Arua city engineer Charles Omona has been released on police bond after refunding over Shs 28 million that he'd embezzled.

Omona was arrested on Thursday this week by a team from the State House Anti-Corruption Unit  (SHACU) over allegations of embezzling the money meant to rehabilitate roads within the city.

According to a statement released by SHACU, Omona, together with other suspects still at large, in June this year, irregularly transferred over Shs 56 million from the Arua City's Treasury single account to the imprest account in a yet-to-be-identified bank and withdrew it in cash.

The money was reportedly handed over to Omona to pay service providers who did some road works and maintenance of works department vehicles. Instead, he used part of the money to solve his domestic problems, SHACU noted.

West Nile Region police spokesperson Josephine Angucia says that on Thursday, SHACU discovered Shs 5 million from the suspect's home in Arua Academy Cell, Arua Central Division. She adds that Omona has now been released on police bond after his wife paid a balance of Shs 23.6 million.

Omona is expected to report to the State House Ant-Corruption Unit in Kampala on November 27 for further management of his case. 

Nb

Perhaps there is no politician, other than President Museveni, who in recent memory has punished those who have criticised him or her more than the Speaker of Parliament, Annet Anita Among.

The list of culprits is extensive. It includes Mityana Municipality MP Francis Zaake, who was impeached as a commissioner for tweeting against the Speaker, and the State Minister for Housing, Persis Namuganza, who was also impeached, primarily for actions that displeased the Speaker.

Then there’s former Kamuli Municipality Member of Parliament contestant, Moses Bigirwa, who was imprisoned for unclear reasons but relating to the Speaker, and journalist Moses Mugalula, also imprisoned for several days for reasons also relating to the Speaker. Not to forget social media user, John Ssentamu, aka Kerry Slender, who did a stint at Luzira prison for tweeting something the Speaker didn’t like when she visited Pope Francis.

However, perhaps there is no one who has paid a heavier price than political activist Habib Buwembo for challenging Among. Between 2022 and 2023, Buwembo has been in prison twice, for a collective total of 157 days.

In 2022, he was initially arrested for speaking out against the Speaker after she allegedly downplayed the prevalence of torture in Uganda. During her congratulatory message to MP Zaake for winning gold in the East African Parliamentary games, Among said he had achieved this victory despite enduring torture.

Zaake had been walking with a cane for several months due to multiple beatings by security forces. Buwembo, along with other activists, organised a press conference to demand an apology from Among within seven days for her insensitivity towards torture victims. However, before the press conference, which was scheduled at Pope Paul Memorial hotel Ndeeba, could conclude, the police surrounded the venue.

It’s worth noting that Buwembo didn’t participate in these two demonstrations, but despite this, the police arrested him for his involvement in the earlier press conference.

“My home was surrounded by plainclothes men, and they eventually arrested me. They confiscated my two phones and my laptop before forcing me into their double-cabin vehicle, which was later joined by three other police patrol vehicles. I was then driven from my residence in Busega directly to the Kibuli CID headquarters,” Buwembo recounts.

“Twine picked up his phone and made a call, saying they had apprehended me. Then he said, ‘Yes, sir, IGP.’ Following their conversation, he ushered me into another office and inquired, ‘What is the issue between you and the Speaker of Parliament?’ He played videos of our statements from the press conference and asked if it was me, to which I confirmed. However, I questioned how that could be considered illegal,” recalls Buwembo.

According to Buwembo, Twine then informed him that the Speaker had lodged a complaint with the Inspector General of Police (IGP), alleging that he (Buwnembo) was leading the groups trailing her. A few days earlier, Among had informed parliament that there were individuals seeking to harm her, although she didn’t specify their identities.

Following the interrogation, he was transported to Jinja Road police station, where he spent a night. The next day, without legal representation or notifying his relatives, he was brought before Buganda Road court. There, he faced charges of computer misuse. On February 24, 2022, he was remanded to Luzira prison for a period of three weeks.

He applied for bail, but the application was not heard until after the initial three weeks had passed.

PARTICULARLY UNUSUAL

What was particularly unusual was that the magistrate requested an additional two weeks to deliver her ruling on the bail application.

“After the two weeks,” Buwembo recounted, “the ruling stated that I had only presented relatives and friends as sureties. However, as a politician, I couldn’t be compelled to rely solely on friends and relatives. They requested that I provide fellow politicians as sureties, and I was further remanded for an additional two weeks.”

Yet, on the day he was scheduled to appear in court once more, the state prosecutors were attending a seminar, causing the court proceedings to be postponed again. Consequently, he was remanded for another two weeks. Upon his return after the two weeks, Buwembo encountered a situation where the magistrate was unavailable to address the matter, resulting in his being further remanded for an additional two weeks.

This extended detention period, now totaling twelve weeks, took a toll on him. Frustrated by the continuous delays, he instructed his lawyers to file a bail application in the High court. He felt that the lower court was engaging in protracted legal proceedings.

However, the High court declined to hear the case and referred it back to the Buganda Road chief magistrate. Even there, it took a significant amount of time before the case could be heard and determined. In total, Buwembo spent 104 days in prison before finally being granted bail.

During this time, the charges against him shifted from computer misuse to threatening the life of Anita Among, the deputy Speaker of Parliament. Buwembo continued to attend court hearings until June 2023, when the case was ultimately dismissed due to lack of prosecution.

The complainant, Anita Among, never appeared in court, nor did she present any witnesses. Following the dismissal, Buwembo calculated the cost of his imprisonment and subsequently filed a case in the High court in July, alleging malicious imprisonment and prosecution.

LOSSES AND DAMAGES

“However, to this day, the matter has never been scheduled for a hearing. This compelled me to file a civil suit in September, enumerating the losses and damages I suffered, which amounted to Shs 10 billion,” Buwembo explains. “I then decided to make this known to the public. On September 22, I invited the press to my office in Nalukolongo, which is how the police became aware of it.”

Unlike the press conference he successfully held in February 2022, this time the police prevented him from proceeding. They surrounded his home, his office, and even his wife’s workplace. Buwembo received numerous phone calls ordering him not to discuss the Speaker if he wanted to avoid trouble.

However, he remained determined to hold the press conference and was arrested shortly after arriving at his office, where the press conference was scheduled to take place. He was then taken to Nateete police station, where he was questioned about his actions, as they were receiving orders from their superiors to ensure his arrest.

“A detective then reviewed my file and noticed that I had been charged with unlawful assembly. He considered it a minor offense that couldn’t be dealt with there. Instead, he suggested that I should be taken back to Nateete police station. I spent four days at Nateete police station. On the fourth day, during the parade, I made it clear that I wouldn’t willingly return to prison. I insisted that if they intended to use force, they should go ahead, as I had already spent the mandatory 48 hours in detention as per the law. I told them that they either needed to take me to court or release me on bond. They assured me that they were working on my case,” Buwembo recalls.

