Every time a Ugandan household tops up its prepaid electricity metre, part of the payment buys no power at all.
It is a down payment on a transformer, turbine or substation that has not been built. Where that money goes next is harder to say than it should be.
State-owned power companies often cannot borrow quickly, because loans to public enterprises need approval from the Ministry of Finance and sometimes Parliament.
So, the Electricity Regulatory Authority (ERA), which sets the price per unit customers pay, lets them add an investment charge to the tariff.
The money must be spent on what was promised, and because customers, not investors, provide it, the companies may not profit from it.
‘Don’t call this your money. You didn’t borrow it. You didn’t sell a car. This is money that the consumer is advancing,’ says Ziria Tibalwa Waako, ERA’s chief executive.
Charging customers a return on assets they have already paid for would be absurd, she says.
‘We cannot inconvenience the same consumer who has provided the money that you have used to invest, again, to pay you a return. For what?’ she wonders.
ERA looked at Britain, America, Kenya and the Philippines and found almost nobody else does this.
‘Everyone you would ask will tell you, you mean you give investors money upfront before they actually implement projects?’ says Innocent Naswali, who manages regulatory finance at ERA.
But Uganda, he argues, has little choice, because a failing transformer cannot wait months for a loan approval.
‘That transformer is not waiting for you to go through that process,’ he says, adding: ‘Our problems are unique.’
The arrangement works only if the money is kept separate, spent quickly, and recorded the same way by every company. None of these has reliably happened.
Paid for, not built
Start with spending. The Uganda Electricity Distribution Company (UEDCL) took over the local power network from Umeme, a private operator, in April 2025.
According to the Auditor-General’s audit of UEDCL, the company asked ERA to approve $117.6m of investment for 2025. The regulator approved $74.1m.
By the end of June 2025, $44.8m had been collected from customers, mostly by Umeme before it left.
Yet work on the six main types of investment, such as new lines, transformers, substations and new connections, was between 0 percent and 5 percent complete.
The auditors blamed procurement, the government’s slow rules for buying goods and hiring contractors.
Three months is a short time to judge a company that had just taken over a network serving 2.7m customers.
But it shows the gap at the centre of this article: money collected and equipment not installed.
Then there is the bookkeeping. No accounting rule covers money received before the thing it pays for exists, so each company made up its own approach.
Some recorded the money as income in the year it arrived. With no matching cost that year, it showed up as profit.
‘You find one is reporting a profit of Shs100 billion because you have provided investments worth Shs100b in the tariff,’ says Naswali.
Waako says: ‘Someone cannot point at any capital that they have brought into the system that year, but proudly goes and tells [the taxman] that I have made the profits.’
Umeme did the opposite. It treated customer-funded assets as not its own and recorded them as expenses, so vehicles worth billions of shillings never appeared in its list of assets.
The regulator thinks that gave a false picture. ‘You are using this asset to earn revenue,’ says Naswali, adding: ‘Therefore you are misleading the public when you say the 6b [shillings of vehicles] is not part of your assets.’
Two state companies also disagree. The transmission company records the investment money it pays the state generator as a cost straight away, while the generator records it as money owed until the work is done.
Side by side, the two sets of accounts do not match. This matters because records decide money.
When Umeme’s 20-year contract ended, it was entitled to be repaid for investments customers had not yet covered through their bills.
Umeme put the figure at about $234m. The Auditor-General recommended $118.4m, with a further $9.8m held back for checking. Parliament agreed to pay that and no more.
The gap of more than $100m came from working out, from the records, how much Umeme had invested and how much customers had already repaid.
When records cannot show who paid for which asset, there is no agreed answer, and the public pays for the argument.
The generator’s dilemma
The Uganda Electricity Generation Company (UEGCL) shows how hard this is, even for a company that tries.
In 2023, it took back the Nalubaale and Kiira dams at Jinja from Eskom, a South African company that had run them for 20 years.
Nalubaale opened in 1954, and it shows. UEGCL plans to spend about Shs679bn repairing it, Kiira and two smaller plants, and ERA lets it collect part of that through the tariff.
The trouble starts with the bill. The investment money arrives inside the same monthly invoice UEGCL sends the transmission company for electricity.
