2013, best year ever for Uganda Securities Exchange, here is why

At the Uganda Securities Exchange (USE), it is business as usual. After the first five minutes of trading, there is a long lag where brokers read newspapers, discuss football, politics and once in a while a trade will come. 2013 wasn’t any different. In terms of numbers it was. At the end of 2013, the stock market turnover was Ugx197.7bn a rise of more than 500percent from Ugx30.5bn in 2012. A big leap indeed. 2013 was arguably, the record breaking year for the USE. Trouble is, Joseph Kitamirke the CEO, who left mid-2013 has not been replaced. Many have asked, what was different in 2013?

Dfcu Group was the difference. The bank accounted for more 58percent [Ugx112.95bn] of the entire turnover at the stock exchange. If compared to 2012, this counter only had Shs1bn in trading turnover. Umeme came in second with turnover of Ugx44bn and Ugx30.7bn for Stanbic Bank in third. All these were record breaking figures for these stocks.

Dfcu is Uganda’s sixth largest bank in terms of assets – Ushs981.1 and customer deposits – Ushs591bn. At the end of 2012, it was Uganda’s 7^th most profitable bank despite a 5.4percent fall in profits to Ushs29.8bn offering dividends of Ushs37.1per share to shareholders. In 2013, Rabobank from the Netherlands – bought a 27.54percent stake in Dfcu. Also, NORFUND increased its stake in the Dfcu to 27.54percent in the bank after buying an additional 17.54% in Dfcu. The transaction was valued at Ugx111.9bn, accounting for 99percent of the entire turnover on the Dfcu counter.

“The more we do this, the more ready we will be when other transactions come on board,” then CEO, Joseph Kitamirike said. The USE has never handled a transaction of this magnitude and for two brokerage firms, African Alliance and CfC Stanbic Securities- now SBG Securties - , it was a handsome payday for them. Such transactions are not common for listed equities in Uganda, so it is the number one reason why the stock market performed “well” in 2013.

Umeme also completed its first full year on the USE in December 2013 and had a turnover of Ugx44bn, which is 39percent of the total turnover of the USE. Umeme has been an active counter since the company listed in November 2012. Institutional investors were particularly interested in this counter, arguing that it had been largely undervalued at the time it listed. Its shares were also available to trade for those willing to exit and enter. It also recorded the highest price appreciation of about 35percent.

Stanbic Bank turnover was also up by 137percent to Ugx30.7bn in 2013. This leap was also due to increased activity on this counter. Stanbic Bank is Uganda’s largest bank by assets, customer lending and deposits.  Again, the demand on this counter was driven by interest from pension and mutual funds that were reviewing their investment strategy. This as the banking sector is expected to have recovered in 2013, after the Non-Performing Loans (NPLs’] that dogged the sector. Analysts were bullish then, with one of them telling this columnist in 2013 that “......we expect better growth in the second half and in 2014 in terms of interest income as credit growth improves and recoveries on non-performing loans while noninterest revenue will grow as deposits continue to improve.”

The USE was however dealt a significant blow when the CEO, Joseph Kitamirike was not given a new offer by the governing council. The performance was undoubtedly the best in the history of the exchange, but once again two counters, Stanbic and Umeme present that organic growth. 

Press and Journalists Act "violates the freedoms of speech, expression, the press and other media" - Petition

... from The African Center for Media Excellence 

PRESS RELEASE

On Friday March 14, 2014, the Centre for Public Interest Law (CEPIL), in cooperation with the Human Rights Network for Journalists and the Eastern Africa Media Institute, a tripartite initiative known as the Partnership for a Free and Independent Media, filed a constitutional petition challenging major sections of the Ugandan Press and Journalists Act.

This petition, recorded as Constitutional Petition number 9 of 2014, challenges the Press and Journalists Act, Cap 105, on the grounds that the law violates the freedoms of speech, expression, the press and other media, as contained in Article 29 of the Constitution, as well as other key provisions that provide for protection of fundamental human rights. The Partnership believes that this law violates key principles of freedom of the press and other media, and restricts the Fourth Estate in Uganda in a way that is not justifiable in a free and democratic society.

The petition identifies a number of areas where the Act is in contravention of the Constitution, including unduly restrictive licensing conditions for journalists; unclear, inconsistent and overly broad powers of the Minister and the Media Council to punish journalists; a code of ethics that holds journalists liable for disseminating “incorrect or untrue” news or allegations and requires them to disclose their sources if there is “an overriding consideration of public interest”.

One area of particular concern is the licensing requirements for journalists. The petition states that, “section 26 [of the Act] is inconsistent with article 29(1) and 40(2)(a) of the Constitution in so far as it provides for application to the Council in order for a person to practice journalism.” The petition further goes on to say that “sections 28 and 29…restrict the right of a person to practice journalism unless the person has enrolled, acquired an accreditation card, and complied with all the terms the Council has set and has complied with all orders under the Act.” Such restrictions, taken together with other sections of the Act, unduly limit the ability of journalists to practice their craft and create the potential for political persecution of journalists who hold divergent views from those in the licensing authorities.

The dangers of the licensing process are compounded by the procedures by which complaints can be instituted against journalists (sections 31 and 32), the procedures by which journalists can be suspended (sections 34 and 39), the way in which the Council implements its own orders made against a journalist (section 35), the ability of the Disciplinary Committee to institute proceedings of its own motion against journalists without adequate guidelines or controls (Section 40(2)), and a complaints procedure against journalists that fails to meet basic principles of natural justice (Sections 31, 32, 33). The overall impact of these sections of the law is to compromise severely the ability of journalists to practice their craft due to fear of persecution from the state.

Other elements of the Act that violate the Constitution include its requirement that journalists join an association to practice journalism (sections 27(1) and 28), the requirement that journalists pay a fee to get or renew a license to practice journalism (sections 27(2), 16(1), 27(1), and 29(2)), and the requirement that what is published is not contrary to public morality (section 6(a)).