On that very day, he was brought to City Hall court, where he was charged with malicious communication for referring to “the Rt Hon. Speaker Anita Annet Among as a Karamoja iron sheet thief, well aware that this was unlawful and intended to harm and ridicule the reputation of the Speaker.”

Subsequently, Buwembo was remanded to Luzira prison until October 10th. Upon returning to court, he found himself remanded once again, this time for an additional two weeks, with his next appearance set for the 25th of the same month. When he returned for his bail application, the magistrate requested an additional two weeks, extending the process until November 10 to deliver his ruling.

Finally, he was granted bail, consisting of a three million cash bail and Shs 10 million non-cash bail for his two sureties. However, even on the day of the bail hearing, he wasn’t released immediately because, by the time they completed the payment process, the magistrate had already left.

Consequently, he was only released on November 13th, after spending one month and 23 days in detention. Among the conditions for his release was the requirement to refrain from engaging in social media campaigns involving the Speaker of Parliament. Failure to adhere to this condition could result in the cancellation of his bail.

“The Speaker has silenced everyone. I encountered five young men in prison who were arrested on allegations of trespassing at the Speaker’s residence. They accused me of engaging in malicious communication, and I’m eagerly awaiting the commencement of that case to present the evidence that she indeed stole Karamoja iron sheets. Initially, the Director of Public Prosecutions (DPP) had opted not to charge the Speaker for the Karamoja iron sheets, but now she has initiated the case herself, and I’m committed to seeing it through to its conclusion,” Buwembo asserted.

When approached for comment regarding what appears to be a stringent response to criticism by Speaker Anita Among, Chris Obore, the director of Communication at Parliament, emphasized the importance of distinguishing between legitimate criticism and blackmail.

“The Speaker has never declared immunity to criticism, but the individuals you mentioned were arrested due to their violation
of existing laws. Is blackmail synonymous with constructive criticism? Is The Observer newspaper advocating for blackmail and hate speech as a means of survival? Criticism is a tool for intelligent and well-intentioned individuals, whereas blackmail is employed by deceitful individuals,” Obore remarked.

bakerbatte@gmail.com

Minister Evelyn Anite

 

The secretary to the treasury Mr Keith Muhakanizi has directed that the audit on activities of the Uganda Telecom Limited (UTL) be halted.

Muhakanizi, who doubles as the permanent secretary ministry of Finance wrote to the UTL administrator Bemanya Twebaze on August 2 asking him to halt the audit process as was directed by state minister for Privatization and Investment, Evelyn Anite because there is an ongoing court process.

"Reference is made to a letter from the internal auditor general dated 31st July 2019. Further reference is made to letters dated 31st July 2019 and 1st August 2019 from Uganda Broadcasting Corporation (UBC) a creditor of UTL, indicating inter alia, that they have filed miscellaneous cause No. 226 of 2019 in the High court for an order that the auditor general be appointed to audit your activities in the administration of UTL," reads part of Muhakanizi's letter to Bemanya dated August 2.

He says that since the question of audit is now before court, he has been advised by lawyers that the proposed audit by the internal auditor general would be subjudice.

"I have also discussed this matter with Hon. Maria Kasaija, minister of Finance and he has directed that we should allow the court process take it's course and subsequently conduct the audit following this due process," further reads Muhakanizi's letter.

He instructs that the internal auditor general should halt the audit exercise to ensure compliance with the laws of Uganda. The new instruction contradicts that earlier directive given by Anite to the internal auditor general last month for an audit to be conducted on activities of UTL.

“Arising from H.E the President’s letter ref: PO/10 dated 16th July, 2019 addressed to me, to institute an audit of UTL activities, I’m accordingly directing you to conduct an internal audit of UTL activities and evaluate the state of affairs within a period of one month,”  read Anite’s letter dated July 24.

Anite further cautioned that the internal audit on UTL must be comprehensive to confirm or clear the allegations before President Yoweri Kaguta Museveni. Museveni in a letter dated 16th July 2019 directed Anite to carry out an audit in the activities of UTL citing some allegations made against the managers of the telecom.

Now the contrary instructions by Muhakanizi have sparked off a new fight with Anite accusing him of connivance, sabotage and manipulation aimed at stalling efforts to find out the true state of UTL to inform further government action.

"The audit into UTL was to me through my office sanctioned by H.E the President. I have clear and unequivocal instructions from the president to carry out an audit of UTL. In the absence of a contrary directive from him, I am not in position to act contrary to his directive and you and Hon. Maria Kasaija would be well advised to do likewise," reads part of  Anite's response to Muhakanizi dated August 2.

She adds that the directive from the president predates any scheme that might subsequently be contrived to frustrate it and that it is not the subject of the UBC court proceedings and therefore not subjudice.

"I restate that UBC's application for appointment of another auditor is in bad faith because the audit process had commenced. Besides, the application to request court to appoint the auditor general to undertake the audit is regrettable as the auditor general in an earlier letter declined to undertake the audit," Anite writes.

She cautions Muhakanizi to stop interfering with the implementation of a presidential directive and that by copy of her letter instructs the internal auditor general to proceed with auditing UTL.

Following the departure of Libyan managers of UTL in 2017 due to huge debts amounting to Shs 700 billion and issues of mismanagement, UTL was put under administration of Twebaze Bemanya, the registrar general of Uganda Registration Services Bureau (URSB), who was appointed by government.

One of Bemanya’s tasks was to get an investor to take over UTL. But there has been bickering between Bemanya and Anite who has in the past called for his dismissal citing failure to allow accountability processes be carried out on the company.

She said that government had encountered considerable difficulties dealing with the administrator and completely lost confidence in his ability to continue serving the role of UTL administrator.

However, Anite’s repeated demands for an audit were opposed by speaker of parliament Rebecca Kadaga, auditor general John Muwanga, attorney general William Byaruhanga, deputy attorney general Mwesigwa Rukutana who argued that the company according to the Administration Deed cannot be audited until the end of the Administrator’s tenure on 22nd November 2019.

Anite says the mafias and their corrupt cohorts in government interested in selling off UTL assets are the ones opposed to the audit.

Nb

 

M/s Justine Bagyenda

 

EXECUTIVE SUMMARY

 

Barclays Bank Uganda where the embattled former Bank of Uganda’s Supervision Director Justine Bagyenda has a Uganda Shillings account, has opened up on the recently leaked details of this account, threatening to discipline the employee responsible.

It emerged over the past weeks that Bagyenda, who was recently fired from BoU by Governor Emmanuel Tumusiime-Mutebile, made transactions in excess of Shs 20billion, on her accounts with various local commercial banks, Barclays inclusive.

One of her accounts at Diamond Trust Bank for instance, was found to have about a quarter million US Dollars.

Her Barclays Account, according to leaked documents, as of 21 October 2017, had a balance of Shs98Million.

