THE EAST AFRICAN-NAIROBI-KENYA
Regional
Monday, December 23, 2002
Uganda Cabinet Now Reneges on Kinyara Share Flotation
A JOINT REPORT
THE EASTAFRICAN
THE UGANDAN privatisation process, once described by donor agencies as the most successful in Africa, has been hit by another controversy that threatens to wreck its public image.
Sources told The EastAfrican that the Cabinet sat last week and agreed to sell Kinyara Sugar Works to a core investor instead of floating it on the securities exchange as originally planned. This will cost taxpayers at least Ush3 billion ($1.7 million) � the sum used to prepare the company for listing on the exchange.
The EastAfrican has learnt that the Privatisation Unit had paid the Capital Markets Authority up to Ush600 million ($333,000) to approve the company prospectus. They had paid a similar amount to the Uganda Securities Exchange to have the company listed.
The Unit had also paid an unspecified sum to the Zimbabwean consultants contracted to advise on the privatisation of Kinyara Sugar. The consultants who recommended that the company be privatised through the exchange.
These, together with other administrative costs incurred by the Privatisation Unit in conducting educational campaigns at community level, are estimated at Ush3 billion ($1.7 million).
Grace Achire, the Privatisation Unit's public relations officer, had prior to last week's Cabinet decision told The EastAfrican that after the intervention of parliament in the privatisation of Kinyara, they had been waiting for the final word from the Cabinet.
The Cabinet's decision has defied an earlier parliamentary resolution to sell Kinyara Sugar Works by share flotation, and stakeholders are concerned that the executive is usurping the powers of the Divestiture and Reform Implementation Committee (DRIC), the apex decision-making body on privatisation of state enterprises.
Parliament stayed the privatisation of Kinyara after Minister for Finance Gerald Sendawula announced a change in the mode of the company's divestiture-from floating shares on the stock exchange to allow a greater public participation, to selling 51 per cent of the shares to a core investor.
The legislators pointed out that there was "no material reason" for changing the privatisation procedure, which had been approved by DRIC. DRIC is chaired by Mr Sendawula, but draws its membership from civil society as well.
Under public flotation, the sugar company's employees, outgrowers and current managers were to each buy 10 per cent shares of the company, out of the 51 per cent that was to be sold. Twenty-nine per cent was to go to the public and 49 per cent to be left with government with plans to sell it later. The changes however, are likely to cost the government more, whereas it already needs more money to complete the sale of the sugar company under the new mode.
A series of controversies has dogged Uganda's privatisation process in the recent past, slowing down an exercise that was once criticised for being too fast. These controversies have been brought about by the interference of the executive, as was the case with the sale of Nile Hotel International, Uganda Airlines Corporation, and most recently, Uganda Commercial Bank.
The government has to date privatised more than 100 companies through the sale of total or part ownership to investors, or through liquidations. Kinyara Sugar Works was scheduled to become the first public company to be privatised by share flotation, an option that was supposed to make it a model of privatisation.
This option had not only been applauded by parliament but also the public, who saw a chance of participating in the privatisation process at least.
Last week's Cabinet's meeting set up an inter-ministerial committee to reconcile the conflicting views from various interest groups.
Kinyara Sugar Works is one of the few remaining few government institutions that are profitable. Sources in Privatisation Unit said it has so far paid more than Ush1 billion ($556,000) in dividends.
Privatisation State Minister Prof Peter Kasenene and the Privatisation Unit had recently begun appealing to various stakeholder groups, particularly the outgrowers and employees, as well as the general public, to mobilise funds to buy into Kinyara Sugar Works.
Since then, the leadership of Bunyoro Kingdom, where the sugar company and estate are located, 260km west of Kampala, has been mobilising funds and making preparations to ensure the kingdom's subjects buy the majority of the floated shares.
Bunyoro Kingdom is protesting the sale of the sugar company to a core investor and has warned that the Banyoro are not ready to accept the sale of Kinyara Sugar Works because it will expose them to the "machinations and selfish interests" of the investor.
The government says Kinyara needs a core investor with strong management capacity, which many small owners would not be in a position to put in place, but critics insist that the public has been unfairly denied the chance to participate in the privatisation process.
The change of procedure reportedly originated from State House. "The decision to suspend the share offer was initially made by State House, the Prime Minister's Office and the Finance Ministry," a source said.
The privatisation process is poised to come under fresh public scrutiny as major government parastatals, especially the utility companies, come up for divestiture.
Report by Mutumba-Lule and Gertrude Kamuze
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