Finally, the definition of practicing journalism (section 27(5)) is far too broad and does not even require a link with a mass media outlet. It would therefore subject most individuals working for civil society, all academics, and even students or employees of the telephone company who collected information for the purposes of compiling a telephone book, to the authority of the Minister and Media Council. Mass media and electronic media as defined in section 1 is overly broad, as the former not only includes electronic media but also posters and banners while the latter includes any communication to the public by any electronic apparatus, thus including every website, regardless of its content. All these would therefore be treated as persons practicing journalism and would be required to register and obtain licenses at the penalty of imprisonment on default.

Overall, the Act violates the freedom of the press and other media, as guaranteed in the Constitution, and provides an extremely restrictive environment for journalists that will compromise their ability to carry out their duty in a professional way, free of fear from persecution by the state.

About the petitioners:

The Centre For Public Interest Law is a non-profit, non-religious and non-partisan organisation registered in September 2009, which aims to protect public interest in
Uganda using law as a tool.

The Human Rights Network for Journalists—Uganda, a nonprofit and non-partisan organisation founded in 2006 enhances the promotion, protection and respect of
human rights through defending and building capacities of journalists to effectively exercise their constitutional rights and fundamental freedoms for collective campaigning through the media.

The Eastern Africa Media Institute (EAMI), Uganda Chapter was founded in 1997 as an umbrella organization of 29 media associations and organizations spread all over the country. EAMI is a nongovernmental and non-profit organization committed to the values of a free and independent press, united, strong and vibrant media development in the country in order to attain a free, responsible media and a democratic society.

For further information please contact Sheila Atim, Centre for Public Interest Law, at 0312-106022 or sheila@mbgadvocates.com.

Three years [almost] of inflationary targeting; what do we know so far?

“Central banks are mysterious institutions, the full details of their inner workings so arcane that very few outsiders, even economists, fully understand them” Liaquat Ahamed, in Lords of Finance. [Currently reading]

We swipe the access cards and walk through the revolving door to the elevator. Then we make it to level 7. To a heavily air conditioned boardroom. We sit. We wait for the governor to deliver a statement on inflation projections and the benchmark lending rate for the month. On the boardroom walls are framed pictures of previous bank governors. It is not that lavish a boardroom, but as we wait, looking around is perhaps the only option. The governor arrives. Face down. Walks in with a swagger. Then he sits. An aura of silence ensues for about 15 seconds. Staring at a piece of paper, he issues a monetary policy statement. The issuance of this monthly statement started in July 2011. 

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The policy known as Inflationary Targeting started in July 2011, at the height of double digit inflation. The bank every month issues a statement on what they project inflation to be in the next short and medium term. The governor, Prof. Emmanuel Tumusiime-Mutebile, then also announces the Central Bank Rate (CBR) – a benchmark lending rate. A signal to the market on the direction of interest rates. 

At the time the monthly issuance came in, the bank wanted to stem runaway inflation, so it increased the rate monthly, until November 2013, peak at 23percent. In turn, commercial banks also sent their interest rates through the roof, and by January 2012, the rates had gone up from an industry average of 21percent to 27.2percent.

The monthly increase in CBR slowed credit uptake by the private, which by then was growing at about 30percent year-on-year. The high interest rate environment slowed this growth. Bank of Uganda was criticized for the policy. Some economists and self-appointed-pseudo economists say the policy was hurting borrowers, slowing economic growth and not curbing inflation at all. Traders went hay wire overthe rates, closing their shops in protest of banks increasing lending rates onexisting loans. They even met the president – he met them, just that – but Prof. Mutebile remained steadfast about the policy.

Traders shut their shops in January 2012 protesting the high interest rates. Photo from The New Vision 

Dr Louis Kasekende, Deputy Governor BoU, at a recent conference on Transitioning to Modern Monetary Policy told central bankers from the sub-saharan region that the aim of the policy was to “influence bank deposit rates and wholesale bank funding rates, which determine the marginal cost of funds for banks, and thereby bank lending rates. These interest rates are clearly much more relevant for the saving and borrowing decisions of private sector agents in the real sector of the economy, and therefore for aggregate spending, which is what monetary policy ultimately aims to influence.”

As a result of the high interest rate environment, there was an increased number loan defaults, which increased to 4.2 percent at the end of 2012 from about 2 percent in 2011. Already, the fourth quarter of 2013, they had gone up to 5.9 percent, the highest for any quarter since March 2004.  Mortgage uptake slowed and so did the agricultural sector lending. Economic growth in 2011/12 also slowed to 3.2 percent, the lowest in over a decade. The government watched on, helpless. Ugandans worked hard, businesses collapsed, others survived and journalists wrote stories.

By the end of 2012, BOU had eased – or rather the template word, cautiously eased – the rate to 12 percent, lower than the July 2011 rate. The bankers meanwhile were also partly reacting. Average lending rates declined to 24.77percent. Currently, the policy rate is at 11.5percent, whereas bankers are lending at 22.14percent on average. Not good enough. Some economists say. Even BoU officials.

Dr Kasekende: “So far we have been less successful in influencing bank lending rates, which have proved more sticky [sic] than other interest rates.”

Adding, “Therefore, the acid test of monetary policy implementation in an ITL (Inflationary Targeting Lite) framework is the extent to which changes in the policy interest rate set by the central bank are transmitted to other interest rates in the economy which in turn affect private sector spending.”

Other governors in the room seemed to agree, as they were facing similar challenges in their countries. Stanbic Bank, Uganda’s largest bank, at the beginning of the year announced it was going to start setting interest rates based on CBR. An overriding factor why BoU is optimistic that this policy will be effective on commercial bank interest rates.

Ms. Antoinette Sayeh, Director, IMF African Department also says, “There is broad consensus that additional research is needed to fully understand the transmission mechanism of monetary policy in Sub-Saharan Africa, including on the sluggish response of lending rates to the recent loosening of monetary policy.”

On inflation. According to the UBoS, core inflation, which excludes food crops, energy, fuel and utilities, contributes at least 80percent to the entire headline inflation. BoU also targets core inflation because it considers it less volatile and when Inflationary Targeting came in, core inflation was at 15.6percent. As core inflation increased, so did headline inflation. Once it declined, then headline inflation would follow suit. The BoU projection: Core inflation to be in the 5percent range for the next twelve months. 