Bagyenda also ran a bank account in Global Trust Bank where she had made corporate deposits of Shs 2.4bn and $658,288 on the dollar account in the same bank.

Following the publication of the account details, Barclays Bank has come out to apologize for the leak, and vowed to hold its responsible employee accountable.

In a public statement, the bank said it had put in place procedures to ensure that the (unnamed) worker who leaked the details is “thoroughly investigated and conclusively dealt with.”

“Accordingly, disciplinary action is being taken against the employee responsible for the unauthorized access to (Bagyenda’s) account in line with the law and out procedures,” the statement goes.

The Bank went on to apologize to Mrs Bagyenda, terming the leaks as regrettable and unlawful.

Earlier, Diamond Trust Bank (DTB) admitted that the publicized bank account details of Bagyenda were genuine.

“Management carried out an extensive investigation and established that one of the staff was compromised to access Ms Bagyenda’s account in the bank’s system,” the Bank said.

THE PROBE

After weeks of a tough investigation, the ongoing parliamentary probe into several shut banks over the years has actively built a case of potential personal conflicts of interest against some central bank officials and also shines a bright light on how their inability to pay attention to detail diminished transparency and effective management at the regulatory bank, reports SULAIMAN KAKAIRE.

A few days before the parliamentary committee on Commissions, Statutory Authorities and State Enterprises (Cosase) began looking into the closure of defunct banks, Dr William Kalema, a member of board of directors of Bank of Uganda (BoU), wrote a memo to BoU governor, Emmanuel Tumusiime-Mutebile, dissuading him and his management from cooperating with the parliamentary investigation.

In the memo, seen by The Observer, Dr Kalema argued that the probe would attract too much publicity, which would not only put the central bank in a vulnerable position, but would also invite unnecessary scrutiny of the bank’s officials’ “reputations.”

At the time it was written, too few people could read much into the memo let alone its underlying motive. But almost a month into the parliament probe, it has catapulted itself into a key piece of evidence and one of the documents the committee is internally analysing.

“We are studying this memo to establish its connection with the accusations levelled against the individuals implicated in the matters being investigated by the committee,” said a member of the probe committee who declined to be named.

“Obviously Dr Kalema is one of those being studied.”

In a few days, the committee will be examining Dr Kalema and circumstances under which he qualified to become a member of the BoU board yet he had served as a director of a defunct bank.

According to documents before the probe committee, Dr Kalema was one of the seven listed directors of the Cooperative bank, which was shut by BoU in 1999 because of continued poor performance and non-compliance with regulatory capital adequacy requirements.

Bugweri MP, Abdu Katuntu, the probe chairperson, told journalists that the Financial Institutions Act and Regulations bar an individual who has been a director of a defunct bank from serving as a director in another financial institution until the expiry of 10 years.

“We shall examine whether by the time he became a member of the board of Bank of Uganda, the 10 years had lapsed. How did he pass the fit and proper test?” Katuntu said.

According to section 53 of the Financial Institutions Act, no person can become a director of a financial institution without a written nod of approval of his or her compliance with the fit and proper test from the central bank.

The law further provides that for purposes of determining a person’s compliance with the fit and proper test, the central bank may look into the previous conduct and activities of the person concerned in business or financial matters and, in particular, into any evidence that the person was a director of an institution that has been liquidated or is under liquidation or management of the central bank or under receivership.

Since the process of winding up Cooperative bank is still ongoing, Katuntu wonders how this could have escaped the attention of the parliamentary appointments process and that of Bank of Uganda.

“How could parliament approve him as a member of the board? But the most unfortunate thing is the fact that BoU even approved him to be a director in Dfcu. How could this happen?” Katuntu said, pointing to documents that also reveal that Dr Kalema before being appointed to the BoU board had served as a director in Dfcu.

KALEMA’S CONFLICTING INTERESTS

Kalema’s previous connections with Dfcu and Cooperative bank have prompted an investigation into his tenure as a board member to establish whether he complied with Bank of Uganda bye-laws, in particular regulation 7(3) that requires any member of the board to disclose direct or indirect interest in any business transaction in which BoU is concerned.

“Our concern is to establish whether Dr Kalema by the time he was a member of the board [BoU] he had relinquished all the interests he had in the defunct banks, and also we would like to know whether at the meeting of the board at which business is discussed, he used not to vote on those matters as required by the laws,” said one MP.

MPs are investigating whether Dr Kalema’s links with Dfcu, in part influenced circumstances under which Dfcu was most favoured to purchase the assets and liabilities of the defunct Global Trust Bank Uganda (GTBU) and Crane Bank Limited (CBL) at not so favourable terms but also in disregard of the law.

GTBU was closed on July 25, 2014 due to undercapitalization and corporate governance weaknesses, among other reasons. BoU took over the management of GTBU in line with Section 88(1) of the Financial Institutions Act 2004.

And in line with Section 95(1) (b) of the Financial Institutions Act 2004, BoU and Dfcu arranged for the purchase of assets and assumption of all or some of the liabilities of GTBU.

Four years later, since the bank’s closure, the auditor general, John Muwanga, acting at the urging of Cosase, instituted a special audit that revealed that there were no guidelines/regulations or policies in place to guide the identification of Dfcu, as the purchaser of GTBU and that there were also no guidelines to determine the procedures to be adopted by BoU in the sale and transfer of assets or liabilities of the defunct bank to Dfcu.

Among the impugned clauses in the agreement include, a clause that gives Dfcu powers to act on behalf of the central bank to collect and manage assets worth Shs 21 billion, of which Dfcu is entitled to share 35 percent of the proceeds.

The other clause provided for the transfer of performing loans and overdrafts to Dfcu at Shs 22,630,112,656 representing 80 per cent of the book value of Shs 28,287,640,820. This implies that Dfcu acquired the loan portfolio at a 20 per cent discount.

The auditor general argues that the manner in which these two provisions were arrived at was not justified and the evaluation of the alternatives and assumptions on which the evaluation was based were not provided for verification, which contravenes section 95(3) of the Financial Institutions Act that provides that;

“in determining the amount of assets that is likely to be realized from the financial institution’s assets, the receiver (central bank) shall— (a) evaluate the alternatives on a present value basis, using a realistic discount rate; or (b) document the evaluation and the assumptions on which the evaluation is based, including any assumptions with regard to interest rates, asset recovery rates, inflation, asset holding and other costs.”

In respect of CBL, the MPs are investigating how BoU sold Crane Bank Limited’s bad book loans totalling Shs 570.38bn to Dfcu at a consideration of Shs 200bn, among other things.

MUTEBILE’S TROUBLES

But before the probe committee turns its guns on Kalema, it heard Mutebile’s confession that since 2001, when he was appointed BoU governor, he had never disclosed his personal interest in the defunct National Bank of Commerce (NBC), until the bank he helped found, started to go through troubles that triggered its closure by BoU in 2012.

