Corruption in Uganda business

By Haggai Matsiko

What difference will arrival of big American companies make?

From Energy, oil and gas engineering, to advisory and legal services, American companies are increasingly scrambling and bagging Ugandan business contracts. In the last two years, over 10 top American companies have sealed big business deals and U.S. Ambassador Scott DeLesi says corruption is one of the biggest problems they have faced.

DeLesi was speaking at an Energy Summit organised in Kampala by the American Chamber of Commerce in Uganda on Feb.21. Itself a sign of increasing American investor interest in Uganda, the summit according Kelly Mactavish, the president of the American Chamber of Commerce in Uganda, was arranged to bring together business service providers and financiers.

DeLes chose the occasion to announce that a new American entity is poised to invest US$1.2 billion (Approx. Shs. 3.1 trillion) into Uganda’s energy sector. That is almost a quarter of the country’s annual national budget.

“… I have been working closely with an American firm who wants to brighten Uganda’s future by investing $1.2 billion dollars in a geothermal project that would bring 2000 jobs to Uganda and 150 megawatts to the national power grid,” DeLesi said.

According to latest statistics from Uganda Investment Authority (UIA), U.S. companies invested just US$2.2 million in Uganda in 2010 and were bottom of the pile of large investors and number 22. Chinese companies hogged the top investor spots. DeLesi’s US$1.2 billion investor is a sharp rise and pointer to America’s growing interest.

DeLesi spoke about how he has lobbied for what could become the U.S.’s biggest investment in Uganda.

“I have spoken to the President and numerous Ugandan officials about this project, and with the recent signing of a Memorandum of Understanding between the company and the Ministry of Energy, I think the deal is very close to being concluded.”

The investing company is AAE Systems Inc, an American global engineering and development company. It is partnering with a local company, Katwe Geothermal Power Project Limited (KGPL).

American invasion

DeLesi could also have mentioned CleanSource Energy Partners; another American company that also secured the services of Bowman Consulting, another American company, to explore its three geothermal exploration concessions in Uganda after signing an MOU for the sale of power from those areas.

Geothermal energy comes from heat in the earth’s geological structures and is brought into turbines to drive a generator that produces electricity. The force behind the drive in geothermal investment by American companies seems to  be the U.S.-Africa Clean Energy Finance Initiative announced in 2012 by U.S. President Barack Obama to drive private sector investment in renewable energy.

President Obama has also been pushing for legislation and billions of dollars to pump into clean energy research in his grand climate change campaign, specifically to replace hydrocarbons as the primary fuel.

Geothermal investments aside, American companies, Sithe Global and Blackstone co-own Uganda’s biggest hydro-power plant the $900 million 250-megawatt Bujagali plant with Industrial Promotion Services (IPS), the infrastructure and industrial development arm of the Aga Khan Fund for Economic Development.

The trio will run the plant, in which the government invested just US$20 million, for 30 years and then hand it over. In this project, Sithe Global and Blackstone replaced AES, another American company that pulled out of the Bujagali project due to financial problems in 2003.

In the oil sector, America’s Taylor-DeJongh (TDJ), was hired as the Transaction Advisor of the Uganda government on the multi-billion dollar oil refinery, which at about US$ 2 billion is set to be Uganda’s biggest infrastructure investment ever.

As Taylor-DeJongh advises government on the refinery, an American law firm, Curtis, Mallet-Provost, Colt & Mosle LLP, is also representing the government in oil tax disputes, Heritage Vs Uganda in London and Tullow Vs Uganda in the U.S.

In the Albertan Grabben, it is American Logistics giants; Halliburton, Baker Hughes and Weatherford (also started in America) that are running the show, sinking their monster excavators and rigs to drill for oil as the biggest engineering service providers of the oil companies.

America’s oil giant Exxon Mobil has for long expressed interest in exploring in Uganda. The company is reported among the many lining up to acquire exploration licences once the government opens up a new session of licensing.

ExxonMobil locked out

If it had not been failed by the chaos that rocked the industry in 2009 over Heritage’s sale of its 50 percent stake, the American giant could have already set up in the oil region.

Together with Italy’s ENI, France’s Total, and the Chinese National Offshore Oil Corporation (CNOOC), Exxon Mobil was looking to be partners with Tullow. ExxonMobil’s top brass visited Uganda November 18-19 2009, and met then-U.S. Ambassador Jerry Lanier, officials at the Ministry of Energy, the Petroleum Exploration and Production Department (PEPD), and Tullow.

Diplomatic cables leaked by Wikileaks in 2011 regarding ExxonMobil interests at the time revealed Ambassador Lanier’s views.

“Having partnered with ExxonMobil in Ghana, Tullow is anxious to join with ExxonMobil in Uganda as Tullow views ExxonMobil as the most technically capable, financial secure, and professionally responsible major bidder,” US embassy officials wrote.

It is not clear, how Exxon Mobil later got out of the picture leaving CNOOC and Total to take the day but President Museveni in 2011 said he vouched for the Chinese.

But DeLesi says American companies face challenges, among them is corruption.

“Executives from US companies tell us corruption is a major deterrent to coming to Uganda, and the IMF reports that one in five businesses list corruption as the number one problem they face doing business here,” DeLisi noted, “American companies want to do business in Uganda, but they can only do so if there is a level playing field ensured by policies that enshrine good governance and transparency,” he said.