“The reason why we target core inflation is that we have potentially better control over core inflation than headline inflation. The goods and services whose prices are excluded from core inflation are generally more volatile and more subject to supply price shocks than are other prices in the consumer basket. Because the prices of food crops and fuel are mainly determined by developments on the supply side of the market, such as the abundance of the harvest, they are largely outside of the control of monetary policy,” Mutebile explained.

When BoU was implementing the ITL, it slowed borrowing and increased costs production. Then, no jobs were being created and some companies were not growing. Foreclosures also increased. Loan defaults were on the rise. Traders cried foul, all in vain. Customers started reading the terms and conditions of the loans clearly. Has inflationary targeting been a success? The bankers say "yes" whereas the citizens would want to disagree. 

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After reading his statement, not so flawlessly, we ask questions. Bullishly he answers “I did not say that”, “it is none of your business.” “Yes.” “I do not think so.” He then walks out confidently, knowing that the market will react positively to the news. 

Government and Oil Companies signed an MOU, So what?

“A prenuptial agreement is a legally bind contract created by two people before they marry. In the prenuptial agreement the couple addresses such issues as the property bought into the marriage by each person and what the property rights of each will be should they divorce.”

Words. Sentences. Jargon. Phrases. Anecdotes. This is how we tell stories, sometimes. So last week you may have encountered phrases like: “...roadmap for the Commercialization of Petroleum Resources discovered in the country,” or “…framework for achieving a harmonized commercialization plan for the development of the discovered oil and gas resources in the country.” How did we get to all this jargon? 

Well, the oil companies operating in Uganda – at the moment – that is: Total, CNOOC and Tullow had been negotiating with government on how to develop our oil. In other words the oil companies and government had to agree on how much oil will be refined, where it will be refined, who will finance the refinery & pipeline, and other infrastructure needs. It took over a year to agree on this considering that the oil companies had been opposed to a refinery in Uganda. So finally, they agreed and signed. But so what if they signed? Does it mean oil will start flowing soon? Can companies begin production? Well, no.  

Here is what the MOU isn’t: The MOU doesn’t mean we know how much fuel – once the refinery is complete - will cost. It also has nothing to do with how much Uganda will earn in terms of oil revenues. It has nothing to do with revenue management. Obviously, it will not determine the price of oil.

It is only a roadmap. In other words, this just paves the way for Uganda to continue the process towards finally being an oil producing country. It is also an indicator that our oil is commercially viable right now. 

Remember the definition of a prenuptial agreement above? That is how I can describe the MOU between government and the oil companies.

Only one company – CNOOC – has been issued a production license. [Note that all the three oil companies are equal partners in all the licensed areas in the albertine region, but CNOOC is the main operator – the in-charge – of the area where a production license was issued - Kingfisher]. So yes, an MOU was signed, but no new production licenses were issued. Total and Tullow still have to wait. A production license is like a go ahead for companies to finally start “bringing oil out of the ground.” Notably, it takes about five years – in Uganda – from the time you’re issued a production license to finally start commercial production.

Secondly, the MOU points out the role of government and that of the oil companies. The government's priority right now is to find the majority stake investor – 60% - in the oil refinery. It is currently compensating people occupying the 29square kilometers of land in Kabale Parish, Buseruka Sub-county, Hoima District where the refinery will be located. It has also shortlisted six consortia to submit their proposals for the development of the refinery.The model and financing of the refinery will determine the cost and whether we’ll get more affordable fuel. One of the reasons government gives for its push for a refinery, is to the country of a petroleum import bill of US$1bn [2013]. 

For the oil companies, their role is to make sure oil produced goes the refinery first, before it makes to the export pipeline. The export pipeline is their business, not ours. Not quite. It is our business too but we have the option of having a stake or not in pipeline. In other-words, we do not have to sink tax-payers money in the pipeline, unlike the refinery.

A statement issued by government reads, 

“The MOU requires the oil companies to support Government in its efforts to develop the refinery including public endorsement of the project. It also requires Government to provide support to the oil companies in acquiring approvals for studies and surveys for an export pipeline and to initiate discussions with neighbouring countries in relation to cross border frameworks for the pipeline.”

Tullow’s Jimmy Mugerwa issued this “public endorsement” in a statement issued after the signing: 

“The parallel framework of a crude export pipeline and a right-sized refinery that has been agreed on in this MOU provides that market certainty.” 

Note the wording >> “right-sized refinery.” The size of the proposed refinery, 60,000 barrels per day. Expected completion year: 2018.

The third point is that the MOU signing gives the oil companies some sort of signal on whether to invest in this country or not. Again, here is another quote from Mugerwa: “…conclusion of this MOU between us and government is significant because the capital required to finance the development of the upstream production facilities, the pipeline and the refinery is in billions of dollars and the financial planning for the project requires that there is a clear market destination for Uganda’s oil production before a Final Investment Decision (FID) can be concluded.”

So, Total Uganda, CNOOC Uganda and Tullow Uganda subsidiaries can now confidently march to their parent companies and say, “hey, we’ve made progress, can we get some more money to invest in this country?” This also – silently – is some assurance to the oil companies that they will perhaps get production license considering that they’ve already signed an MOU. More investment in Uganda means, our local suppliers get to win [some] contracts. A possibility of some jobs – I’ll refrain from a particular figure – and then infrastructure development.

What I can say, the MOU was signed, and meaning government and oil companies are reading from the same script. I can also say a roadmap can take as long as possible. We still have several unanswered questions especially on project costs, whether we need both a refinery and pipeline? What have the oil companies exactly committed to? What we need to watch closely is the current Public Finance Management Bill in parliament that indicates how revenue from petroleum is going to managed. 

Finance Trust Bank: Local bank but will it hack it as a commercial bank?