‘The assumption would be that all this is a sale. It is a tariff. You are selling energy,’ says Susan Taffumba Isubikalu, UEGCL’s finance chief, adding: ‘How then do we segregate this invoice? That is where the challenge started.’
UEGCL decided the money should not count as income until a project was finished, since until then it had not delivered what customers paid for.
Accountants call this deferred income, which is cash received now, recorded as a debt, and counted as earnings only when the job is done. UEGCL, for instance, collects Shs30bn for projects in a year and finishes Shs12bn worth. The remaining Shs18bn sits on its books as money owed to customers.
But in a year when the company makes a taxable profit, she says, that unspent money can still be caught when tax is calculated, putting Shs5.4bn, or 30 percent of it, within the taxman’s reach.
‘From a cash perspective, you have already been reduced in terms of your ability to implement that project,’ she says, adding: ‘You will not be able to meet that obligation whether you like it or not.’
Delays make it worse. Public buying rules are slow, large contracts need the Solicitor-General’s approval, suppliers renegotiate and prices rise.
By the time the contract is signed, the pot is smaller and the job is more expensive. The company must then ask the regulator for more money or put up with breakdowns.
And politicians have no patience for accounting. ‘When you engage with the MPs, they don’t want to know all these dynamics. They just want to see power,’ she says.
Locking the till
The regulator’s answer is a set of draft rules. Any company, public or private, that collects investment money before building would have to move it into a separate bank account used only for approved projects. Accountants call this ring-fencing.
Money would go in every quarter, and the account must pay a competitive interest rate so the money grows while tenders drag on, cushioning some price rises.
Suppliers would be paid only from that account, so every shilling can be traced. Companies that dip into it for other things, such as salaries, would pay a penalty.
Emergency use is allowed, but only when many customers lose power. Unspent money can go to another approved project or be deducted from future bills.
Companies complained that ERA was taking money they relied on for day-to-day running costs. ‘We are saying this money is meant for an investment,’ says Naswali, ‘not for your working capital.’
Global accounting rules have moved the same way. In May, the body that writes international accounting standards published IFRS 20, a new rule for companies whose prices are set by a regulator. It takes effect in 2029, though firms may adopt it earlier.
In simple terms, money collected now for a service delivered later must be shown as a debt to customers, and that debt grows the longer the company takes.
Delay becomes visible in the accounts.
Income is also spread over the life of the new equipment, rather than landing as one big profit in the year a project is finished.
UEGCL wants other companies to adopt it early, and ERA says it will align its rules with it.
The taxman’s view
None of this binds the Uganda Revenue Authority (URA). Julius Nandeeba, an acting assistant commissioner in its large-taxpayers office, sets out the principle: ‘Receipts or cash inflows do not equal earned income, and sometimes earned income does not equal taxable income.’
Tax follows the law, he says, not accounting rules or ERA’s guidelines.
‘When it comes to tax, we do not mind about the guidelines. We do not mind about the accounting standards. What we focus on is what the tax laws say. And usually when there is a gap in the tax law, we seek to amend or improve that tax law,’ he notes.
That is what UEGCL wants: let companies deduct customer-funded investment from taxable income, or leave such money untaxed until the work is done.
Either would need the finance ministry and Parliament.
Uganda’s Income Tax Act says tax accounts should follow generally accepted accounting principles. If IFRS 20 becomes one of them, would early adopters change when URA can tax this money? Nobody has yet given a firm answer.
Meanwhile, the money is getting more complicated. In December 2025, UEDCL took its first commercial loan, $50m over five years from Absa Bank Uganda.
In October, the European Union pledged a pound 30m grant, part of a pound 170m package that also includes cheap European loans, to repair Nalubaale and Kiira.
Uganda’s oldest dam may soon be repaired with customers’ advance payments, foreign grants and loans all at once. Each is treated differently: grants earn nothing, loans are repaid with interest, and unspent customer money must be returned. Keeping them apart will be an early test of the new rules.
Uganda’s improvisation was born of necessity, and may yet work. But a system that asks households to pay for the grid in advance owes them a clear answer to a simple question: where is our money?