Tackling questions on privatised companies

By Jim Mugunga

Once again, as has been the case around this period in the politics of our country, we woke up to media reports last week to the effect that Parliament is expected to open a probe into "allegations of corruption and collusion in the sale of more than 130 public assets under the controversy-ridden privatisation policy."  

 

This week, the anti corruption coalition Executive Director Ms Cissy Kagaba penned a rejoinder. She is of course an activist but I did not know her to miss the bus on topical issues. This time around she was out rightly wrong; her letter/ article had falsehoods and in bigger parts selectively cited parts of the law in an attempt to make the "point." Her researchers must have let her down!

 

Whereas there is nothing wrong with "yet another probe" of the privatisation process if deemed necessary; it is tiring as it is frustrating to note that despite being one of the most documented and debated public sectors; there are persistent and deliberate distortions in relation to its governing laws, guidelines and outcomes.

 

The matter is not helped by some political actors and some in civil society organisations who either disregard bare facts in order to fulfil personal agenda or merely choose to pick on this otherwise historical venture and its related historical imaginary issues in order to settle political scores.

 

The so called questions on privatisation are therefore a mere smoke screen. At this point in our political journey they pop up. It is the political actors who pull this one out of the cupboard in order to rattle or silence opponents. Others merely deploy it to seek attention and or personal gain. My view, it's a very tired one. Its sale by date is way past.

    

However, aware that there is a whole generation that is being deliberately misled by the sweeping statements about the "rotten, non transparent, non accountable and un-investigated" privatisation process; there is once again need to explain it all in general.

 

There has been multiple investigation of the privatisation process in recent times. The IGG and CID among them. These found no basis into what shaped the allegations and inquiries thereof. Many years ago however, there was a well publicised and focused probe by a select committee of Parliament.

 

The committee led by Hon Omongole dug deep into processes; sales, use of funds, individuals and companies involved in divestitures among others. It made findings; recommendations including operational and structural changes at the Privatisation Unit (PU).

 

The PU procedures and processes as well as the actual divestiture law were overhauled. Of course, the report held accountable those it faulted. It is part of the parliamentary record—the Hansard and is hence public and may therefore be accessed.

  

Other reports authored at the peak of the privatisation process include those by researchers, organisations and academicians. The Uganda Manufacturers Association commissioned an Impact Assessment of The Uganda Privatisation Program a specific study whose findings are on record; Hon William Okecho and the Adam Smith/Ernst &Young authored extensive reports on the process.

 

In addition, there are critical and highly informative reports by committees of Parliament to which the Ministry of Finance and the PU account. The committees include the Public Accounts; Finance, Economy and Statutory Authorities and State Enterprises (COSASE) among others.

 

The annual reports that emerge as the Auditor Generals' Office undertakes their mandate is one such useful addition to a haul of literature available to interested parties to study.

 

This particular report; its comments and observations are part of the annual oversight role this specialised statutory government entity undertakes primarily on behalf of Parliament. It is wrong therefore for any commentators particularly among some civil society organisations to opt to use casual-desktop approaches to write; attempt to inform or pass judgement on the implementation of a process which is evidently so documented without recourse to available literature.

 

It wouldn't be far fetched therefore for one to believe that the intention for such haphazard write ups is to post mileage that enhances their business sustainability of course at the expense of misinforming non suspecting Ugandans.

 

The above aside however, it is important to revisit the story of Privatisation now that the so called inquiries demand that we prove we have nothing to hide. The starting point is the reasons why government decided to undertake the privatisation process; why was it implemented in the manner it was and what is the status so far.

 

Background

In 1985, Government inherited a sick and almost collapsed economy that necessitated multiple approaches to resuscitate. The options that were considered included the promotion of the private sector to play an increased role in trade and investment which had hitherto become the monopoly of the state. Deliberate policies were put in place to trigger off the private sector led growth.

 

These included; liberalisation, privatisation and removal of restrictions on foreign exchange trade. The lump some of the above efforts, among others, resulted in the development of the very successful Economic Recovery Program (ERP) which took effect in 1987. 

