Mutebile in trouble over Basajja pay

Dec 07, 2011

The finance minister has ordered Central Bank to explain payment of sh142b to Basajja as compensation.

By Mary Karugaba

The probe into city businessman Hassan Basajjabalaba’s compensation claim of sh142b has taken a new twist, with finance minister Maria Kiwanuka ordering the Bank of Uganda to explain the payments.

Kiwanuka has written to the Central Bank governor, Emmanuel Mutebile, to explain how the bank paid Basajjabalaba part of the amount without an audit warrant and before deducting his debts to the Government.

According to Kiwanuka, Basajja owes the Government about sh1b on the city markets, over sh27b to Bank of Uganda and sh3.5b to Uganda Development Bank. 

But the Auditor General, John Muwanga, said the money could be much higher.

Referring to Mutebile’s payments of sh83b to honour guarantees given to commercial banks in relation to Basajja’s loans, Kiwanuka questioned the instruments the bank used to secure loans to the government creditor. 

The commercial banks are still demanding over sh75b from the Central Bank, meaning that if the Government does not clear Basajja’s claims, the Central Bank will have to pay the commercial banks since it guaranteed the loans.

“The funds cannot be released from the Consolidated Fund without an audit warrant. The Permanent secretary and secretary to treasury on Dec2, 2010 requested for a value for money audit before funds could be paid. I would like to know how a payment was effected without an audit warrant,” Kiwanuka asked.

Quoting the Ministry of Justice’s request for the money to settle the claims, Kiwanuka asked the Governor whether it was procedurally right for the Bank to clear yet such compensation is paid through the Ministry of Justice and Constitution affairs.

She also wondered why Bank of Uganda committed to pay third parties that were not party to the transactionsbetween the government and Haba Group of companies. “I am of the opinion that Haba Group would have been the right party to approach banks and ask for credit on the basis of its claims against the Government,” She noted. 

Quoting the former Minister of Finance Syda Bbumba’s letters to  Mutebile, Kiwanuka asked for an explanation whether the letters were directives or requests given considering that Bank of Uganda is independent and does not take directives from any person. 

Kiwanuka insisted that there was no money provided for the claims in the budget since any payment of that magnitude would be subject to the findings of the auditor general and an audit warrant obtained. 

In a letter, Minister Kiwanuka has challenged Central Bank chief Emmanuel Mutebile to explain how the bank paid the compensation without an audit warrant.

Parliamentary probe

Bassajjabala claims came to the limelight after the Auditor General presented to Parliament a special audit report by KPMG which revealed a lot of inconsistences and how laws were flouted in the process. 

The report was given to the Public accounts committee which is winding up its investigations. A number of Government ministers and technocrats have already been questioned over the matter. 

The committee is expected to wind up the investigations next week when it meets President Yoweri Museveni, who was named by several witnesses as being  part of the controversial deal.

How did the Bassajja claims start?

Bassajja through his Haba Group of companies, entered into different contracts with KCC in 2002 to manage, control and maintain three city markets of St Balikuddembe, Nakasero, Shauriyako and Constitutional Square.  

However, in 2006, hundreds of angry market vendors rejected the extension of the lease to Bassajja and demonstrated; leading to riots and vandalism compelled the Central Government to intervene. 

In 2007, cabinet discussed the matter and decided that vendors, under their associations should be given first priority to manage and develop the markets. The decision was communicated to KCC by the then minister of Local Government Maj. Gen. Kahinda Otafiire in a letter dated September 11, 2007.

In 2009, Bassajja filed a case in court against Government claiming compensation of loss of business losses incurred as a result of the government and KCC to cancel the lease offers and management contracts granted to Haba Group.  H

owever, Government preferred to settle the matter out of court. Bassajja demanded for sh146b as compensation.

Weaknesses in the contracts

The KPMG report however questioned the circumstances under which the contracts were awarded. The   report says the then Town Clerk James Ssegane extended the operations of the contracts “illegally.” 

The report also revealed that there were no documents indicating that the contracts were approved by the Attorney General’s office prior to the signing. According to the Attorney General’s guidelines issued in 1999, every contract exceeding sh50m has to be vetted by the Attorney General and that no contract exceeding sh50m shall be executed without clearance from him.   

“Were not provided with any evidence that the management contracts and the sublease agreements were cleared by the Attorney General prior to the Mayor and Town Clerk signing. 

Failure to have the contracts cleared prior to the signing had the effect of rendering them void and no claims under the agreements are enforceable,” the report says.