26 – The number of licensed commercial banks in Uganda. Not a terrible statistic considering that only one commercial has been closed down in the last five years. The Commercial Bank of Africa (CBA) and Finance Trust Bank are the latest entrants in Uganda’s commercial banking scene. More recently, Guaranty Trust Bank (GTBank) acquired a 70percent stake in Fina Bank. (I’ll write about the prospects for GTBank in Uganda next time) 

Finance Trust Bank is not entirely new to Uganda’s banking scene. Founded in 1984, Finance Trust Bank started as a microfinance institution until December 2013. Its focus: providing affordable to mainly women. It is, rather was, not a small microfinance. It boasts of 35 branches. The transition into commercial banking means that Finance Trust Bank made the baby steps just like Centenary Bank – Uganda’s 5^th largest bank by assets – did.

FTB with its current figures of Ushs43bn in customer deposits, Ushs58bn loan book and assets of Ushs91bn, will have its work cut out in the commercial banking segment. In customer deposits, it comes at number 20. On the size of the loan book it is ranked 18, just above United Bank of Africa (UBA). With its assets of Shs91bn, we can ideally say, FTB is now Uganda’s 19^th largest bank out of 26. In 2012, the bank also recorded after tax profit of Shs1.5bn, which would have placed it in 17^th position. These numbers considering that it already has 30 branches, means it has already spent on some start-up costs and will not have to go through the cycle again. 

Prof Mutebile, BoU Governor & Irene Muloni (Chairperson FTB)  Picture from New Vision 

The broader challenge however is managing to keep its customers happy, with attractive interest rates especially for micro-lenders who have grown with it over the years. Centenary Bank has managed to do this. When Equity Bank of Kenya acquired Uganda Microfinance Limited in 2008, some branches in rural areas were closed. They were not making money for the bank. It was hemorrhaging money on administration costs. Moral of the story: Commercial banking can be similar to microfinance but it is not the same thing.   

Commercial banking comes with more demands, expectations and survival. To begin with, FTB managers have to make sure the capital base of the bank remains above Shs25bn – the regulatory requirement – and also “innovative” [find ways of being more predatory] if they’re to sustainably grow. To shore up its capital base, the bank apparently had to seek some international funders to buy some stake in the bank, but to sustain this level of capital – or more – the bank will have to make money.

It is a whole new ball game for them. What advantage does FTB have over other banks? Irene Muluni the Board Chairperson, FTB says, “Most banks are in urban areas, which gives us the opportunity to go for rural women.”

FTB is a majority Ugandan owned bank. This we should be proud of as “locally owned banks” have been in short supply. Ugandan organizations – mostly women organizations – own 55.4percent of the bank. Only Centenary Bank and Crane Bank have above this local ownership threshold. Interestingly, Annet Nakawunde Mulindwa, the FTB CEO is only the second female CEO of a commercial bank in Uganda.

With all this bloom, will FTB making formal banking more attractive. A 2013 Finiscope study on Financial Inclusion [I have a hard copy of this report if you need it] indicates that between 2009 and 2013, the percentage of adult Ugandans with access to a formal bank had declined by 1percent to 20percent. This, even after the increasing number of commercial banks in the country. The same report indicates that the percentage of Ugandans saving with a commercial bank had fallen to 19percent in 2013 from 21percent in 2009. Additionally, the number of Ugandans accessing credit in a bank rose – marginally – from 5percent in 2009 to 6percent in 2013.

FTB will however be boosted by the fact that 73percent of borrowers – both formal and informal – take up small loans of Shs500,000 and 14percent taking up about Shs1,000,000. Since the FTB’s focus will be those Ugandans in rural areas, then they could succeed. Considering its focus to encouraging women entrepreneurship and financing, it could also help increase the percentage of women with access to formal banking services.

However, when FTB was a microfinance institution, it was also in the formal banking category and the numbers as we’ve seen have been stagnant. What will it do differently? We’ll wait and see.

We were not duped on Electricity Tariffs. We simply didn't tell the story.

This new information environment in which we live, it’s so vastly different from what it was a few decades ago. It’s noisier; it’s more confusing; there are a lot of sources of information that are not trustworthy. Many talk shows and many blogs are in that category, just the sheer noise of all the media messages that are coming at us. I think what we need journalists to do is help us find some clarity amidst that noise and confusion, and not add to it. So I think there’s some real urgency around this particular issue in journalism. Thomas E Patterson. 

Electricity tariffs have always been a touchy subject. Often, Umeme, the power distributor taking most of the heat. Sometimes, rightly so considering it is at the tail end of the electricity value chain and closer to the consumer. However, The regulator, Electricity Regulatory Authority (ERA), is one that sets the tariff. Mid this month, ERA made the announcement where the tariff was reduced - that is the phrase being used - by 0.8percent to Shs520.4. In their statement, however, there was also an increment for the first 15 units of electricity; from Shs100 to Shs150, an increment of 50percent. Yet again, ERA pointed out that the government would be spending Shs59.5bn on thermal plants - without specifically indicating where this money come from. 

So which story did we pick on? It was one where ERA apparently reduced the tariff by 0.8percent but then we sort of sidestepped the 50percent increment on the first 15 units. Yes, the reduction may have been historic but it was insignificant and the impact on the consumer is minimal. The consumer of electricity is one we write for and is one we have to be informing. Did we do a good job in letting them know whether they would be paying less? Perhaps not. Yes we had all these deadlines to beat and file stories for our newsrooms but this matter needed to have explored further to actually point out to the consumer that this reduction was - on paper - a reduction but in broader terms an increment or no change at all. 

I'd done my own calculation, but here is one done by a journalist on Facebook group wall:

"Under the old tariffs, you were paying Shs 100 for the first 15.5 units (Shs 1,550) and 84.5 units X 524.5 = 44,320. Your total would be Shs 45,870. Under the new tariffs, you are going to pay Shs 150 for the first 15 units = 2,250, and Shs 520.6 X 85 units = Shs 46,501. Ideally, the total for the 85 units should have gone down by Shs 69 but because the cost of the first 15 units went up by a total of Shs 700, the total bill will go up by Shs 631"

The Daily Monitor covered this story, but Nelson Wesonga did not write the story yet his insight on the sector - as always - I admire. Monitor did allow him to do some commentary right next to the story. 

Noteworthy, too, is that ERA has increased the charge for each of the first 15 units that one uses from Shs100 to Shs150! That means a poor man - and I believe there are “a few others” like me - who use averagely 20 units in a month, will save only Shs28 per month.  