 

In developing the ERP, government recognised the need to undertake a comprehensive reform of the Public Enterprises (PEs) in Uganda with a view of reducing their financial and administrative burden. The PE sector then constituted of 156 enterprises of which 133 were commercially oriented.

 

A total of 20 PEs were dormant but remained on government books while several others were completely non functional due to low capacity utilisation; lack of equipment; destruction or disrepair, un resolved ownership, operating losses, low productivity and outright lack of investment and operating capital.

 

Indeed by 1986, the Public Enterprises Sector was heavily dependent on State subsidies from the then overwhelmed treasury to remain semi-operational. Estimated subsidies in 1994 were Ushs.150 billion p.a. (8% of GDP) and yet its contribution to GDP at the time was only 5%. The sector also accounted for one third of the national external debt and servicing that debt was being met by the state.

 

Implementation of the Privatisation Process

In order to improve efficiency, reduce state subsidies, reposition the PEs as a key player in the economy and encourage private sector investment; in November 1992, Government published the Public Enterprises Reform and Divestiture Policy (Gazette No. 48) and the following year enacted the Public Enterprise Reform and Divestiture (PERD) Act. The purpose was to provide for the legal and institutional framework for implementing the Policy. A total of 113 Public Enterprises grouped in four (4) classes were specified in the Act for purposes of reform and divestiture as follows:

 

• Class 1       [fully owned by government]                           16 PEs
• Class 11     [majority shareholding by government]                   24 PEs
• Class 111   [minority shareholding by government]                  10 PEs
• Class IV     [fully privately owned]                                     46 PEs
• Class V      [ liquidate]                                                          17 PEs

 

It is clear from the above that government had a clear approach to the privatisation process. Subject to reviews during implementation and technical evaluations; the intention was to partly privatise PEs in classes 11 and 111 while fully privatising those in class IV.  The task was delegated to a Sub-Committee of Cabinet, the Divestiture Reform and Implementation Committee (DRIC) with the Privatisation Unit functioning as its secretariat.

 

The reform and divestiture activities eventually necessitated the unbundling of the power and telecommunications sectors. This led to reclassification and corporatization of some government projects. The portifolio for divestiture hence increased.

 

To implement the privatization process, various methods were used and these included the following:

• Auction
• Concession
• Debt Equity Swap
• Initial Public Offering
• Joint Venture
• Liquidations
• Management Buy Out
• Pre-emptive rights
• Repossession
• Sale of Assets
• Share sale

 

The general principle that informed the above methods was to allow various avenues through which broadening ownership by Ugandans would be achieved. Among the guidance that underpinned the above, is the principle to the effect that no specific class of potential purchasers will be excluded from participating from the divestiture process. The methods were to be conducted in an open and transparent manner. By deploying the above methods, it is on record that almost half of all divestitures (52 out of 135) completed so far were purchased and are owned up Ugandans. The bulk of the other half of the privatized companies were disposed of through joint ventures; shares sales or Initial Public Offerings. It is clear from the publicly available records that Ugandans in partnerships with foreigners took advantage of the above methods and extensively floated joint venture companies or took up shares in order to own the former PEs.

 

Probably the most obvious evidence of Ugandan citizen's participation in the privatization process is through the Initial Public Offers (IPO) done via the stock exchange. Currently figures show that Ugandans are happier participants in the stock exchange founded and facilitated by the PU. The current capitalization of the stock exchange including cross listed companies is approx Ugshs24.7trillion. Domestic counters which account for almost 100% IPO and products related to the privatization process account for over Ushs 4.86trillion. This is in other wards the level of participation enjoyed by Ugandans and others who subscribe to the gains posted by our own securities exchange since it was established.