While appearing before Cosase last week, Mutebile admitted he violated the Bank of Uganda by-laws, in particular regulation 7(1), which provides that every member of the board, officer or employee of the bank, shall be bound to disclose in writing his or her shareholding or other financial interest, if any, in any banking or credit institution carrying on business in Uganda.

“I had not formally declared my interests until the bank started having problems…,” Mutebile said, adding:

“When the matters of NBC came to the board…I declared my interests…because of that I asked the deputy governor to be in charge.”

Lubaga North MP Moses Kasibante asked Mutebile whether the holding of interest in NBC, did not impair his judgment as a regulator.

Mutebile maintained that: “Throughout my period as governor, I don’t remember taking any decision at all regarding NBC…”

Katuntu argued that the issues raised by the governor are very important. 

“As a regulator, his judgement at no point should be  impaired by personal interests…The governor should have even forfeited those interests because if you don’t, even your officers will always go slow on the bank because they know that their boss has an interest,” Katuntu said, adding that the committee will be re-examining these matters further to establish Mutebile’s culpability.

“There are laws and by-laws that regulate how officers should behave so we shall examine whether there was no breach of such regulations,” he said.

National Bank of Commerce (NBC) was closed on September 27, 2012 due to undercapitalisation, among other reasons. BoU took over the management of NBC in line with section 88(1) (a) and (b) of the Financial Institutions Act 2004 and subsequently placed NBC under liquidation, pursuant to section 89 (2) (f) and section 99 (1) of the Act.

In line with section 95(b) of the Financial Institutions Act 2004, BoU arranged for the purchase of assets and assumption of liabilities of NBC. On September 27, 2012, BoU and Crane Bank Limited signed a purchase of assets and assumption of liabilities agreement in which certain assets were transferred and liabilities assumed by Crane Bank Limited.

In his special audit, which is currently being interrogated by the probe committee, the auditor general queried the circumstances under which Crane Bank Limited was zeroed on to purchase NBC as well as what criteria BoU used to sell NBC’s assets worth Shs 9 billion below the book value.

BAGYENDA’S INTEREST

The other officers under investigation for probable conflict of interest include; Justine Bagyenda, the former BoU executive director in charge of supervision, and MMAKS Advocates, the BoU external lawyers.

In respect of Bagyenda, the committee is probing whether Bagyenda’s personal interests could have influenced her decision to close GTBU.

“We have information that Bagyenda’s sister, Edigold Monday, worked as an interim executive director of GTBU, but later resigned from the bank. We would like to get the connection between the bank’s troubles and Bagyenda’s personal relationship with Monday,” said an  MP on the probe committee.

Indeed, when the committee interfaced with the former directors of GTBU last week, Busiro East MP Medard Sseggona attempted to push them to disclose whether they had any misunderstanding with Bagyenda or Monday. They said they had none.

However, the former directors never shied away from sharing the circumstances leading to the bank’s closure. The former GTBU directors, who were led by Bayo Folayan, a former manager at GTBU, informed the probe committee that on July 3, 2014 there was a meeting at BoU and the regulator said their bank was not being run in accordance with corporate governance principles.

On July 4, 2014, this meeting was followed up with a letter from Bagyenda requiring GTBU to comply with the issues raised. However, before GTBU could convene the general meeting of the company to address the corporate governance issues raised since some required the intervention of shareholders, on July 25, 2014, BoU closed GTBU due to undercapitalization and corporate governance weaknesses, among other reasons.

The former directors of GTBU argue that BoU asked them to rectify their problems within 20 days, which is less than the 21 days in which they could issue a notice calling an extraordinary members’ meeting as provided under the Companies Act and Regulations.

“The financial condition of the bank did not justify the closure of the bank…the bank was not signifanctly undercapitalised and the going concern basis was not in doubt…,” Folayan said, adding that GTBU directors should be compensated with Shs 316 billion for the  illegal closure.

Similarly, Cosase is investigating how BoU hired and maintained MMAKS Advocates as its external legal advisors yet at the same time the firm’s partners are directors in some commercial banks. 

“We have discovered that there was not only mismanagement at the bank but there was institutional capture which was occasioned by conflicting interests,” Katuntu said, adding:

“The conflation of interests makes the mismanagement at the bank inevitable. For instance, we heard that BoU staffs saving scheme invested in the shares of Dfcu. How can the officers of BoU act professionally yet they have invested in these commercial banks? It is highly doubtable that they can make decisions that contradict their interests.”

skakaire@observer.ug

Activists under the umbrella body Civil Society Budget Advocacy (CSBAG) have asked government to take action against permanent secretaries who fail to adequately plan and start asking for supplementary budgets.

Julius Mukunda, the chief executive officer at CSBAG, said it is unacceptable that considering approved and pending requests, the total FY2017/18 supplementary budget to date will be Shs 724.56 billion.

Addressing the press at CSBAG offices in Kampala, Mukunda said that this would be not a problem if supplementary budgeting guidelines were followed. But he said many Public Financial Management (PFM) Act 2015 rules are flawed.

A supplementary budgeting is a mechanism that allows for financing of events and occurrences during a financial year that were not foreseeable or predictable and so were not allocated funds during budget formation.

“Supplementary expenditure shows poor planning, should only be approved with sanctions to the accounting officers responsible for the requesting entity; how can government borrow to pay salaries as if you didn’t plan for them?” he wondered.

“The law allows for expenditure of up to three percent of the national budget without parliamentary approval. However, the PFM regulations are specific about supplementary budgets; they should be allowed only in unforeseeable and unavoidable [circumstances] but we continue to see salaries and allowances on supplementary schedules.”

According to CSBAG, National Identification and Registration Authority (NIRA) got a supplementary of 9.9 billion as allowances in the FY2017/18; Bugiri and Masindi districts took Shs 291 million for payment of utility bills.

“This signals budget indiscipline among spending agencies and risks to erode the motivation for institutions to plan and budget meticulously; after all, they can ask for a supplementary budget one month into the financial year,” said David Walakira, a programmes coordinator at CSBAG

“In the FY 2017/18, the president’s office has supplementary budget of Shs 2.3 billion for development of an anti-tick vaccine by a Ugandan Scientist based in Makerere’s College of Veterinary Medicine for large scale production and costs of the Amuru land valuation.”

Activists’ think such cases highlights why institutions have continued to fail. One would expect that National Agricultural Research Organization (Naro) would take the lead in such research undertakings but for the president’s office to give this [anti-tick vaccine development] as a donation to Makerere weakens the research function of Naro.

Walakira said the ministry of Finance pointed out the vice of poor estimation of wage requirements by accounting officers and as such threatened sanctions if this went on, but it should not stop at threats.

