Auditor General flags govt acquisition of shares in Roko, Dei as irregular

The Auditor General has called on the finance ministry to review the Government’s investments in Roko Construction Company Limited and Dei-Biopharma Limited, citing irregularities in the acquisition of shares.

In his report to Parliament on January 9, 2023, covering the financial year ending June 30, 2022, Auditor General Edward Akol warned that failure to review these transactions could lead to legal risks.

Akol urged the finance ministry’s permanent secretary, Ramathan Ggoobi, to establish clear guidelines and procedures regarding government bailouts and investments in private companies.

This followed a review of company records at the Uganda Registration Services Bureau (URSB), which revealed that Roko, through the finance ministry, allotted the Government 150,000 redeemable preference shares in 2022, contrary to the law.

Each share, according to Akol, was valued at sh1m and issued at a premium of sh380,367 per share without parliamentary approval.

Redeemable preference shares are a type of preference share that can be bought back by the issuing company within its predetermined maturity period.

Section 22(1) of the Public Finance Management Act Cap 171 states that no government vote shall enter into a contract, transaction, or agreement that binds the Government to a financial commitment exceeding one financial year or which results in a contingent liability, except where the financial commitment or contingent liability is authorised by Parliament.

Section 90 of the Companies Act, Cap 106 further provides that a certificate under the common seal of the company, or any other title evidencing securities, serves as prima facie evidence of a member’s title to the shares.

In a special resolution filed with the URSB on July 14, 2022, Roko resolved to increase its share capital from sh15b to sh222.1b.

“However, I said the purchase of shares and the subsequent binding of Government had been completed before receiving parliamentary approval. Additionally, the company’s return of allotment for shares dated October 22, 2021, indicated that 150,000 preference shares had been allotted to the finance ministry for sh207.13b. This suggests that the allotment and purchase of shares occurred prior to parliamentary approval. Failure to adhere to the correct processes undermines established controls and may result in legal disputes in future,” Akol said.

Although management responses were not provided on this matter, the Auditor General attributed the problem to the lack of guidelines a n d procedures for government bailouts and investments.

Documents indicate that Roko resolved to allot shares to the Government on October 22, 2021. On July 7, 2022, finance state minister for general duties, Henry Musasizi, tabled a proposal to acquire shares in Roko. On July 14, 2022, Roko resolved to increase its share capital from sh15b to sh222b.

Parliament approved the Government’s acquisition of 150,000 preference shares in Roko worth sh207b on July 21, 2022, long after the company had assigned shares worth sh222b to the Government.

According to Akol, the share subscription agreement between the finance ministry and Roko was signed on July 28, 2022.

Akol added that a review of the share purchase revealed that instead of sh207b, the clerk to Parliament wrote to the finance ministry requesting a payment of sh207.13b, which was subsequently made. This resulted in an overpayment of more than sh100m.

Minister defends investment

While tabling the proposal to acquire shares in Roko, Musasizi said the Government’s move was intended to salvage the company and enable it to complete its outstanding project contracts worth over sh1 trillion.

The minister described Roko as one of Uganda’s major construction firms, with a portfolio of Government and private sector projects valued at sh1.06 trillion. He added that the company owed sh46.8b to suppliers and sub-contractors, who would face collapse, if Roko was liquidated.

Musasizi said Roko owed sh154.7b in term loans and sh130.9b in off-balance transactions, which would destabilise the banking sector amidst the ongoing recovery from the COVID-19 pandemic.

Museveni’s directive

In a brief to Parliament, the finance ministry revealed that President Yoweri Museveni, in October 2019, directed the finance minister to negotiate the Government’s acquisition of shares in Roko.

The directive was based on the absence of a government owned construction company, which left the Government reliant on private firms that were predominantly foreign owned.

The President said there was need to reduce construction costs for Government projects and to build the capacity of local firms in strategic sectors.

At the time of the investment, as of May 31, 2022, Roko was indebted to the tune of sh202.4b, with a contingent liability from bank guarantees amounting to sh130.9b.

Musasizi said Roko’s liquidity challenges stemmed from delayed payments on major projects, an inability to refinance expensive loans and the impact of the COVID-19 pandemic.

In 2022, Attorney General Kiryowa Kiwanuka confirmed the legality of the deal, saying: “Roko is a local company fully registered and owned by Ugandans, employing many Ugandans. When they asked for my approval, I said yes because it is legally acceptable.”

About Roko

Roko is one of Uganda’s top five construction companies, established in 1969 by engineers Max Rohrer and Rainer Gottlieb Koehler.

Headquartered in Kampala, it operates in Uganda, Kenya, Rwanda, DR Congo, Tanzania and South Sudan.

Dei-Biopharma receives sh723.4b

The Auditor General also raised concerns about the Government’s sh723.4b investment in Dei-Biopharma, calling for a review to ensure the purchase agreement and share certificates are submitted to the finance ministry to mitigate any potential legal risks.

Akol stated that he was not provided with a valuation report to establish the company’s net worth and could not confirm whether the Government received shares worth the stated value.

He added that the Government is yet to receive the share certificates for its investment in Dei-Biopharma.

In April 2023, Parliament approved a supplementary budget of sh1.1 trillion, of which sh578.4b was allocated to support Dei-Biopharma’s debt obligations and operational requirements.

This payment followed the Government’s initial investment of sh70b in the 2023/24 financial year, with an additional sh75b invested in December 2023, bringing the total to sh723.4b.