Thomas Patterson, author of a new book, Informing the News - Need for Knowledge Based Journalism in a Nieman Labs interview says: 

I think journalists need to have a better understanding of their audience. Traditionally, they’ve had a pretty good understanding of the news process and the gathering of news — the production of news and the dissemination of news — but not a real, deep understanding of their audience: how people learn, what it is about news stories that leave an impact, and what’s the cumulative effect of news coverage.

Pic from http://www.btcctb.org/en/casestudy/electricity-fight-poverty-rural-uganda

In the same interview, he adds: 

Another piece of it, of course, is numerical literacy. Many journalism programs don’t require their students to understand numbers, statistics, government reports, and the like. I find it hard to think how a reporter can operate in this increasingly complex, number-driven world without the ability, not to do the numbers or collect the data, but once looking at it to understand it and be able to interpret it in a way that enables the audience to see its significance. 

The debate on the other hand has been to report the story because we finally have a reduction in Tariffs in over a decade. So what if it is the first reduction? Is the "small" consumer the only person who reads the news - if they do at all? How many units of electricity does a Ugandan household consume on average? Would this reduction have helped them? Did the industrial consumer get a much needed reduction so that costs of production can reduce? In other words, so what if they have "reduced" the tariff? Where is the money to pay the thermal plants going to come from, a subsidy or it is part of the tariff? Did Umeme get what it wanted? 

Take note that ERA said electricity losses had dropped from 23percent to 20percent at the end of 2012. What does this exactly mean? If the losses have reduced by this margin, why isn't it being reflected in the tariff?  Are we perhaps too fixated on Umeme and not doing enough to put ERA to task? 

What you need to know about the firms interested in constructing your oil refinery

Many have said Uganda has been too slow in propelling itself into oil production after discovering oil in 2006. Others  - mainly oil companies – have insisted Kenya could be the first oil producer in East Africa. Pressure from the same oil companies – Elly Karuhanga, President Tullow Uganda – has been growing for government to issue production licenses. All that, understandable as it may be, is seemingly not going to let the government barge from it taking its time, including completing an oil refinery. Meanwhile, the expectations from Ugandans continue to grow. With all this, the government seeks to first get the refinery project off the ground. So as the compensation process goes on in the 29 square kilometer piece of land for the refinery, in Kabale, Hoima District, the final six firms and consortia bidding to build the refinery have been released. The diverse list is not dominated by Chinese companies as earlier speculated. So what? You may ask. Well, these firms want to be part of an infrastructure project, that if economical enough, could see a drop in fuel prices and propel Uganda to be self-sufficient, partly tilting the Balance of Payments. According to Bank of Uganda statistics, the value of oil imports in 2012 increased to USD1bn from USD800m in 2011. 

The China Petroleum and Pipeline Bureau (CPP) consortium was first on the list. Projections would indicate that this consortium at best, includes a host of Chinese companies involved in the petroleum production value chain. CPP, is also a subsidiary of the Chinese National Petroleum Corporation (CNPC) which is placing itself a global oil producer. CNPC has assets of over USD480bn more than twenty times the size of Uganda’s GDP. Chinese companies more often than not have the finances from their development banks to spend on big infrastructure projects. Cheap financing is understandable because it doesn’t weigh heavily on the refinery once completed. Notably however, refineries in Chad and Niger, all with a 40percent stake from Chinese companies, in 2012 were operating below capacity as government and the companies failed to agree on oil prices.

From Japan – Ugandans drive lots of Toyota’s from the country – is the Marubeni Corporation, which is the only firm listed on the six. In other-words, it is only the one single company that did not submit a bid as part of a consortium. Internet searches and the company website describe it as a major player in the construction, exportation and marketing of oil and gas projects. It is a conglomerate that has major investments in Health, transportation, industrial machinery, energy, mineral resources, ICT, Finance and Real Estate among others. It is currently part of refinery projects in Kazakhstan, Qatar and Kuwait. In 2012 however, the company was forced pay USD54m in fines after violating U.S. Foreign Corrupt Practices Act (“FCPA”) in a Nigerian LNG Plant construction project.

Ever heard of Petrofac? Well, Petrofac apparently spent $1.5m (£1m) on a private jet for the boss plus $189,000 on client entertainment according to a story written by UK’s Independent. That aside, Petrofac a UK company, registered in Jersey, USA, also submitted a bid with a consortium. Petrofac is involved in various infrastructure projects in the oil and gas sector in Algeria, Tunisia and Malaysia. Its strength is in the petrochemicals segment, which is usually an offshoot of refining. In September 2013, Petrofac led a consortium that won a deal to construct a petrochemicals plant in Kazakhstan.

Russia is a power house in the oil and gas sector. Its companies, like Roseneft and Gazpromm have proven to be major players in Europe. Well, it is rather not surprising that a consortium led RT – General Resources has also expressed interest in the Ugandan refinery. RT – General Resources is a subsidiary of the Russian state corporation – Rostec. Rostec, is also known to be involved in the businesses of firearms, and in October 2013, signed a USD1bn arms deal with the Angolan Government. They also service and supply Russian made helicopters. In Natural resources, they’ve mining activities in Zimbabwe. Interestingly of all the companies/consortia that placed bids for the refinery, RT – General Services is the only one that issued a statement eventually picked up by the news wires. Their consortium includes VTB Capital, the lending arm of the VTB Group a leading Russian financial services – including banking – provider. It is 60percent owned by the Russian Government. Tatneft, another Russian company, is involved in the entire value chain from exploration to marketing, is also part of the consortium. A point to ponder on though is a statement in the Russian media outlet RT, which reveals that Andrey Korobov, the General Director of RT – Global Resources said “The consortium aims to recoup the money spent on the project in a short time due to the high oil price.”

As South Korea ponders on the next move to be made the young North Korean leader, Kim Jong Un their companies have been making inroads in Africa. Samsung has pitted itself against Japanese Companies like Panasonic, Sony and Olympus on one hand and Apple on the other. This time, the largest oil refiner in South Korea SK Energy – a subsidiary of the SK Group - has also put in a bid with a consortium of companies for the Ugandan refinery. Korean media has been reporting declining fortune at home explaining why it has been looking for opportunities in countries like Australia. The SK Group has eight subsidiaries in just the petroleum value chain.

