agreement System Other IPPs Operator (Hydro / thermal) Power Sales Agreement Kenya Export / Import Tanzania Customers Generation Transmission Distribution 2 Umeme Limited Annual Report & Financial Statements 2019 Uganda’s Electricity Generation Capacity The Country had an installed capacity increased from 984 MW in 2018 to 1,253 MW following the commissioning of Isimba Hydro Power Plant (I83 MW) in March 2019 and other mini hydros. Karuma Hydro Power Plant (600 MW) is expected to achieve full commissioning by December 2020, increasing the installed capacity to 1,852 MW. Uganda Installed Capacity MW MW Years Uganda’s Electricity Value Chain Generation Source Installed Transmission Distribution (No.) Capacity (MW) Hydro (68%) 854 Mini hydro (16%) 201 UETCL Domestic Solar (4%) 50 Umeme (94.3 %) Supply Thermal (4%) 50 Co-Generation (8%) 98 Exports UEDCL (1.6%) Total 1,253 Imports 7 Others (4.1 %) Source: MEMD, UETCL and ERA Umeme Limited 3 Annual Report & Financial Statements 2019 Strategic Report - Our Business Our Vision, Mission and Values Our Vision Powering communities, business and industry for a prosperous Uganda Our Mission To supply our customers with safe, reliable electricity through an efficient distribution network and with passionate people, while delivering sustainable shareholder value. Our Aspiration Our Values Availability of electricity is one of the key drivers of the socio-economic development of any country. The energy sector has been identified as one of the critical drivers of Uganda’s pursuit for transformation from Safety low to middle income status. The electricity penetration rate is estimated at 25% for on-grid and 26% for off-grid solutions as per the household survey conducted by Uganda Bureau of Statistics. Umeme being Customer Uganda’s major distributor, is strategically positioned to play a key role in ensuring that Service the Government objectives of increasing electricity access, fostering uptake of new generation capacity and the drive to sustainable and affordable end user tariffs are achieved. Integrity We aspire to be the leading electricity distribution utility, supplying safe and reliable electricity for the economic transformation of Uganda. As an employer of choice, adopting technological solutions and financial capital, we aim to deliver sustainable Team shareholder value. Work Innovation 4 Umeme Limited Annual Report & Financial Statements 2019 Strategic Report - Our Business Administrative Structure The Company delivers its business mandate through a decentralised structure supported by the corporate headquarters. For the retail operations, the business is divided into 4 regions, composed of 25 districts and 21 service centres. Each manager is responsible and accountable to deliver the business deliverables in their respective areas. For the network assets management, networks infrastructure is divided into 2 major areas, further subdivided into 13 engineering areas. Key Shareholder Information Umeme Limited is a public Company listed on the Uganda Securities Exchange (USE) and cross listed on the Nairobi Securities Exchange (NSE). The National Social Security Fund (NSSF) owning 23% of Umeme Limited, is the current largest shareholder. The top 10 shareholders are listed on page 107 of this report. Umeme Limited 5 Annual Report & Financial Statements 2019 Our Distribution Footprint Our Electricity Distribution Footprint (11kV and 33kV, Distribution Lines) 6 Umeme Limited Annual Report & Financial Statements 2019 Our Service Centres Umeme Limited 7 Annual Report & Financial Statements 2019 Our Corporate Information Principal Place of Business and Company Secretary Registered Address SHONUBI, MUSOKE & CO ADVOCATES UMEME LIMITED SM Chambers Rwenzori House, Plot 14 Hannington Road Plot 1 Lumumba Avenue P. O. Box 23841, Kampala, Uganda P. O. Box 3213, Kampala, Uganda Tel: 0312 360 600 Email: [email protected], www.umeme.co.ug Auditors Share Registrars ERNST AND YOUNG CUSTODY AND Certified Public Accountants REGISTRAR SERVICES Plot 18 Clement Hill Road UGANDA LTD. Shimoni Office Village 12th Floor DTB Centre P.