Former town clerk James Ssegane told the committee that that KCC did not sign the contract because Bassajja had defaulted on the deal. “He failed to meet any of the conditions. He only made a partial payment of sh200m,” Ssegane said. 

But while appearing before the probe committee former Attorney General Kiddu Makubuya defended the contracts saying under the circumstance, they were legal contradicting the solicitor general Harriet Lwabi’s submission that contracts not approved by her office were null and void.

“In my opinion, I think the contracts were legal because its Government that cancelled them. It gave the developer false hopes and he lost business opportunities in the process,” Makubuya told PAC.

Forged Consent Judgment

After the cancelation of the contracts,  Basajjabalaba petitioned Museveni over the cancellation and demanded compensation.  Bassajjabalaba’s claims were made by his HABA Group on behalf of his companies - First Merchant Trading Company Ltd (FMTC), which was running Shauriyako Market; Victoria International Trade Company (VITC), which was in charge of St. Balikuddembe Market (Owino); Sheila Investments Ltd (SIL), which was managing Nakasero Market and Yudaya Investments Ltd (YIL), which was supposed to redevelop the Constitution Square.

HABA Group initially hired an accounting consultancy firm, D. Craven & Associates, to prepare the official claim for the Shs 146 billion.  In 2008, through a consent judgment, the Attorney General agreed to clear the claims. The High Court has however since denied such document and called it a forgery. Parliament Police is however investigating the matter. 

President Museveni Intervenes 

In a meeting of March 25, 2009 attended by Minister of Finance, Attorney General and Local Government, at State House ,  Museveni and his ministry officials agreed that an inter-ministerial committee chaired by the Attorney General be set up to look into the issues. 

The Attorney General was asked to resolve the matter within 60 days and Basajjabalaba would withdraw a case he had filed against the government. 

The Inter-ministerial committee was instituted but never included key ministries, which the President wanted on it. It left out KCC, the main party, the Auditor General, and was not chaired by the Attorney General as demanded. Despite the Government valuer  John Bwiragura resigning from the Committee,   It recommended sh22.7b. 

How figures changed

Bassajja rejected the figures provided by the evaluation committee and again petitioned the President. The President on Nov24, 2009, wrote to the Attorney General reminding him of the resolutions of the State House meeting. Again the government officials refused to pay. Basajjabalaba again complained to the President who directed that the money be reviewed.  The committee according to KPMG reviewed the figures to 68.9b and on November 13, 2009, Museveni wrote another letter to the Attorney General saying the matter should be resolved expeditiously. 

He said by the copy of the letter, “I am directing the minister of finance to liaise with the Governor Bank of Uganda with a view of settling all the outstanding claims.”

“I expect this matter to be put to rest once and for all,” the president added.

The Solicitor General Lwabi then requested for a supplementary budget of sh96b from Finance. Bassajja again protested the figures and petitioned the Attorney general.

Makubuya in an internal memo dated Nov22, 2010 said that a total of sh46b be added to the company, bringing the total claim to sh142b.

The new position was communicated to finance but Finance reportedly questioned the figure and instructed the Auditor General to carry out an audit. 

BOU guarantees Bassajja loans 

On January 2011, after receiving a petition from Bassajja, the President wrote the Governor asking him to assist Haba to access funding without suffering interest. “But this should only be done after offsetting whatever is due and owing to Government,” The President said.

KMPG report revealed that before the assessment exercise could be concluded, Finance Minister on Feb. 24, 2011, acting on Museveni’s directive, wrote to Mutebile requesting him to pay Basajjabalaba.

She said Basajjabalaba had written to her seeking payment of claims in order to repay loans he had borrowed from financial institutions.  Bbumba sought the advice of the permanent secretary Chris Kassami who warned her against “authorizing” BOU to pay saying the Bank cannot be directed because it is independent. 

Appearing before the committee, Kassami said he advised the minister to request the Bank to sort out the repayment with the said financial institutions.

A month later Bbumba again wrote to Mutebile confirming her commitment to pay Basajjabalaba. She wrote: “Further to my letters, this is to confirm that you can repay proceeds of the earlier programmes with the banks.

As soon as the budgetary arrangements allow, I will authorize repayments to the HABA Group through the Bank of Uganda from which payments you can deduct the extra money to pay the banks the extra loans you will have arranged for HABA Group.”

Mutebile told the Committee that “I wrote strong letters of credit after I was assured that Finance was going to pay Bassajja’s claims. Unfortunately the letters became guarantees after the payments delayed. The banks asked BOU to pay the loans.”

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