 

DIVESTITURE TRANSACTIONS AS AT  JUNE 30, 2014 BY METHOD OF SALE

	Enterprise	Buyer	Date	Participant	Method	Price
						UGX M)	(USD Equiv. M)
1	Acholi Inn	Ms Laoo Ltd	May-95	Ugandan	Sale of Assets	235
2	African Ceramics Co.	Muhindo Enterprises Ltd	May-96	Ugandan	Sale of Assets	270
3	Hilltop Hotel	Three Links Ltd	May-95	Ugandan	Sale of Assets	35
4	Hotel Margherita	Reco Industries Ltd	Aug-94	Ugandan	Sale of Assets	365	0.4
5	ITV Sales	ROKO Construction	Dec-96	Foreign	Sale of Assets	320
6	Lira Hotel	Showa Trade Company Ltd	Jan-95	Ugandan	Sale of Assets	250
7	Masindi Hotel	Ottoman Engineering	Feb-00	Ugandan	Sale of Assets	198
8	Mt. Elgon Hotel	Bugisu Cooperative Union	May-95	Ugandan	Sale of Assets	650
9	Mt. Moroto Hotel	Kodet International	Nov-94	Ugandan	Sale of Assets	40
10	NYTIL	Picfare Ltd	Mar-96	Foreign	Sale of Assets	2,132
11	Rock Hotel	Swisa Ind. Ltd	Nov-94	Ugandan	Sale of Assets	300
12	Uganda Cement Ind. - Hima	Rawals Group of Industries	Dec-94	Foreign	Sale of Assets	20,500
13	Uganda Cement Ind. - Tororo	Corrugated Sheets Ltd	Oct-95	Foreign	Sale of Assets	5,900
14	Soroti Hotel	Speed bird Aviation Services	Jan-95	Ugandan	Sale of Assets	150
15	Ug. Consolidated Properties	GoU	Apr-99	Ugandan	Sale of Assets	16,174	9.0
16	Uganda Garment Industries	Phoenix Logistics Uganda Ltd.	Aug-00	Ugandan	Sale of Assets	850	0.5
17	Ug. Leather & Tan'ng Ind.	IPS (U) Ltd	Jul-95	Ugandan	Sale of Assets	1,646
18	Uganda Meat Packers (K'la )	Uganda Meat Industries Ltd	Aug-95	Ugandan	Sale of Assets	674
19	Uganda Meat Packers-Soroti	Teso Agric Industrial Co Ltd.	Nov-97	Ugandan	Sale of Assets	300
20	Uganda Spinning Mills, Lira	Guostar Enterprises (U) Ltd.	1999	Foreign	Sale of Assets	n/a
21	White Horse Inn	Kabale Develop'nt Company	Aug-94	Ugandan	Sale of Assets	600
22	White Rhino Hotel	Dolma Associates Ltd	May-95	Ugandan	Sale of Assets	200
1	African Textile Mills	P.S. Patel	Mar-96	Ugandan	Share Sale	1,400
2	Agip (U) Ltd	Agip Petrol International	May-96	Foreign	Share Sale	1,675
3	Apollo Hotel Corporation Ltd.	MIDROC Ethiopia plc	Mar-01	Foreign	Share Sale	32,040	18.0
4	Blenders (U) Ltd	Uniliver Overseas Holding BV	Aug-94	Foreign	Share Sale	494
5	Comrade Cycles (U) Ltd.	Uganda Motors Ltd.	Jan-97	Ugandan	Share Sale	0.00	0.00
6	East African Distilleries	Intern. Distillers & Vintners	Nov-92	Foreign	Share Sale	731	0.6
7	Kibimba Rice Co. Ltd.	Tilda Holdings	Sep-96	Foreign	Share Sale	1,524
8	Kinyara Sugar Works Ltd	Rai Holdings	Oct-06	Foreign	Share Sale	61,547	33.5
