Welcome to the Umeme Integrated Annual Report 2017 At Umeme we supply electricity and related services our customers need Strategic Report in a safe, reliable and sustainable way About Umeme Our Corporate Profile 1 across Uganda. Background Information 2 Our Business 4 The Board of Directors 8 We are listed on the Uganda Stock Senior Management Team 14 Business Highlights 17 Exchange and the Nairobi Stock Chairman’s Report 22 Exchange. Managing Directors Report 26 Our Financial And Business Performance Our performance in 2017 Financial Review 28 demonstrates the value of a Operational Performance Review 32 business built on core strengths and Governance and Risk Management Corporate Governance Report 56 a commitment to providing long- Risk Management 64 term value for our shareholders and Financial Statements meeting the needs of our customers. Directors Report 68 Statement of Directors’ Responsibilities 71 Report of the Independent Auditor 72 This Report, addressed to Umeme’s Statement of Profit or Loss 78 shareholders, details Umeme’s Statement of Comprehensive Income 79 Statement of Financial Position 80 performance in 2017. Statement of Changes in Equity 81 Statement of Cash Flows 82 Notes to the Financial Statements 83 Supplementary Information 140 Shareholder Information Chairman’s Letter to Shareholders 147 Notice to the Annual General Meeting (AGM) 148 Proxy Form 150 Our Corporate Profile 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 KPMG CUSTODY AND Certified Public Accountants REGISTRAR SERVICES 3rd Floor, Rwenzori courts UGANDA LTD. Plot 2 & 4A Nakasero Road 12th Floor DTB Centre P. O. Box 3509, Kampala, Uganda Kampala Road Kampala, Uganda MAIN BANKERS STANBIC BANK UGANDA STANDARD CHARTERED LIMITED BANK UGANDA LIMITED Corporate Branch, Plot 5 Speke Road Crested Towers P. O. Box 7111, Kampala, Uganda P. O. Box 7131, Kampala, Uganda BARCLAYS BANK OF Citibank Limited Centre Court, Ternan Avenue UGANDA LIMITED Plot 4 Hannington Road P. O. Box 7505, Kampala, Uganda P. O. Box 7101, Kampala, Uganda DFCU BANK LIMITED Impala House Plot 13 Kimathi Avenue 2121 Pennsylvania Avenue, N.W P. O. Box 70, Kampala, Uganda Washington D.C. 20433 United States of America STANDARD CHARTERED BANK 6th Floor, 1 Basinghall Avenue London EC2V 5DD United Kingdom Umeme Limited Integrated Annual Report 2017 1 1. Background Information Who We Are Administrative Structure Umeme Limited is Uganda’s main electricity distribution company, listed The Company delivers its business on the Uganda Securities Exchange and mandate through a decentralised on the Nairobi Securities Exchange. structure supported by the corporate The Company operates a 20-year headquarters. The business is divided electricity distribution concession into 4 regions, composed of 25 effective 1st March 2005, from the districts. In carrying out its operations, Government of Uganda. After the each district, each district is led by a electricity sector reforms in 1999, manager responsible for delivery of Uganda adopted a single buyer model, services to customers. For network where Uganda Electricity Transmission assets management, the network Company Limited (UETCL), the asset management function is divided System Operator, is responsible for into 2 major areas which are further the purchase of electricity from all subdivided into 13 engineering areas. Independent Power Producers; the import and export of electricity. UETCL is Umeme’s sole supplier. Key Shareholder Information Umeme is licenced to distribute and supply electricity to customers. This Umeme Limited is a public company mandate involves; the operation, listed on the Uganda Securities maintenance and upgrade of electricity Exchange (USE) and on the Nairobi distribution infrastructure, electricity Securities Exchange (NSE). The retail and provision of related services. National Social Security Fund (NSSF) The sector is regulated by the Electricity owns 23% of the shares in issue. Regulatory Authority (ERA), whose mandate include setting operating The top 10 shareholders are listed on standards and appropriate end user page 119 of this report. tariffs. Umeme Limited 2 Integrated Annual Report 2017 Our Vision, Mission and Values Our Vision Our Mission Availability of electricity is one of the key drivers of the socio- economic development of any country. The energy sector “To supply our customers with has been identified as one of the critical drivers of Uganda’s safe, reliable electricity through pursuit for transformation from low to middle income status. an efficient distribution network Approximately 16% of households in Uganda are connected and with passionate