BIG SPENDERS

The ministry of Energy (23.7 per cent), Uganda Police (11.3 per cent), National Medical Stores (9.1 per cent) and Parliamentary Commission (7.3 per cent) take the lion’s share of the supplementary budget.

Mukunda said none of these organisations’ expenditure qualifies to be supplementary.

justuslyatuu08@gmail.com

Nb

One understands if you are an international begger of an African country, you can get away with any kind of expenditure by crying African poverty abroad.

By the way this is a long serving government that hopes to have the sympanthy of HIPC. This is an International Economic Association of donors of International Aid that seem to have a Christian attitude to very poor countries that have no hope of getting out of DEBILITATING poverty!

A mini-survey has revealed a rise in advertisements of real estate worth billions of shillings due for distress sales.

At least 50 properties are going under the hammer each week – an indicator that the economy remains stuck in the doldrums despite the best efforts of the mandarins managing Uganda’s financial affairs, writes ALON MWESIGWA. 

N-Bridge hotel is an imposing facility perched atop Namirembe hill in the capital, Kampala.

The hotel sitting on 0.136 acres, with at least 24 self-contained bedrooms already functional is on sale. Not by the owners, Frontier Logistics International Ltd, but by an unnamed financial institution represented by Quickway Auctioneers and Court Bailiffs.

“We have been duly instructed by our client, a financial institution in Kampala which is a registered mortgagee, to advertise, and sell by public auction/private treaty…,” reads a note on the property.

Frontier Logistics has joined a long and growing list of property owner facing foreclosure (the legal process by which a lender tries to recover a loan from a borrower who has stopped making payments by forcing the sale of the asset used as collateral for the loan) by a financial institution.

Hundreds of persons and companies are losing properties with economy watchers struggling to explain what is going on. A mini-survey by The Observer shows that at least 50 properties are advertised in a week, totalling up to 200 every 30 days.

One other such property is an imposing apartment block located on plot 4910 in Kisugu, Kyadondo, owned by a former top official in the auditor general’s office. Another is a commercial building located on Plot 35, block 438 in Nkumba, Wakiso district, belonging to a former official at Bank of Uganda.

Then there is a very large students’ hostel in Wandegeya owned by John Buyinza. Sebbagala and Sons Electronic Centre Ltd property on plot 29 Mackenzie Close in exclusive Kololo is being auctioned.

Undeveloped but prime lots of land are also being taken over by banks. Other properties up for sale belong to businessman Habib Kagimu, whose interests range from oil and gas to real estate.

Kagimu was once an indispensable intermediary between Uganda and Libya when deposed leader Muammar Gadaffi was still alive.

His properties, including a hostel and bungalow in Bugolobi, a residential house along Wampewo avenue in upscale Kololo, and undeveloped land on Sir Apollo Kaggwa road were last week advertised by court bailiffs and auctioneers. 

Dr Adam Mugume, the executive director of research at Bank of Uganda, noted that the real estate sector has been thriving in some sort of a growth bubble.

He told The Observer how property prices grew by leaps and bounds up to around 2010. The promise of the country’s oil sector was still alive and demand for prime buildings was thought to continue pushing up.

“There are those people who borrowed assuming property prices would continue rising and, therefore, sell their properties [at profit]. Those are the people we are talking about whose properties are being sold,” said Mugume.

As at the end of 2016, non-performing loans – the money where the borrowers have failed to continuously pay back – accounted for 10.6 per cent of the total loan book.

The figure is now reflected at 5.8 per cent in bank of Uganda’s records this year but still more people are unable to meet their financial obligations. Almost half of the non-performing loans were attributed to Crane Bank, which was sold off in January 2017.

NO BUYERS

But even after they have taken on the properties, according to court bailiffs and several commercial banks’ officials we spoke to, there are no buyers.

Naboth Apamba, an official at Excel court bailiffs and auctioneers, told The Observer: “The market has not been well. People are not buying. People don’t have the money.” “When you advertise the property, people come, make some inquiries and when you tell them the price, they don’t come back.”

He said if they had their way, they would cut the price of properties but by law, a foreclosed property is supposed to be sold at the market value.

Another court bailiff said: “We have so many properties we haven’t sold that we may stop to take them on.”

Vincent Agaba, former president of the Association of the Real Estate Agents and managing director of Avarts Housing Limited, said what is happening is a reflection of what is going on elsewhere in the economy.

He said interest rates are high and people’s purchasing power is low – this ultimately is reflected in the many properties on the market that no one is willing to buy.

“It is both because the slump experienced two to three years ago has really not gone away and also a reflection of what is happening in the economy.”

Agaba said the real estate sector does not exist in isolation. When other sectors of the economy are doing well, it will also do well. Stephen Kaboyo, an analyst and director at Alpha Capital, echoes similar views noting that people running the economy need to realise that something is not right somewhere.

“I was reading one of the papers and found a property of someone working in one of the banks being taken over. That should worry us,” Kaboyo said.

At the central bank, officials remain hopeful that the economy is recovering. Yesterday, Bank of Uganda governor Emmanuel Tumusiime-Mutebile announced a 0.5 per cent cut on the benchmark rate to nine per cent. The rate called the central bank rate should ideally signal the direction of interest rates in the economy.

The cut is an indicator that the economy is looking up and commercial banks are supposed to be inspired to lend more at lower rates. Uganda’s economy marginally grew by only 2.5 per cent in 2016, according to the cental bank’s index that tracks economic activity in the country.

In 2017, it was expected to expand by 5% and this should reflect in the housing sector. The central bank anticipates that government investment in public projects like roads and dams will eventually boost the economy. But Mugume warns that this will take a while to be felt.

While Agaba urges the public to be patient before any impact from the massive public investment in infrastructure is felt, he also asks how much of the money actually spent stays in the country.

amwesigwa@observer.ug

According to a statement issued by Etihad yesterday, flights between Abu Dhabi in the United Arab Emirates and Entebbe will be "suspended" from 25 March 2018 "following a commercial assessment of the route's performance".

The airline assured ticket holders that they will be provided with alternative travel options to their final destination.

Etihad introduced service to Entebbe in May 2015. At the time, James Hogan, president of Etihad Airways, said: “Uganda is one of the continent’s fastest-growing business and tourism destinations and the launch of services to Uganda is consistent with our strategy of targeting areas of strong growth in emerging markets..."

Etihad follows British Airways as a major airline to suspend service to Uganda in the last three years. British Airways suspended its service to Entebbe in October 2015 after 24 years.

Other multinationals that have quit the struggling Ugandan economy in that period include supermarket chains Uchumi and Nakumatt and insurance giant AIG.

According to Bank of Uganda, the Ugandan economy slowed down to 3.9 percent annual growth in 2016-17.

A House committee has asked Bank of Uganda to explain how it paid billions of shillings to three firms a week after the central bank retained another law firm, Sebalu, Lule and Company Advocates, to represent it in the ongoing mediation talks over Crane Bank Ltd.

