Inside Museveni’s war with Finance, UCC over telecom

By Haggai Matsiko

The anticipated arrival of new management at Uganda’s oldest telecom company, utl, has several sector players and politicians sitting on the edge of the seats. Among them is President Yoweri Museveni.  The President has staked his goodwill to salvage what many see as a sinking company. In this, he is seen by some to be pursuing the selfish agenda of his government to the detriment of the telecom sector.

This is part of what emerged from a meeting he held with Mohammed Al-Dairi, the Foreign minister of the internationally recognised government of Libya, which holds a controlling stake in utl.

The meeting occurred following a request for cabinet approval to shut down utl by the sector regulator, the Uganda Communications Commission (UCC). The regulator wanted to treat utl like any other privately-owned company that had failed to meet its contractual obligations, could not offer quality service, and was instead sinking under more debt year after year.

Godfrey Mutabazi, the executive director of UCC threatened to shut down utl in April. Even back then, however, informed watchers say they knew he would hit a wall with Museveni.

On paper, utl appeared beyond salvage.  Cash strapped, with debts of over Shs360 billion outstripping its assets of Shs220 billion and a subject of countless lawsuits from debtors, UTL was not expected to live to see this December. UCC had reviewed UTL’s external audit reports for the years 2011-2013 and found the company was consistently making losses. It had also failed to pay the fees for the spectrum assigned to it, resulting in a Shs13 billion debt.

The company has also had management challenges and has had four MDs in five years. Donald Nyakairu was in 2011 replaced by David Holiday, who was also replaced by Ali Amir. In May this year, UTL appointed Mark Shoebridge to become its acting Managing Director after his predecessor, Ali Amir, resigned citing personal reasons. But others say he was pushed.

Early in the year, its workers accused it of plotting to rob them of their savings amounting to Shs. 15 billion.

The managers of utl had requested NSSF to return retirement benefits of 1,986 employees, claiming the money was remitted in error because pensionable employees cannot at the same time contribute to NSSF. Court blocked the move. Majority of beneficiaries belonged to the Uganda Posts and Telecommunications Company (UPTC), the precursor to UTL.  UPTC was disbanded in February 1998 into; UTL, Post Bank, Posta Uganda and Uganda Communications Commission (UCC).

While government owns 31% of UTL, the majority shareholder with 69 percent is LAP GreenN, owned by the Libya Africa Portfolio (LAP) a subsidiary of the Libyan Investment Authority (LIA). LIA is Libya’s main sovereign wealth entity, with investments valued at over US$ 50 billion. These entities were created during Gadhafi’s 40-year reign.

Even before Gadhafi was overthrown in August 2011, the United Nations in March 2011 slapped sanctions on all the assets owned by LIA, and in effect left companies like UTL in legal limbo.

Gadhafi’s ouster led to chaos in Libya and an eruption of fighting factions led to a power vacuum. At the time, Libyan investments in Uganda were estimated to be about about $375 million. Museveni’s government soon took gingerly steps to keep the companies running because, although Museveni and Gadhafi did not always agree ideologically and at a personal level, Libya was well respected in Uganda. It was heavily invested in Muslim affairs; including construction of the biggest mosque, the 15,000-sitter Gadhafi National Mosque in Kampala and the close relationship with the Toro royal family. Libyan assets included 69% shareholding in UTL and 49% ownership of National Housing and Construction Corporation. Libya also controlled Tamoil, a firm which at one point controlled Uganda’s commercial oil depots in Jinja and had prospects of building the country’s oil pipeline from Eldoret, Kenya to Uganda.

The government, the same year, moved to take over utl. But it has never invested a coin. Even when LAP GreenN later regained control of UTL in 2012 because it was still cash strapped, the Ugandan company remained struggling. The situation got worse over the years until the regulator lost his patience in April this year.

At this point, UTL had accumulated debts to the tune of Shs53 billion in taxes to Uganda Revenue Authority (URA) and monthly contributions to UCC.

The other debtors, MTN and Airtel were breathing down Mutabazi’s neck, threatening unilateral court action, and urging the regulator to act and get UTL to pay up, be penalized, or blocked from accumulating more debt.

Mutabazi had in the past got the competitors to be patient. When MTN threatened to block UTL’s calls over its failure to pay interconnection fees between 2008 and 2009, the regulator intervened and requested for more time on behalf of UTL.

Now, 7-years later, a hearing at the registrar of companies was instituted that could have resulted into the closure of utl.

New investor arrives

As pressure piled, UTL could no longer raise the $1 million (shs3.4 billion) it required for operational costs every month and severally failed to pay suppliers, including advertisers. In a brand driven market, UTL effectively buried itself. That is when Mutabazi swung in. But he was counting the pennies, even as the politics was in clear sight. The politics arrived in the form of a request by utl management for reprieve and Museveni’s meeting with Libyan Foreign Minister Mohammed Al-Dairi.

In the meeting attended by State Minister in charge of Privatisation, Aston Kajara, Stephen Kaboyo, UTL’s Board chairman and Wafik Al-Shater, Group chief executive officer of LAP GreenN, the Libyans announced that they had a plan to turn utl around.

After the Libyan officials made the pledge, sources say, Museveni turned and instructed his officials to give the investor time.  “If these people are willing to raise money,” he is reported to have said, “then why should we revoke their licence, let us give them time to bring it.”