It is no secret that Uganda’s private and public sectors are riddled with corruption and the country was ranked 123rd of 180 economies surveyed by the World Bank on the Ease of Doing Business.

The Uganda government, led by President Yoweri Museveni remains averse to transparency in business. Its officials dismiss transparency mechanisms like the Extractive Industries Transparency Initiative (EITI) that require companies to publish what they pay and governments what they get.

They claim such initiatives are “imperialistic” and that the government has enough transparency mechanisms and institutions to check corruption. They point at the office of the Inspector General of Government (IGG), the Anti-corruption Court, and Parliament as watchdogs.  Meanwhile corruption gets worse.

The country is caught up in scandals involving public servants swindling huge sums of money. In an ongoing case, donors and the World Bank suspended aid to Uganda in protest over billions swindled in the Office of the Prime Minister, Several more billions were swindled in the Ministry of Public Services.

In the energy sector, the biggest projects including the Bujagali Hydro-power Project and the Karuma Hydro dam project have been hit by allegation of government officials and ministers taking bribes. In a recent case, UK newspapers have reported that Tullow Oil contemplated bribing President Museveni with US$ 50 million. The Uganda government is investigating the incident.

Criticism over alleged corruption in its operations in Uganda is thought to have contributed to the withdrawal of the American company, AES that had first contracted the construction of Bujagali.

The same fate almost befell the New Forest Company when, following attacks over land grabbing, American executives that had shares in the commercial tree planting company threatened to withdraw their funds.

New American moves

Although the transparency standards of the U.S. excite many local anti-corruption activists, experts say the high American standards could end up hurting U.S. businesses seeking to invest.

American companies are likely to have a harder time getting contracts in a country where bidding processes routinely involve hefty kickbacks and off-the-book dealings. American companies could opt to dive into the bribery binge but those exposed could suffer severe sanctions back home. Such allegations would also mean bad business for especially listed on the U.S. Stock Exchange (USE).

DeLesi is aware of the challenges but is focused on the benefits.

“… by doing business with American companies, the private sector can help in the fight against corruption,” he says, “because American companies abide by our Foreign Corrupt Practices Act and are held to the highest standards of transparency and fairness.”

Gideon Badagawa, the Executive Director, Private Sector Foundation Uganda (PSFU) also says reduced corruption and clear institutions would be  good news for all investors not only those from the U.S.

“Every investor who comes here wants to find streamlined institutions,” he says, “I know some investors are shrewd, they will pay bribes here and there, walk into State House and get a piece of land here but majority of the investors want clear things.”

He says that for now, Uganda might lock in these investors that are already here just because they already have their capital investments but “tomorrow they will look elsewhere”.

To him, Uganda needs to “deal with all these issues, improve the investment climate.

“We have to put our house in order if we are to attract more investors,” he says.

Uganda is also grappling with what American executives have cited elsewhere in Africa as challenges; red tape, infrastructure is in bad shape, power outages, traffic congestion, and an unpredictable political environment.

Traditionally, the best U.S. deals have been pushed the U.S. government to countries it perceived to be “reforming” in such areas of good governance, the rule of law and protection of human rights. In Uganda, the U.S. must maintain a neat balance between promoting governance, especially peaceful transfer of power from Museveni who has been president for 27 years, and negotiating business deals.

Museveni has had low moments over flawed elections, torture of opposition politicians, grave corruption, and some critics calling his administration a dictatorship, but he has not lost America’s support.

If anything, talk of human rights and governance that used to dominate US—Uganda relations have become lackadaisical, as security partnerships in Somalia and the War-on-Terror, and business opportunities become more fashionable. American businesses have to compete with the Chinese and others that maintain no such conditionalities.

“The Chinese know what’s happening in Africa, in the last ten years, six of the ten fastest growing economies were in Africa.” US Senator Dick Durbin who sits on the US Senate’s foreign relations, appropriations, and judiciary noted in a recent interview with Andrew Mwenda of The Independent, “And where are we [Americans], we are standing on the sidelines watching the Chinese scramble all over Africa, we’re fools.”

And, as DeLesi quoted him at the US-Kampala Summit, Obama knows this too.

“…we will encourage American companies to seize trade and investment opportunities in Africa, so that their skills, capital, and technology will further support the region’s economic expansion, while helping to create jobs here in America,” DeLesi quoted Obama’s new strategy for sub-Saharan Africa.

To improve the investment climate for U.S. companies, the U.S. signed a new Trade and Investment Partnership with the East African Community.

On a recent visit to Uganda, the chief diplomat at US’s Africa hub, Micheal Pelletier, attempted to allay fears that more schmoozing between American business and Museveni will hurt the practice of democracy and observance of human rights in Uganda.

“…to my mind, good business ties bring those sorts of positive relations and those sorts of positive relations make business ties even more possible,” he told The Independent, “So I think it is actually a virtuous cycle which brings you up rather than that sort of dichotomy which would bring you down. So, I actually don’t accept that it is an either or, I think it is actually a very positive thing.” Museveni’s critics hope he is right.

Hilary Enenche, a Nigerian official on the EITI steering group counseled Uganda: “Nigeria is sick that is why we implemented EITI to cure ourselves [of corruption]; Uganda is sick, it should also implement EITI and cure itself like we are doing in Nigeria.” But such counsel is ignored.