Know a country called Iran? Of course you do. Well, this has nothing to do with Nuclear Weapons but has everything to do with it. In September 2012, there was an EU embargo on Iranian oil imports; that limited any business performed by international companies with ties in the EU. In that month, Vitol a Swiss company, the largest and most aggressive energy and commodities trading company, admitted – well kinda – to have traded some Iranian oil. Okay, if that is complex, remember the famous Iraq UN oil-for-food-program? Vitol also in 2007 pleaded guilty to theft and paying kickbacks to Iraq under this program. It agreed to pay a fine of USD17.3m. So why are we talking about Vitol? It is also leading a consortium of companies that want to construct an oil refinery. Vitol [http://www.vitol.com/] is also vertically integrated – involved in the entire oil value chain.

As the Uganda government deals with compensation of Ugandans occupying the proposed refinery land, it now also has to go through a process of finding the best possible partners in the oil refinery. One of these consortia named above will have a 60percent in the refinery of about 60,000barrels per day. In an article I wrote for The CEO Magazine – Honorary mention in the 2012 ACME Oil and Gas reporting awards – a Norwegian expert told me:

 “Worldwide, there are more than 600 refineries with different solutions for state involvement based on history, economics and politics. Each situation must be evaluated  on its own merits, and I am confident that Uganda will find a solution which serves the  country well,” - Sverre Brydøy a consultant with IPAN [The International Petroleum Associates Norway (IPAN), a consulting firm with expertise in exploitation of oil and gas including refinery models.]

In the same article, Dr Keith Myers [previously worked for BP  and rose to the level of Senior Commercial Advisor until  2000, when he quit. He now offers advisory services through Richmond Energy Partners – which he founded – to investors and oil and gas companies.] also noted; 

“I assume that the GOU will wish to have its share of the capital costs paid by others. The providers of capital will want a considerable degree of control over how the refinery operates until their risk capital is repaid. The challenge comes in aligning purely commercial objectives with a political agenda that may compromise profits from the commercial partner's perspective. Refinery joint ventures between State Enterprises and commercial investors work best where objectives are aligned, but the relationships are never easy.”

On Umeme: let’s get back to the basics

It is the last day of November – 30^th to be exact – in 2012. The sun is finding its way through the clouds. We are at the Sheraton Kampala Hotel. The same Hotel where everything was "Kwisha" in 1981. Fast forward to 2013, I once got served milk that had gone bad. I abandoned the cornflakes. Well, on this November day, Umeme had treated us to breakfast and a host of speeches. It was on this day Umeme got listed on the Stock Exchange. And yes, the trading floor was temporarily moved to the Sheraton. “They have been bought off,” they said. “Why are they not telling us the issues? Umeme is cheating us?” they added. Oh well, I wonder how breakfast could be a form of buying us off? But the company got listed, the first since 2009. The price has since appreciated by 36percent and now a share is worth Shs365. Good for the company and good for the USE. Such days are rare for the USE. 

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The generators blare on. Downtown Kampala, traders along Nasser Road are listening to their Radios. Later in the evening they will watch NTV and on Newsnight, Andrew Mwenda will be talking about “daft MPs” trying to get the “Umeme contract cancelled.” We suffer from "lack of intellectuals" to analyse issues, he will say. The Umeme concession is in its 8^th year – of 21years. When MPs made recommendations after an adhoc committee report on the electricity sector, one of them: terminate the Umeme contract as they claimed it was signed in bad faith. We got a bad deal. Additionally, Umeme lied. In defense of Umeme – and partly, I agree – Mwenda notes that Umeme has not breached any of the concession terms and in fact continues to invest in Uganda, achieving the targets set for it. They recently added a Shs485bn loan deal from IFC, Stanbic and Standard Chartered for further investment between 2015 and 2018. 

Yes the concession agreement is complex. You'd have to breakdown the key issues, one by one, including taxation. So let’s deal with the basics. Umeme is inefficient – sometimes. Bills are still estimated and the generators are dominant. In Kampala, we lack a smart grid. Sometimes the slightest of winds – even before the rains – we are plunged into darkness. They’re “trying to fix” the grid. It is not that easy – they say. Western Uganda is now expected to experience more than four months of load-shedding as the grid is upgraded. But what do we want? Electricity! Efficient supply of electricity. Where did all this start? Uganda Electricity Board (UEB) used to be the power distributor and generator. We had daytime and nighttime load-shedding. It was inefficient. It had suffered from elite capture. The same “elite” still running some of electricity bodies like UETCL, UEDCL and UEGCL – all replaced UEB. All these companies have a role to play in the energy sector. It is complex. UETCL undertakes most of the high level projects on behalf of government. If the transmission lines are inefficient, we have the right to blame them. 

We delayed power projects yet more people were added on the grid. Bujagali delayed. We blamed butterfly activists and Ken Lukyamuzi. Then desperately to keep our lights on, we brought in thermal generators – at a premium. Government decided to subsidise the tariff. Bujagali “went live” in 2012. We had excess electricity, an "un-smart" grid and an ad-hoc committee report. The company went public, the investor, Actis got back about Shs92bn returns on loans for “upgrading” the systems since 2007. 

With Bujagali and ESKOM – running Kira and Nalubaale – they want a power distributor that can make collections for them to get paid. The lending arm of the World Bank, IFC, and Germany’s KFW etc… are all investors in Bujagali. IFC is also a lender to Umeme and holds a 3percent stake in the company. IFC wants a return on the money invested in Umeme, they also want to make money from Bujagali. One Bujagali official notes that they prefer Umeme as a distributor, that way they get paid on-time to avoid creditors knocking on their doors. The pressure is on Umeme and Ugandans. If we generate more power, where does it go if we lose 24percent of it? Well, the tariff. We are going to have another huge Dam, Karuma. The Chinese will build and finance most of it. If you think the tariff will drop, well, unless UEB makes it back. To pay for all this energy, the tariff is likely to edge higher. If we get more industries, then, maybe then we won’t pay that much. So even with the tariff, Umeme has to collect the money. They have improved that to 94percent -2012. Then comes in bill estimation!! There is a planned roll-out of prepaid meters – already for some people in Kampala these meters can be seen. They are mandatory, you either get one or get abused by a sub-contractor. The roll-out for the whole country is expected to cost USD300m. Who will pay for it? You. While we pay our bills, some government agencies default. Remember what became of Uganda Airlines? The government racked up a bill that they didn’t pay, sometimes. This cost the airline and it is partly why it went under.  