Museveni told officials that revoking utl’s licence was tantamount to dancing on a grave of a friend in reference to fallen Libyan leader, Col. Mammuar Gadafi.

He even ordered that the money utl owes the government be treated as equity injection. Insiders say Museveni had also directed the regulator to ask MTN not to block UTL calls and guaranteed that MTN’s money would be paid.

Museveni’s patience seems to have paid off. The LAP GreenN officials say they have got Libyan telecoms giant, Libyan Post Telecommunications and Information Technology Company (LPTIC) to take over all the African telecoms investments of LAP.  LIPTIC is Libya’s state telecoms holding company. The company owns all the main state telecommunications companies in Libya including the two main state mobile operators Libyana and Al-Madar, the main state internet provider Libya Telecom and Technology (LTT), Aljeel and International Telecom Company, Hatef Libya.

Apparently, LAP transferred its telecoms investments in Africa to LIPTIC to consolidate and take advantage of the latter’s specialist expertise in the telecoms sector.

The arrival of LIPTIC is likely to shake up both the utility and the sector. Once again, utl is likely to see a change of management. On the sector front, the dominant players like MTN and Airtel are likely to see the entry of a government -backed small player with a big punch.

For now, telecom market leader is not talking to the press. Asked to comment on the status of the utl debt in the light of the latest developments, Justina Ntabgoba, the Senior Manager Corporate Affairs at MTN Uganda instead referred us to utl.

“Our interconnect arrangements with partners are subject to confidentiality undertakings,” she said, “Please refer to UTL as we are not aware of any intended change in ownership of utl.”

But Minister Kajara is optimistic.

“I can tell you that the current investor (LIPTIC) is more viable than the former,” Kajara told The Independent, “They presented us with a credible investment plan, monetary commitments, rescue plan and growth plan.”

The nitty-gritties of the deal are being worked out by officials at Finance, LAP GreenN and the officials from LIPTIC in a series of meeting in international capitals.

The first official contact between Ugandan officials and LIPTIC was Malta. After this, Prime Minister Ruhakana Rugunda met the Libyan telecom investors in Dubai. As we went to press, another Ugandan delegation was set to meet LIPTIC officials in Dubai again.

LIPTIC officials have also been to Uganda, done diligence on utl, and have had several meetings with officials here. Government has also done due diligence on LIPTIC.

Once a pending shareholders’ meeting expected early next year takes place, utl officials will again update cabinet.

“We are at the tail end of finalising the transfer agreement,” said Kaboyo.

As part of the deal, LIPTIC is bringing on board some $70 million (Approx. Shs230 billion). That is not much, but it is a good start on the path to recaptalisation of utl.

The investment part of the plan covers September 2015 to the same month in 2016 and involves both cash injections and investment in new equipment.

Sources say utl’s technology is almost obsolete. There has not been investment into utl since 2010. Yet according to experts, given the rate at which telephony technology changes, in a telecom company of its calibre, every three years, an investment of $100 million is required.

The company also has to meet its debt obligations.

President Museveni has pledged to dive in on the debt. Most likely, officials expect government to forfeit Shs53 billion, owed to the Uganda Revenue Authority and UCC.

Kaboyo said the plan in the works aims to reestablish utl’s credibility as a truly Ugandan brand, which is strategic and has potential to make government money; the reason Uganda must support it.

Although government is not putting hard cash on the table, Kaboyo says that the good will it has shown is critical to the company.

The Libyan ambassador to Uganda, Fawzi B. M Bouketf has in the past acknowledged that it is government support that prevented the closure of utl.

The government, for instance, has offered utl incentives, including ensuring that all government offices use utl numbers.

Minister Kajara, told The Independent that government had gone to that extent to save UTL because it didn’t want to lose its only foot in the strategic sector that telecom is.

“Telecom is a strategic sector,” he told The Independent, “government needs to keep a hand there.”

It is a view favoured by Parliament. Legislators on the Parliamentary Committee on Commissions, Statutory Authorities and State Enterprises (COSASE) early this year asked that utl be re-nationalised.

Kaboyo said that sentiment is driven by the feeling that when the government privatised all strategic businesses, it opened the country to external control and investors who make money and take all the dollars away.

Selfish interests

But critics say the government is, in fact, the cause for utl’s woes because, one, it never pays its bills and has accumulated a debt of Shs11 billion. Two, as a shareholder, government has a duty to invest cash in the company—it has never.

At stake for Museveni, sources involved in the deal say, is the desire to save what is seen as Uganda’s national telecom company, used by government departments like Uganda Police, Uganda People’s Defence Forces (UPDF), among others. Government owns a 31% stake in the company.

UTL has been the only provider that government uses and never pays. From State House to Uganda Police, among other departments, government has accumulated a debt over Shs. 11 billion in phone call bills.

In response, Kajara told The Independent that government pays and that what is left is just a small balance. “But most importantly,” the minister added, “We demand much more money from them. That money (Shs. 53 billion) is supposed to be in the Consolidated Fund.”

He insisted the focus is now on getting this investment that is coming in. But it seems Mutabazi is still waiting to swing the axe. “The President had given them (Utl) two months which have since expired,” he told The Independent early December, “So we will proceed with regulatory applications and act according to the law.”

The 60 days were from April. But as they neared expiration in June is when the Libyans met Museveni and got a new lease of life. The fate of utl is clearly far from decided.