9	Lake Victoria Bottling Co. Ltd	Crown Bottlers (U) Ltd	Feb-93	Ugandan	Share Sale	6,460
10	Lake Victoria Hotel (PHASE 1)	Windsor Ltd	Aug-95	Foreign	Share Sale	2,794
11	Lango Dev. Co.	Sunset International Ltd.	May-98	Ugandan	Share Sale	100
12	Motorcraft and Sales Ltd.	Andami Works Ltd.	Sep-96	Ugandan	Share Sale	200
13	N I C Ltd (60%)	Insurance Group of  Nigeria	Jun-05	Foreign	Share Sale	6,308	3.6
14	PAPCO Industries Ltd.	Praful C. Patel	Feb-99	Ugandan	Share Sale	100
15	SAIMMCO	Steel Rolling Mills Ltd.	Sep-99	Ugandan	Share Sale	202
16	Stanbic Bank (U) Ltd.	SBIC Africa Holdings Ltd.	Dec-96	Foreign	Share Sale	6,939
17	Total (U) Ltd	Total Outre Mer	Mar-96	Foreign	Share Sale	5,646
18	Transocean 1998 (U) Ltd	Coin Ltd.	Jul-01	Ugandan	Share Sale	361
19	TUMPECO	GM Company Ltd	Aug-94	Ugandan	Share Sale	1,129
20	Uganda Commercial Bank	Stanbic Bank	Feb-02	Foreign	Share Sale	21,900
21	Uganda Fisheries Enterprises	Nordic-African Fisheries Co.	May-95	Foreign	Share Sale	1,100	1.1
22	U G M Co.(Phase 1)	Greenland Investments Ltd	Dec-96	Ugandan	Share Sale	5,336
23	Uganda Industrial Machinery	F.B. Lukoma	May-97	Ugandan	Share Sale	7
24	Uganda Pharmaceuticals Ltd.	Vivi Holdings	Jul-96	Foreign	Share Sale	1,528
25	Uganda Telecom	Detecom	Jun-00	Foreign	Share Sale	50,975	33.5
1	Agricultural Enterprises Ltd	C D C	Oct-93	Foreign	Joint Venture	12,700
2	NEC Pharmaceuticals Ltd.	Haupt Groupe	Dec-99	Foreign	Joint Venture		1.5
1	Associated Match company	Madhvani Group	Jun-01	Foreign	Pre-emptive right	0
2	Bank of Baroda	Bank of Baroda (India)	Jun-99	Foreign	Pre-emptive right	2,500
3	Barclays Bank of Uganda Ltd	Barclays Plc	Oct-98	Foreign	Pre-emptive right	5,000
4	BAT Uganda (PHASE 1)	BAT Investments Ltd.	Sep-99	Foreign	Pre-emptive right		7.0
5	ENHAS	Efforte Corp, G/Airlinks & SN	Apr-98	Ugandan	Pre-emptive right	4,300	3.8
6	Kakira Sugar Works	East African Holdings Ltd.	Jul-00	Foreign	Pre-emptive right	3,500
7	Lake Victoria Hotel Ltd (Ph. 2)	The Windsor Ltd.	Aug-00	Foreign	Pre-emptive right	2,962	1.8
8	Rwenzori Highland Tea Co.	Finlays Groups	May-02	Foreign	Pre-emptive right	1,450
9	Steel Corporation of E A Ltd	Muljibhai Madhvani & Co. Ltd	Jul-00	Foreign	Pre-emptive right	363
10	Uganda Libyan Arab Holding	Preemptive	Apr-08	Ugandan	Pre-emptive right	1,685
11	Sugar Corpn. of Uganda Ltd.	Mehta Group	Dec -09	Foreign	Pre-emptive right	1,720
12	Cable Corporation	Mehta Group	Dec - 09	Foreign	Pre-emptive right	1,720
13	UGMA Eng. Corporation	Mehta Group	Dec -09	Foreign	Pre-emptive right	1,440