people, while to the electricity grid while 21% of households use electricity as a source of energy. Umeme being the major distributor in delivering sustainable shareholder Uganda is strategically positioned to play a key role in ensuring value”. that the Government objective of attaining middle income status by 2020 through increasing access to 30% and creating At the core of our business mandate is to supply safe and jobs through fostering industrialization is realised. reliable electricity to our customers, through an efficient network and with passionate people. We aim to attract, Our vision is to drive positive development of communities develop and retain a passionate and motivated work force. through sustainable, safe and efficient distribution of electricity Efficiency of distribution operations is key to the sustainable and is summarised as follows: growth of the electricity industry, while ensuring affordability of electricity across the different customer categories. Umeme is accountable to its shareholders and other Powering communities, providers of capital, who require sustainable financial and business and industry for business operations. Umeme exists to contribute to national development goals a prosperous Uganda and objectives, and continuously aim to understand and satisfy the expectations of our stakeholders including the Government of Uganda, development partners, investors, lenders and customers among others. Our Values Our values define our culture and the way we do business. We place the Safety of We act with We provide an our employees and the Integrity, fairness exceptional Customer public at the centre of and transparency in Service experience our actions; all our dealings; We deliver our services and value through We deliver our services Innovation and the zeal to succeed, continuously as one Team; raising the bar on our performance. Umeme Limited Integrated Annual Report 2017 3 2. Our Business Umeme Limited is licenced to distribute and supply electricity to customers within its authorised footprint in Uganda. It constructs, operates, and maintains the distribution network. The distribution network comprises of distribution electrical lines at medium and low voltage, substations, distribution transformers, and other network infrastructure. The Company also supplies electricity to customers including provision of additional products and services like meter reading, bill delivery, outage management and complaint resolution. Our Journey $190m Debt Finance Subsequently the IFC Loan - $25m UEB Unbundled Company was able to Talks start to Investments in the disband UEB UEB was unbundled into invest 80m annually in the network was at a high of The strategic plan was three companies distribution network and $80m from $52m and reviewed to address the *UEGCL; UETCL; and, a downward trend in the Losses registered at 35% key problems in the sector 2000 UEDCL. 2005 2012 energy losses. 2017 Regulator is born Umeme is Born Listed on stock Tripled The the sector regulator, Electricity distribution exchange Customers 1999 the Electricity Regulatory 2001 system is awarded to 2009 5000 shareholders buy 2013 280,000 customers in Authority (ERA) Umeme (ESKOM & into Umeme’s floated 2005. Increased customer becomes operational CDC), under a 20yr 622,378,000 shares base to 1,125,291 concession which constituted customers in 2017. *The Uganda Electricity Generation agreement signed in 38.6% of the Company Ltd (UEGCL); The Uganda May 2004 with company’s issued Electricity Transmission Company Ltd UEDCL. share capital upon (UETCL); and, The Uganda Electricity listing to both local Distribution Company Ltd (UEDCL). and foreign investors. Our Value Chain Human Finance ICT Customer Change Stakeholder Resources Relationship Management Management Management Support functions Umeme Limited 4 Integrated Annual Report 2017 Umeme Limited Integrated Annual Report 2017 5 Our Business cont’d Stakeholder stakeholders to assist in resolving Sensitisation company and sector issues. For instance Engagement the Government of Uganda, through In 2017, the Company implemented a the security agencies, judicial system customer outreach program to sensitise and local leaders, has been supportive the communities about the dangers Umeme defines a stakeholder as any in the drive to reduce energy losses and of power theft and illegal connections, individual or entity that has interest vandalism of the network infrastructure. which had led to loss of several lives in in the Company and can affect or is the Eastern region. The pilot campaign affected by the Company’s performance. Umeme continues to