The payment comes one year after the central bank took-over Crane Bank on October 20, 2016. Crane Bank was subsequently sold to dfcu Bank in January 2017 for Shs 200 billion.

That sale followed technical advice offered by MMAKS Advocates, alongside audit/accounting firms KPMG and PricewaterhouseCoopers (PwC).

According to correspondences seen by The Observer, the three firms were engaged in November 2016 for an initial fee of $710,190 (Shs 2.6 billion). Six months later, an additional Shs 2.8 billion was paid specifically to MMAKS for a separate contract, bringing the full amount to an estimated Shs 5.4 billion.

Parliament’s committee on Commissions Statutory Authorities and State enterprises on Tuesday raised questions about the money when BoU officials appeared before them.

“There are inconsistencies in the figures they gave us vis-a-vis the figures in their management accounts – which shows the amounts budgeted for and the actual expenditures,” Anita Among, the committee’s vice chairperson said.

Central bank officials had said the lawyers were paid Shs 335 million but on further scrutiny of the bank’s books of account, MPs discovered that more than Shs 1.7 billion had been paid.

“The variance in the figures is so big and you never know, they [BOU] could have paid much more than that, and, without contracts,” Among said.

Deputy Governor Louis Kasekende, who was flanked by Justine Bagyenda, BOU’s executive director in charge of supervision, failed to get a deferment on the matter on grounds that it is a subject of ongoing litigation.

After they asked for time to come back with relevant documents, MPs gave them up to Thursday next week.

A break-down of the initial Shs 2.6 billion BoU paid shows that MMAKS Advocates was contracted as a transactional advisor at $251,045 (Shs 903.7m).

PwC was paid $286,740 (Shs 1.03bn) to cover an investigative and forensic review, in addition to another Shs 338.2 million to compile an inventory of assets, liabilities and equity of Crane Bank.

At the lower end, KPMG received $172,405 (Shs 620.6 million) for information technology security testing and disaster recovery gap assessment as well as provision of technical support in information technology.

This breakdown is contained in a November 30, 2016 letter from Bagyenda to central bank governor Emmanuel Tumusiime Mutebile. In the letter, Bagyenda requested Mutebile’s approval of letters of engagement for the three firms and for their payment.

Available documents show that MMAKS advised BOU based on the Financial Institutions Act 2004.

The law firm also handled applications from institutions which ex- pressed interest in buying Crane Bank, and was also used as a repository and central point for all buyer information and correspondence.

According to the payment schedule, dfcu bank just last month paid Shs 20 billion to BOU on October 1, 2017 and will make another deposit of the same amount on January 1, 2018. Thereafter, dfcu will be making quarter-year de-posits of the same amount to BOU, with the last payment scheduled for January 1, 2020.

Two months after selling Crane Bank, BoU again contracted MMAKS Advocates to coordinate with dfcu in settling Crane Bank debtors.

This was after Crane Bank had paid $6.2 million to settle letters of credit on behalf of Foneplus Limited, Minutan (U) Limited and Shumuk investments Limited.

In this contract, MMAKS was to work with dfcu to engage the debtors to recover funds, according to a March 30 letter written by BoU’s director for commercial banking Benedict Ssekabira to dfcu’s top management.

The law firm received an additional $804,098 (Shs 2.8 billion) on May 11, 2017 for this assignment. Apollo Makubuya, a co-partner in MMAKS Advocates, defended their bill yesterday.

“We invoiced BoU based on the professional service that we offered [and] it is our client to determine whether it was a fair price or not,” Makubuya told The Observer.

Sudhir Ruparelia, the proprietor of Crane Bank, has protested the involvement of MMAKS on grounds that they have a conflict of interest. The law firm used to be lawyers of his now- defunct Crane Bank.

MMAKS is representing BoU in a case before the civil division of the High court where the central bank sued Ruparelia for causing financial loss to his bank.

“This is a matter before court but we have always represented Crane Bank not Sudhir, [and] even in court today we are representing Crane Bank [under receivership],” Makubuya said.

sadabkk@observer.ug

Members of Parliament will each receive Shs 29 million each to be used as facilitation for consultations on the ‘age limit’ amendment bill.

In total, Shs 13 billion will be diverted from the MPs’ emoluments (allowances) to facilitate the age limit consultations according to Parliament’s director of Communications and Public Affairs, Chris Obore. 

Obore says ministry of finance asked Parliament to find the monies from within the already released funds, promising to reimburse.

The reallocation was reportedly allowed by Finance minister Matia Kasaija after NRM MPs told President Museveni that they did not have money to facilitate their consultations on the Raphael Magyezi bill. The bill is currently before the Legal and Parliamentary Affairs committee.  

MPs get a monthly net salary of Shs 6.1 million plus allowances ranging between Shs 30 million to Shs 40 million, depending on the distance between parliament and their constituencies.

This money is usually posted to their accounts in the first week of a new month but this time round, Parliament has only disbursed the Shs 6.1 million salary.

Obore says if Finance doesn’t reimburse the money by December, the MPs may have to go another month without their allowances. 

“The clerk to parliament has provided Shs 13 billion from the members’ emoluments. Emoluments are allowances they pay, fuel, transport - all those things. So we have picked Shs 13 billion to pay them to go out, because this thing has a time frame. Each MP is going to receive Shs 29 million to go to their constituency to consult”, he said. 

"The implication to us is that if ministry of Finance delays to give us the money, the payment of emoluments of MPs by December will be affected because we have already brought their emoluments forward in order to be able to facilitate an activity", he added.   

Last week Finance said it had so far released over 50 per cent of Parliament’s 2017/18 approved budget.

Nb

As Parliament looks after the taxpayers money well, better it is that one sees value for money in this parliamentary project. Indeed this is a lot of the tax payers' money when the national economy is not at best.

A 63-year-old bridge over one of the longest and fast-running rivers in Karamoja region is on the verge of total collapse.

On Tuesday evening, Bank of Uganda (BOU) filed a rejoinder to its lawsuit accusing businessman Sudhir Ruparelia of stealing Shs 400 billion from the collapsed Crane bank.

On the same day, the central bank also filed its response to a counter claim filed by Sudhir, in which the former Crane bank owner demands that BOU pays him $8 million for breach of the Confidential Settlement and Release Agreement (CSRA) signed earlier this year.

DERRICK KIYONGA carefully scrutinized the BOU 36-page defense and found that the central bank squarely heaps the blame on Sudhir for breaching the said agreement. 

In his defense against the Bank of Uganda (BOU) lawsuit, Sudhir contends that MMAKs Advocates and AF Mpanga advocates, the central bank’s lawyers, cannot institute proceedings against him because in so doing, they are in breach of the advocate-client relationship.