Point here is, yes we need the FDI, but Umeme’s is not doing charity work, neither for themselves nor for us. We have to keep asking the questions, no matter how “stupid” they sound. If we stop asking, then who will, yet we are the ones who pay the price. If the elite can’t explain the basics, then who will? If they assume, “yeah, Ugandans suffer from lack-of-intellectualism-so-let-us-ignore-them” then how do "they" expect the apathy to go away? The more we discuss Umeme, the more open they become. A Ugandan SME needs efficient supply of electricity. 

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The first thing any business reporter who wants to write about the stock market is told is: “buy shares.” That way you’ll understand how our small stock exchange works. So that way, you become an investor, sometimes, you forget you're a journalist. So yes, despite the "machinations" about Umeme, the demand for the shares of the company has been on a rise.The reason: Institutional investors. Institutional investors, mostly offshore [Mauritius] seem confident. Umeme Limited, Uganda, is 60percent owned by Umeme Holdings - managed and owned by Actis. For one,it has most sophisticated tax arrangements. The holding company that owns Umeme is domiciled in Mauritius [tax haven]. Prof. Guttorm Schjelderup calls this [tax havens] a facilitator of “sophisticated tax planning.” It is a listed company. Disclosure is not problem. Olympus is a listed company in Japan. Enron was listed on the NYSE. Listed banks have rigged Libor, been fined and the world moved on. 

Dear Hon. Tumwebaze, thank you for showing us how "things" can be done

"It is a melancholy object to those who walk through this great town, or travel in the country, when they see the streets, the roads, and cabin-doors crowded with beggars of the female sex, followed by three, four, or six children, all in rags, ad importuning every passenger for an alms," Jonathan Swift, A Modest Proposal

Dear Hon. Frank Tumwebaze, 

I would first of all like to thank you for keeping time, at least for once. Last month, we had to wait for an event to kick-off because the minister had delayed by over an hour. He offered no apologies. Instead the emcee would go on to say that they thank the minister for sparing sometime in his busy schedule to come and grace the event. Guess what Hon Tumwebaze, we also had a busy schedule but made it on time to the event. And that minister is not you, it someone else I do not want to mention. So now you understand why I appreciate that you kept time. I just hope we keep up the spirit, maybe that way, this country can move forward.

There is this councillor who was bungled out of City Hall. Did you see that? I mean, there are video clips of “Omussajja wa Bwino” being lifted out of City Hall. Meanwhile while you were busy conducting your role as minister, the police also treated a lawyer like a rag-tag, a nobody, a thug and a goon. The video clips make for some absurd viewing from my point of view. Of course as always, your defense on such matters is always rather interesting to read. It is from this point that I request that since you rub shoulders with the President, maybe we should treat people who steal public funds the same way. Remember the billions that went missing from our coffers and donors decided to pull the plugs? I wonder why we don’t adopt such an approach for them.

I understand that currently most of the culprits including Mr Kazinda himself are “facing the full force of the law,” a phrase that you really like to use most of the time. Our very own courts are doing their jobs, despite the sluggish progress. These courts are constitutional, aren’t they?  You know what though? the KCCA Act that you quote supersedes the constitution. Not so? Please help me understand your emphasis on two-thirds majority in the act yet we’ve a constitution? So I also think considering that a small matter of a court order or even lack of presence of the defense team in City Hall, the best way to deliver a sucker-punch to people in-the-wrong should be so blanket. Let’s crucify them. Not so? 

I know you have a rather assertive way of speaking and sometimes heckling tendencies [refer to The Fourth Estate on NTV] and of course you can always plead plausible deniability; that you had no idea there was a court order. Indeed, how could you have known? In fact I think whoever steals public resources should not be allowed a defense at all. We should lock their lawyers out of the courtroom and use our starved police officers to keep them out. I also want a ministry of rape and defilement to be formed so we can have cases expedited since our courts are wasting their time. Don’t you agree with that?

In 1701, Jonathan Swift in A Mediation Upon a Broomstick wrote, "But a broomstick, perhaps you will say, is an emblem of a tree standing on its head; and pray what is man, but a topsy-turvy creature, his animal faculties perpetually mounted on his rational, his head where his heels should be, grovelling on the earth! and yet, with all his faults, he sets up to be a universal reformer and corrector of abuses, a remover of grievances, rakes into every slut's corner of nature, bringing hidden corruption to the light, and raises a mighty dust where there was none before, sharing deeply all the while in the very same pollutions he pretends to sweep away."

Before you interrupt me on this point, please note that the short story is a satirical piece, so in case you haven’t read it, please do read between the lines.

I hope you understand my point Hon. Minister. Meanwhile we all understand Kampala can be a filthy city and well, Jenifer has done a fine job. You know I'm business reporter, right? Even when a CEO is doing a fine job, she/he is answerable to a board. That board must consist of non-executive members to play that oversight role to keep the CEO in check. Oh, well, there is parliament and councillors, they can always keep her in check. What is interesting though, is the Lord Mayor and the Executive Director never appeared to agree on anything but we still got things done. Didn’t we? Maybe, whoever we disagree with in our places of work, we should push them out. Kick them out in fact. Blackmail them into making a mistake, and then let them fall “into the cups” – like we say.  Do you know those wonderful "middle sectors" we have on Jinja Road? We beautified them but now they have partly been destroyed due to reconstruction of a 6lane road. Was this part of the broader plan for KCCA? I do not know. 

