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Privatisation brings in sh400b

By Vision Reporter

Added 8th November 2009 03:00 AM


The Government has earned over sh400b from the privatisation of state parastatals started over a decade ago.


The Government has earned over sh400b from the privatisation of state parastatals started over a decade ago.


By David Mugabe

The Government has earned over sh400b from the privatisation of state parastatals started over a decade ago.

The sh400b includes the weekend deal between the Government and the Mehta Group Companies, which brought the number of firms divested to 135.

At least 20 more companies, including the Kilembe Mines in western Uganda have been lined up for the divestiture process.

In the Mehta Group deal sealed over the weekend, the Government earned sh4.8b after divesting its 23.8% shares in the Sugar Corporation of Uganda (SCOUL), 51% in Cable Corporation and 51% in UGMA Engineering.

SCOUL and its sister companies were established in 1924.

The Mehta family left the country when the late President Idi Amin expelled Asians in 1972.

The family returned in the 1980s when the Government invited them back in a joint venture agreement. Under the new deal, the Government took 51%, while 49% went to the International Investment Corporation, the Mehta holding company.

Jim Mugunga, the Privatisation Unit publicist, said the low sale figure was because the company had been making loses.

Mehta will also take over the Government contribution to the net loan portfolio of SCOUL estimated at over sh33.3b.

Mahendra Mehta, the Mehta Group chairman delivered a cheque of sh1.7b as the first instalment, leaving a balance of sh3.1b, which will be settled in three years.

The group also promised to re-invest $40m in the next three years.

“Our expectations as a government is increased production, better management and governance, re-investment and job creation for our people,” Syda Bumba, the finance minister, who signed on behalf of the Government, said.

Bumba said she was confident that the group had the necessary experience, resources and skills to turn around the vast company.

“I give you all the blessings to block the haemorrhage now that you are fully in charge,” said Bumba. Reflecting on a journey that spans over 100 years since the Mehta Group, one of the most successful business families entered Uganda, Mahendra said they had not hoped to return to Uganda.

“We have struggled, but we have also prospered in this country. That is why we are here and have this confidence,” he said.

“In my life time, I have not seen in any country where people are called back to reposes what they initially had,” said Mahendra.

He said his company will double sugar production from 50,000 tonnes to 100,000 tonnes in the next three years.

Mahendra also said they will build a distillery to make ethanol and increase electricity output to 18 mega watts from six.

Because the Government held a stake in the companies, each time the Mehta Group wanted to invest and expand operations, it was bogged down because the Government could not march the investment.

On the sale of the remaining 20 firms, Mugunga identified Kilembe Mines as the next on the agenda.

“The transaction advisors have submitted their findings and the Government is studying them. Very soon we will be getting back to them,” said Mugunga.

Investor interest in Kilembe Mines is reportedly rising. Sources say because of the results of the aeronautical survey conducted a few years ago, the value of Kilembe had risen. The aeronautical survey revealed varying levels of mineral deposits.

Therefore, the Government may not be looking to let go of its Kilembe stake cheaply, sources argued.

The whole idea behind the privatisation process was to improve the quality, productivity and business efficiency of commercial and utility services through private participation in infrastructure development and an improved regulatory framework.

Some of the most successful divestiture projects include the Uganda Commercial Bank (UCB) in which South Africa’s Standard Bank Group took a majority stake before renaming it Stanbic Bank.

Stanbic is the largest and most capitalised local bank in Uganda, while its initial public offer in which the public took a 20% stake, sparked off a new dawn in capital markets.

But divesting some of the companies have been problematic with serious transaction and transparency issues arising during the process.

One of these is the National Insurance Corporation (NIC), which is way behind schedule because of serious disclosure issues needed for public transactions at the stock exchange.

After several postponements, another contentious issue emerged a few weeks ago concerning the full disclosure by NIC. This involved the contest between Makerere University and NIC over pensions funds that the insurance company held on behalf of the university staff.

Mugunga said Bumba was championing the discussions between MUK and NIC. “This is with the intention of reaching an amicable understanding to enable the company to list on the stock market,” said Mugunga.

Privatisation brings in sh400b

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