Sudhir specifically took issue with MMAKs Advocates. He said the law firm earlier represented Crane bank and got vital information, which it is using in the BOU case against him.

BOU, however, denies that its instructions to MMAKS Advocates and AF Mpanga Advocates in this suit are a violation of any advocate-client relationship with Sudhir or Meera Investments, who are the defendants.  

BOU contends that MMAKS Advocates has acted for Crane bank [in receivership] in various matters since 2005 and continues to do so in this suit and other matters.

According to BOU, Crane bank is a separate and distinct legal entity from Sudhir, who is its majority (sole beneficial) shareholder. The central bank further argues that Sudhir as an individual is not a present or former client of MMAKS Advocates and did not become so by virtue of the fact that the law firm represented Crane bank.

“In any event, the claims of fraudulent extraction of monies by the defendants [Sudhir and Meera Investments] from the plaintiff [Crane bank], which are subject of this suit, only came to light subsequent to and by reason of a forensic audit carried out by Pricewater houseCoopers (PWC) after October 20, 2016 and were not known by anyone other than the defendant and his associates/co-conspirators prior to the issuance of PWC’s forensic audit,” the BOU rejoinder says.

AGREEMENT

In his defence, Sudhir argued that the BOU case should be summarily thrown out because he signed an agreement with the bank known as a Confidential Settlement and Release Agreement (CSRA), which he says stops the central bank from instituting any legal proceedings, be it civil or criminal, against him.  

He cited clause 6 of the agreement, which says; “This confidential settlement and release agreement is in full, complete and final settlement of all claims that either party (or related parties or shareholders) may have against the other, and each of Bank of Uganda and Crane Bank Limited hereby fully and finally releases and forever discharges and shall refrain from instituting, directing, procuring, instigating or maintaining all or any actions, claims, sanctions (whether administrative, civil or criminal in nature). ”

But the bank says by executing the CSRA, BOU did not concede that the claims against Sudhir, which form the basis of the claims set out in the plaint, were not well founded.

‘The undertaking by the plaintiff to release and discharge the first defendant [Sudhir] from liability and to refrain from instituting, directing, procuring, instigating or maintaining any legal actions or claims against the first defendant, set out in Clause 6 of the CSRA and the agreement not to sue set out in Clause 7 of the CSRA did not arise and become binding on the plaintiff simply by virtue of the execution of the CSRA,” BOU says.

Sudhir’s primary obligation, according to BOU, under the terms of the CSRA, was to pay the settlement consideration, being an aggregate amount of $60m part in cash and part in property, as well as handing over the freehold/mailo certificates of title for the 47 branches, in accordance with and in the manner set out in the provisions of Clauses 3.1, 3.2 and 3.3 of the CSRA.

In particular, BOU says Sudhir’s initial obligation under Clause 3.2.5 of the CSRA was: “to identify and supply a list of properties (free of all encumbrances, claims whether legal or equitable and whether registered or unregistered) whose collective fair market value shall meet the required value [of US $42,000,000.00, United States Dollars Forty Two Million) under this agreement and [to/ submit the list to BOU at the date of execution.”

In breach of the express provisions of Clause 3.2.5 of the CSRA, the details and particulars of which breach are more fully set out in the defence to counterclaim, BOU says Sudhir did not submit a list of unencumbered properties whose collected fair market value amounted to $ 42m to BOU on the date of execution of the CSRA.

That when BOU insisted on receiving the property lists, Sudhir wrote a letter on May 18, 2017 purporting to suspend implementation of the CSRA but in effect repudiating the same.

BOU says that on April 5, 2017, Sudhir provided two lists of properties in purported compliance with its obligations under Clause 3.2.5 of the CSRA.

The first list, according BoU, comprised of 14 properties, which in court documents have been termed as “Meera list” owned by Meera Investments.

The second list, which in the court documents has been referred to as “the Bharwani list” comprised of ten properties, three of which were owned by Mahmud Bharwani and the rest (one each) owned by Phionah Najemba, Florence Nakimuli, Eddy Matovu, Dembe Apartments, Alice Nambozo, Way Forward Developers and Prestigious Apartments.

On April 6, 2017, BOU says, its lawyer David Mpanga raised concerns about the property lists, pointing out, inter alia, the facts that: Plots 35, 37, 39, 41 and 45-65 Mpanga Close (Items 1- 5 on the Bharwani List) were encumbered by reason of being located in a Nakivubo swamp; plots 22-23 and 24-25 Mukabya Close (Items 6 and 7 on the Bharwani List) were encumbered by reason of being located in a Kinawataka swamp.

Mpanga also pointed out that Plot 34A, which Sudhir surrendered to BOU as part of the CSRA, is a playing field of Nakasero primary school and is fenced off with a clear sign indicating that it is not for sale.

On the April 10, 2017, BOU says that Mpanga presented Sudhir’s lawyers with further evidence of the encumbrances on the Nakasero primary school playing fields and on the properties located in the Nakivubo and Kinawataka wetland.  

In the same meeting, Mpanga queried Bharwani’s credibility and on behalf of BOU, requested that the Bharwani list be replaced with a list of unencumbered properties so as to augment the Meera List and make up the required value as per the requirements of Clause 3.2.5 of the CSRA.

In purported compliance with clause 3.2.5 of the CSRA, BOU says that on April 12, 2017, Sudhir presented a further list of three additional properties, one of which was owned by Meera Investments, another by Sudhir jointly with his wife and the third owned by Sudhir, bringing the total number of plots submitted on the “Meera Investments List” to seventeen.

Sudhir, according to BOU, on the 24th of April 24, 2017 presented a further list of four properties in the names of Adventure Real Estates Limited, a company associated with Bharwani, bringing the number of properties on the “Bharwani List” to 14.

All of the properties on the Bharwani, according BOU, were inspected by Semaganda & Associates, the valuers appointed to the Joint Valuation team by BoU and found to be encumbered in so far as they were: controversial titles located in gazetted wetlands; carved out of contested land belonging to city primary schools; or traversed by high-voltage power lines and encumbered by wayleaves (which allows government to work on private land).

“The fact that the majority of the properties on the Bharwani List were encumbered and largely worthless for being controversial was well within the counterclaimant’s knowledge [Sudhir] by reason of his association with Mahmud Bharwani and his involvement in the fraudulent extraction of monies using the Infinity Investments Limited facilities,” BOU says.

Though Sudhir says the agreement was repudiated the moment  BOU filed a case against him in the Commercial court; the central bank  in its defence insists that it was Sudhir’s intransigent stance, and refusal to remedy the breach of the agreement  that compelled the central bank to initiate legal action against the businessman.

It seems, however, BOU lawyers don’t seem to have a ready answer to Sudhir’s main claim, to the effect that since the CSRA collapsed, the central bank should return the $8m he paid in partial fulfillment of the agreement.   
  
dkiyonga@observer.ug

Uganda Revenue Authority (URA) has not remitted Shs 11bn in “oil revenues” to the Petroleum Fund, the latest audit report into the fund by the Office of the Auditor General reveals.