You know Hon Minister, when a company has built a good brand, is making money and shareholders are happy, rarely does the head of the board chairman be offered for chopping. If he is incompetent, then he’ll be kicked out. Like many of us will be if we under perform at work.  Well, Hon Minister, KCCA is a better organization than ever and what I’ve been wondering is that for all those under performing ministries, why don’t have the PS’s moved or sacked the same way. I mean why not? Did you read the latest Auditor Generals report? Oh dear, oh dear, Statutory bodies are losing tax payers money, but surprise, surprise, we still have the bosses seated at the top comfortably. Why not adopt the same moves you used to remove these people?

Let me conclude my letter by saying, I appreciate the work you are doing; I mean who knew an elected leader would be impeached? Maybe it is about time we also impeach under performing public officials. You have orchestrated a political and legal masterstroke and now, Lukwago & co will spend hours, days and months on a legal wild goose chase as you make amendments to the KCCA Act. In the meantime, "they" could gain political capital and sympathy.

Thank you for your time Hon. Minister.

Yours Sincerely,



NB: Some say they are tired of sausages. I think they should be specific and tell us whether they don't like the Fresh Cut ones - because of the advert - or Sausage King. 

Forget the cross-listing pomp, it is but just that

Coffee!! At best, it is Nescafe, not Good African Coffee or Star Café. A tale of Ugandan Hotels. A tale for another day.

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Here is the context. The Uganda Securities Exchange is vibrant, well, sometimes: Only on days when a company lists – locally – or cross-lists. The pomp there after glides away with limited activity except for companies like Umeme and Stanbic Bank. Uganda Clays used to be in that category, but it’s been unimpressive over the years for the reasons that are mostly copy and paste each year. Debt and low sales. This week, Uchumi one of the largest Supermarket chains in East Africa was cross-listed on the USE after the doing the same on Rwanda Securities Exchange (RSE). This is a "big company," currently valued at US$70m. For the USE – without a CEO & acting CEO – this is much welcome boost, considering this will be one of its best performing year if numbers are anything to go by. Its market capitalization – in simpler terms, the value – will increase and the white boards will have one more ticker symbol: UCHM.

A cross listed company is ideally having a company floated on another stock market that is not its primary listing. The NSE – an exciting market & largest in EA – is Uchumi’s primary listing, and now the USE – located in an arcade along Kampala road – is its secondary listing. Ideally, this listing is a good move. On the first day, 9,000 shares are traded creating a turnover of Shs5.2m. If the momentum remained the same, then the USE would be an exciting place to hang-out. Well, this is not the case. Like they say – I do not remember who came up with the phrase – “numbers don’t lie” but sometimes can also be deceptive.

The USE has a total 8 cross-listed companies including Kenya Airways, Jubilee Insurance, Centum Investments – I believe one of EA’s best Investment companies -, EABL – I wonder why UBL, their subsidiary is not listed locally -, Equity Bank, KCB and now Uchumi. In the history of the USE, the highest or best trading year – 2010 - for cross-listed equities was when shares worth Shs4.6bn were traded. This was for EABL. EABL has also recorded the highest turnover of any cross-listed company. In 2011, Centum traded at least Shs3.6bn worth of shares, but it was in that same year that it cross-listed. Institutional investors gobbled up the shares. 

Picture from Daily Monitor 

UMEME is the only cross-listed company from Uganda on the NSE and it has only traded once – only 1,000 shares back in September. It made headlines, we were happy. I wrote this, “The challenge for Umeme now will be having enough liquidity to satisfy the demand in Nairobi – if they do get overwhelming demand.” These numbers are not the deceptive ones. Cross-listing simply doesn’t make sense, at face value so they will say. Again they will add, I am being too simplistic. "What does an award-less journalist know?" First, in my simplicity, why would I buy shares for a company listed in Kenya, yet I could just make a call to my Nairobi broker to get me some shares? Of course considering that brokerage firms here in Uganda are huffing and buffing, sometimes due to declining business. So just to support my Ugandans in order for them to earn commission of trades, I’d buy the shares. But “meh,” it is my money not theirs. 

The second issue is that cross-listed companies will come on day one and allocate shares to Ugandans. In fact Uchumi has lined up at least 265.4million shares for the USE but will there be demand? The boards will indicate blues and reds on the white board. I know, yes we still use these.  The blue marker is for bids and offers, whereas the red is mainly to indicate a done deal. After this “event” we’ll have some snacks, chat about the market and we’ll write all the lovely stories. The next few days, the counter name will fade or gather dust. Uchumi makes the claim that cross-listing will allow it raise money to expand. I laugh. Ideally cross-listing helps raise money. Investopedia reads: “Some of the advantages to cross-listing include having shares trade in multiple time zones and in multiple currencies. This gives issuing companies more liquidity and a greater ability to raise capital.” Our markets are not well developed. It is not our fault. People don’t understand.

Uchumi is planning a rights issue – shares given at a discount price to share holders in order to raise money. Did they need to cross-list to raise the money? Yes & No!!! Some Ugandan shareholders already owned part of the company after they used the NSE. Only demand will tell. But history tells us, the shares might not be gobbled up. 

Third is the small matter – read big matter – of transfer of shares through an electronic system. It worked for UMEME, then the USE CEO left, and now there’s information asymmetry. If the system worked, transfer of shares would be rapid, but if it doesn't  then buying a cross-listed company from this market would be “erm” a nonstarter - again. 

But why do companies do it? Visibility is one. Uchumi, already a known company is not only a supermarket chain but is now listed in Kenya, Uganda and Rwanda. Investor confidence is up ahead of raising capital for expansion. And yes we are East Africa, a Community. Who wouldn't want to be part of this? Since Uchumi is part of the USE, any developments make the headlines. Investors are happy. Money will be raised.

They will say this is simplistic, but that it what it is. I’m a journalist. I walk to the USE. The brokers will say, “owolugabo” has come. Cross-listing is an event. It should be more than just that but that is only if our markets become more integrated. Kenya, Rwanda and Uganda are not Tanzania. 

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I like tea. Anytime is tea time. I sniff the leaves. The plantations have some great aroma. Kericho Gold – Kenyan made tea – is what I like. We have Ugandan tea. Its packaging is poor. It is ordinary.