1	BAT Uganda (PHASE 2)	Public	Jun-00	Ugandan	I P O	4,609
2	DFCU Bank	Public	Jul-04	Ugandan	I P O	10,100
3	New Vision P & P Co  (20%)	Public	Sep-04	Ugandan	I P O	9,200
4	Uganda Clays Ltd.	Public	Oct-99	Ugandan	I P O	1,460
5	National Insurance Company	Public	Mar-10	Ugandan	I P O	7,270
1	Dairy Corporation Ltd	Sameer Agric. & Livestock	Aug-06	Foreign	Concession		0.5
2	Mweya Safari Lodge	Madhvani Group	Aug-95	Ugandan	Concession	1,821
3	Nile Hotel International Ltd	Serena Tourism Promotion Svs	Jan-04	Foreign	Concession	2,340	1.2
4	Second National Operator	MTN	Mar-98	Foreign	Concession	6,664	5.0
5	Ug. Electricity Distribution Co	Umeme	May-05	Foreign	Concession	10,765	1.4
6	Uganda Electricity Generation	Eskom Enterprises	Nov-02	Foreign	Concession	993	0.5
7	Uganda Railways Corporation	Sheltam Railway Company	Oct-05	Foreign	Concession	3,479	2.0
8	Uganda Seeds (Kasese)	Lease/concession	Sep-05	Ugandan	Concession	326	2.0
9	Ug. Seeds Masindi & Kisindi	Lease/concession	Sep-05	Ugandan	Concession	273
10	ULI Ltd - Kiryana Ranch	Ziwwa  Ranchers	May-02	Ugandan	Concession	850
11	ULILtd - Kyempisi Ranch	Royal Ranchers Ltd	May-05	Ugandan	Concession	391
12	Kilembe Mines Limited	Tibet Hima	Sept-13	Foreign	Concession		4.0
1	Foods & Beverages Ltd	James Mbabazi	May-96	Ugandan	Auction	670
2	Fresh Foods Ltd	Eddie & Sophie Enterprises	May-96	Ugandan	Auction	1
3	K'la Auto Centre Gomba M.	Management	Nov-95	Ugandan	Auction	110
4	Republic Motors	Rafiki Trading Company	Dec-95	Ugandan	Auction	902
5	Uganda Hire Purchase Co.	Tadeo Kisekka	Nov-95	Ugandan	Auction	24
6	Winits (U) Ltd	EMCO Works Ltd	Oct-95	Ugandan	Auction	103
1	Gov' Central Purchasing Corp.	Management and Employees	Jul-00	Ugandan	M B O	1,090
2	Printpak (U) Ltd	Cancelled-Assets owner -  Lonhro		Ugandan	M B O	0
3	Uganda Hardwares Ltd	Management	Oct-95	Ugandan	M B O	29
4	Uganda Motors Ltd	Management	Nov-95	Ugandan	M B O	804
1	NH & C C	Libyan Arab Foreign Inv'nt	Jun-05	Foreign	Debt-Equity Swap		20.3
2	Shell (U) Ltd	Shell Petroleum Co. Ltd	Dec-92	Foreign	Debt-Equity Swap	12,790
1	Nile Breweries Ltd	Madhvani Group	Apr-92	Foreign	Repossession	731
2	Ug. American Insurance Co.	American Life Insurance Co.	Nov-92	Foreign	Repossession	n/a
3	Uganda Crane Estates Ltd.	Buganda Kingdom	Jun-97	Ugandan	Repossession	n/a
4	Uganda Securiko Ltd	Securiko (U) Ltd	Aug-93	Foreign	Repossession	n/a
5	Uganda Tea Corporation	Mehta Group	May-94	Ugandan	Repossession	n/a
	Total transactions	96
	Liquidations/Strike Offs	39
	Total divestiture transactions	135