According to the auditor general’s report on the financial statements of the Petroleum Fund for the period 30th June to 31st December, 2016, the tax body, ought to have remitted Shs 11.3 billion collected as Pay as You Earn (PAYE), Value Added Tax (VAT) and Withholding Tax from petroleum activities.  

The report, released in June this year, is the first audit report into the finances of the petroleum fund that has been made public.

“It was, however, noted that monies collected by Uganda Revenue Authority (URA) under the Income Tax Act from income derived from petroleum operations such as Pay as You Earn (PAYE), Value Added Tax (VAT) and Withholding Tax is not being remitted to the Uganda petroleum fund. This contravenes the Public Finance and Management Act 2015,” the auditor general’s financial report reads.

One of the oil wells right in the middle of the continent of Africa.

The Public Finance Management Act, 2015 describes “petroleum revenue” as tax paid under the Income Tax Act on income derived from petroleum operations, government share of oil production, signature bonus, surface rentals, royalties, proceeds from the sale of government share of production, any dividends due to government, proceeds from the sale of government’s commercial interests and any other duties or fees payable to the government of Uganda from contract revenues under a petroleum agreement.

In the report, the auditor general, according to his assessment, argues that the description of “petroleum revenues” is restrictive since it leaves out income derived from petroleum operations like Pay as You Earn (PAYE), import duties and VAT payments from petroleum activities.

However, in URA’s opinion, PAYE is not taxed on revenues derived from petroleum operations, but it is categorized as employment income paid by the employees and as such it is excluded from petroleum revenues.

“Arising out of the above, it was established that Shs 11.3bn collected through the commercial banks and remitted to the consolidated fund should have instead been transferred to the Petroleum Fund,” the report pointed out.

The auditor general notes that the management of URA promised to remit the money to the Petroleum Fund. In the report, the auditor general advises URA to seek advice from the solicitor general to clarify on whether or not PAYE from employees of oil companies and their sub-contractors, as well as VAT, are part of the petroleum revenues.

SHS 271BN FUND

The auditor general’s report reveals that by the end of December 2016, the fund had a total of Shs 271.5bn. This includes the Shs 922.3 million the fund received from Tullow Oil and Total E&P in rental fees.

“For the six months ending December 31, 2016, the fund received non-tax revenue worth Shs 922.3 million ($270,900 dollars) as surface rental fees from Tullow Uganda Operations Pty and Total E&P Uganda,” the report reads.

Of this, $113,400 dollars was paid by Total E&P Uganda for the development areas of Ngiri, Jobi-Rii and Gunya and $157,500 was paid by Tullow Uganda Operations Pty Ltd for the areas of Ngege, Kasemene, Wahrindi, Nzizi- Mputa, Waraga and Kigogole-Ngara.

“The Petroleum Fund does not own any property, plant, equipment in its books of account. There are no expenses on the fund, except bank charges,” the Auditor General says in the report.

The petroleum fund is maintained in two separate accounts in Bank of Uganda. One of the proceeds is denominated in the local currency and the other in United States dollars.   

The signatories to the Petroleum Fund are: Keith Muhakanizi, Patrick Ocailap (deputy secretary to the treasury) and Lawrence Ssemakula, the accountant general.

The Public Finance Management Act, 2015, places an obligation on the auditor general, to audit the financial statements of the fund. The auditor general noted: “From the fund’s cashbooks and bank statements, I ascertained that there were no expenses made from the fund, except bank charges.”

Under section 56 of the Public Finance Management Act, 2015 the minister of Finance is responsible for the overall management of the petroleum fund. Under Section 60 of the PFMA, the accountant general is responsible for maintenance of proper books of account and proper records of the petroleum fund; and preparation and submission of semi-annual and annual financial statements for the petroleum fund that are free from material misstatement whether due to error or fraud.

Under the Public Finance Manangement Act, withdrawals from the fund can only be authorized by parliament through an Appropriation Act and warrant from the auditor general to the Consolidated Fund to support the annual budget and or to the Petroleum Revenue Investment Reserve Account.

OIL FIRMS LOSE SHS 136BN

In a separate audit report – the annual report of the auditor general on the Financial Statements of Government of Uganda for the Financial Year Ended 30th, June, 2016 - the auditor general approved Shs 3.1 trillion as recoverable costs.

Recoverable costs are those project investments that the oil companies are allowed to recover before sharing the profit from the sale of the oil.

According to the report, international oil companies stand to lose at least $39 million (approximately Shs 136.8bn) in recoverable costs for failure to comply with the provisions of production sharing agreements.

In the report, the auditor general, John Muwanga, reviewed costs recovery statements submitted by the oil companies for the period 2004 – 2011. Uganda discovered commercially viable oil reserves in 2006 after years of exploration.

“I reviewed cost recovery statements relating to the period 2004-2011 in the sum of $983,063,050 (an estimated Shs 3.4 trillion) and made the following observations; a sum of $39,094,724 (approximately Shs 136.8 billion) was determined unrecoverable because of non-compliance with the provisions of the PSAs,” the report reads in part.

The production sharing agreements [oil agreements] signed between government and the oil companies spell out the type of costs which are recoverable and those which are not. For instance, recoverable costs include all exploration, development, production and operating expenditures.

However, in the report, the auditor general does not specify which companies are affected by non-compliance. The production sharing agreements signed between the government of Uganda and oil exploration and production companies provide that the government auditor will review the cost recovery statements submitted by the companies to ascertain whether there was compliance with the provisions of the agreement.

According to the report, a sum of $902,382,526 (approximately Shs 3.1 trillion) was considered compliant with the provisions of the production sharing agreements and is, therefore, recoverable from future oil earnings. This means, once oil production starts, oil companies will recover Shs 3.1 trillion as costs they have incurred in oil exploration so far.

“A sum of $41,585, 800 (approximately Shs 145.5bn) was determined unclaimable in accordance with the production sharing agreement (PSA) provisions as commercial oil and gas reserves were not discovered in the licensed exploration areas.

Under the production sharing agreement model, oil firms recover their investment after making discoveries, and production starts. However, where oil companies do not make any discoveries, no recoverable costs accrue to the oil companies.

For instance, Cnooc Uganda Limited hit a dry well in Kanywataba prospect in Ntoroko district while Neptune also hit dry wells. Therefore, the money they injected could not be recovered from government.

The auditor general is required to scrutinize the expenditures made by oil companies and give final approval of recoverable expenditures. As an example, at the end of 2008, the auditor general had approved $492.5 million as recoverable costs out of $510 million spent by oil companies in the five areas licensed for exploration.

The auditor general has now embarked on the audit of recoverable costs for the period 2012-2015.

ssekika@gmail.com