 

Proceeds

As may be seen from the table above, by end of last year, a total of 135 divestiture transactions were concluded. Liquidations and companies struck off the register were 39. From a total 96 PEs therefore, the process so far has generated Shs640, 314bn. Divestiture costs including settlement of terminal benefits total Shs. 567,186bn.  An additional Shs. 48,060bn was contributed towards the Energy Fund. The outstanding liabilities majority of which are terminal benefits' claims largely premised on legal claims total Shs239, 125bn. The entire accountability process for the resources generated and spend by the PU is the subject of annual audits and its related audited reports are on record with Parliament of Uganda.

 

Outstanding

A total 25 PEs remains to be divested in accordance with the PERD ACT. There has been efficiency and performance improvement that have been registered in some of these companies as a result of rigorous reforms and performance monitoring. There is an on-going process to rationalize; reclassify and reposition some entities in line with new national policies and interests. Companies that fall under this category despite being in the PERD ACT include National Water and Sewerage Corporation, National Enterprise Corporation, Uganda Air Cargo and Uganda Development Bank among others.   

 

Other benefits

The achievements of the policy may be analysed from two broad aspects. The Micro level achievements that focus on the improved performance of the divested and/or reformed enterprises and the Macro level impact that looks at the contribution of the policy to other areas of the economy.

 

Micro level

As earlier stated, 96 divestitures have to date generated Shs640, 314bn. In addition, government role in commercially oriented Public Enterprises has substantially reduced hence increasing private sector participation. The process has also brought in some proceeds that are being applied to settle part of the sector's liabilities.

Privatised Public Enterprises capital investment has greatly increased due to major investments made after divestiture. The Telecommunication Sector for example has attracted over USD 850 million in investments in both post and telecom infrastructure. Similar trends have been noted in the transport, hospitality, agricultural and industrial sub sectors. At the enterprise level, this is a major shift from the situation where public enterprises had to seek government funding to meet their operating expenses.

 

Efficiency and production improvements were registered in the majority of the sectors. There is clearly documented evidence in the agricultural sector, hotels, banking and the telecommunication and communications services sector. The 2010/11 Posts and Telecommunications Market Review Report by Uganda Communications Commission indicated that the share contribution of the two arms of the subsector to GDP increased from 5% in 2009/10 to 6% during 2010/11. That level of contribution to GDP is higher than what the entire Public Enterprises Sector was contributing to GDP at the inception of the Policy.

 

In addition to cutting down on the sector's dependence on the National budget, Privatised and reformed enterprises contribution to financing the government budget through payment of taxes that has gone up. Taxes paid by the privatised enterprises account for approximately 70% of the top taxpayers in the country. These are either divestitures, liberalisation and or, reformed enterprises.

Macro level

The implementation of the policy has also had profound positive impact on macro aspects of the economy:

 

Private sector development

Liberalisation of the sectors that had hitherto been state monopolies resulted into increased competition and benefited the emerging private sector in terms of improving their performance particularly in the services, agro-processing and manufacturing sectors. As a result of the dismantling of price controls, commercialization of Public Enterprise activities and their eventual privatization, the Ugandan consumers have also benefited from the availability of increased variety and higher quality of goods and services at more affordable prices.

 

Along side acting as a key catalyst for Foreign Direct Investments, the privatisation process has acted to deliberately ensure spread of ownership of Public Enterprises amongst Ugandans. The process facilitated the establishment of the Capital Markets Authority (CMA) and Uganda Securities Exchange (USE) in Uganda. The Program has supported growth of capital markets in Uganda from a maiden market capitalisation of UGX 1.46 billion in 1999 to the current capitalisation of UGX 12.7 trillion as at end June 2011.

         

Improved management and accountability

Public Enterprise restructuring has led to improvements in management as well as service delivery and accountability. A number of privatised enterprises have complied with strict accounting and reporting standards qualifying them to list on the stock exchange while those that are still under government control have had their accounts brought up to-date and most public enterprises now have fully constituted and functioning boards.

 

The reforms in various sectors (formerly controlled by quasi monopoly Public Enterprises) have resulted in the establishment of autonomous regulatory agencies. The agencies are playing the role independent amperes in setting rules for market players and in the process safeguarding and promoting standards and stakeholder interests.

 

The role of Parliament

It is in order to point out that whereas the privatization process was an initiative of the executive in the formative years, it is well documented that at the peak of its implementation Parliament was a key participant through the cabinet subcommittee, DRIC. Prominent Members of Parliament namely Musumba and Mwandha played a key role and guided divestiture decisions and implementation until the operating procedures were reviewed by the same Parliament in the year 2000. Parliament introduced divestiture guidelines which are currently part of the PERD ACT.

 

The writer is a senior public relations officer and spokesman of the Ministry of Finance, Planning and Economic Development