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In the period leading to the 2011 fall and subsequent death of Libyan Leader, Col Muammar Muhammad al-Gaddafi in October 2011, Uganda Telecom was a promising company.
The previously state-owned telco was spun-off Uganda Posts and Telecommunications Corporation (UPTC) in the 1999 unbundling that also created Post Bank Uganda and Posta Uganda Limited.
In June 2000, the Government of Uganda (GoU) sold a 51% stake for USD33 million to Ucom, a consortium backed by Swiss-registered Telecel International, Germany’s Detecon and Orascom of Egypt. To catch up with the rest of the players at the time, Uganda Telecom in 2000 launched a mobile telephony service, dubbed Mango, but would later rebrand its mobile, fixed and data offering under one brand- Uganda Telecom.
In April 2007, the Libyan government‘s investment arm — the Libya Africa Portfolio (LAP), later rebranded to LAPGreenN — bought out Ucom’s stake. Due to the investment needed at the time, which the government of Uganda was not able to make, a further 18% shareholding was ceded, raising LAP’s holding to 69%, leaving GoU with 31%.
However, in March 2011, Uganda Telecom was part of the Libyan government’s assets, worth some USD375 million that the GoU reluctantly agreed to freeze as part of the UN sanctions against Libya and Gadhaffi at the time.
Uganda would in 2012 release the assets back to LAP- after the death of Gadhafi. By this time, the marketplace, although the big boys of the day- MTN Uganda, Airtel and Warid Telecom, had an edge over Uganda Telecom in the mobile telephony space, Uganda Telecom had quite some good footing in the fixed internet and fixed lines space. In 2012, the telco turned over some UGX132 billion. Although not as much as MTN Uganda’s UGX1,007 billion, and UGX368bn for Airtel, there were signs that Uganda Telecom was making all progress.
With the deepening confusion in Libya and the absence of Gaddafi’s influence, the government of Uganda or at least some actors in the government decided to play the Libyans a bad hand, for their selfish benefit.
First of all, the GOU continued to refuse and or fail to sort out pension liabilities that had originated from the unbundling of UPTC, as per the commitment done when Uganda Telcom was incorporated in 1998, altogether some UGX165,048,246,917. This would later make up a huge chunk of the debt that eventually led the company into insolvency.
Secondly, most government agencies who were consumers of Uganda Telecom’s services stubbornly refused to pay up for services and also failed attempts to disconnect them- racking up an estimated 30% of the UGX133 billion in uncollected debts owed to the telco.
Thirdly, even when it was apparent that the shareholders of the company needed to inject more capital to upgrade the networks to keep up with both competition and market demand, the GoU refused and or failed to inject capital and used its powers as the government, to block LAPGreenN to have its shares diluted in favour of LAPGreenN who was willing to make the required investment.
Failure to invest left the company stuck with an old 2G network, as competitors were moving onto 3G networks and upping their game across the board.
The company limped on. In 2013, turnover fell to UGX117 billion but rose slightly in 2014 to UGX123 billion. But losses more than tripled from UGX60 billion in 2013 to UGX211 billion in 2014.
In February 2015, Ali Amir, the Managing Director resigned. Mark Shoebridge who was the Chief Fixed Services Officer at the time was appointed Ag Managing Director in March 2015.
With no capital at hand, Shoebridge sold off some of the company’s prime properties to raise some working capital, but this was a mere pebble in the ocean. Even if in 2015, turnover grew to UGX213 billion, the only biggest contributor to turnover that year was earnings from property sales.
And even with the cost-cutting that followed, losses in 2015, were still too high- UGX UGX169 billion.
2016 was even worse. With no properties left to sell, and mounting competition, especially after the merger of Warid Telecom and Airtel Uganda, Uganda Telecom’s turnover fell significantly to UGX68 billion in 2016 and losses at UGX84 billion!
An obsolete network caused by years of under-investment, lost market share and therefore poor cashflows, all, exacerbated by poor corporate governance, itself precipitated by constant government interference and failure to pay bills eventually brought Uganda Telecom to its knees.
Uganda Telecom had cost-cut itself to death!
Faced with threats of liquidation by creditors and a persistent failure to meet its daily financial obligations, and deserted by customers, the telco was declared insolvent and put under administration in April 2017.
Markshoebridge and most of his senior leadership, together with Board Chairman Stephen Kaboyo had to step down too.
Mr. Twebaze Bemanya the then Registrar General of the Uganda Registration Services Bureau (URSB) was appointed as the first administrator.
But the Administrator couldn’t do much to change the meltdown, largely for the same reasons above— failure by the government to recapitalise the company, pay its debts to Uganda Telecom, and meet its pension obligations, yet all the while continuing to meddle in the running of the company, even when it was under Administration.
For example, before going into administration, the Minister of Finance, Matia Kasaija, had sworn an affidavit that government would inject UGX10 billion every month into the company, to help it bounce back- but never released even a single cent.
So it was no surprise that by the close of 2017, turnover fell further— to UGX50 billion, the lowest in over a decade. Losses however remained higher than turnover, at UGX56 billion.
At this point, with the government reneging on its capital infusion promise- the next step was to look for a buyer. But even then, that too was marred by a lot of political interference with various ministers continuing to meddle in the running of the company and taking sides against each other.
Thanks to political interference and a nasty bruising fight that ensued, Bemanya, the administrator spent most of his time-fighting wars in the media and the political streets and corridors than running the company.
In January 2020, a new Administrator, Ruth Sebatindira, a lawyer and Partner at Ligomarc Advocates, one of Uganda’s leading law firms, was appointed the new administrator.
But in the absence of a fresh cash infusion by the shareholders, Uganda Telecom remained unsavable and operating at a bare minimum.
In 2020, turnover further fell from UGX58 billion to 43 billion. The company remained loss-making- at UGX21 billion.
By the end of 2021, according to figures obtained by CEO East Africa Magazine, turnover was a mere UGX35 billion- 3 times less than what it was 10 years ago in 2012 (UGX132 billion). More importantly, while UTL’s turnover, at the time was only 8 times less than that of MTN, the market leader and 3 times that of Airtel, the No.2, at the end of 2021, UTL’s turnover was 59 times less than MTN’s (UGX2.060 trillion) and 47 times less than Airtel’s (UGX1.648 trillion).
UGX668 billion debts; 113.7 billion in uncollected payables hitting a historic low
With accumulated losses and mounting debts, Uganda Telecom was literally on its knees.
An audit carried out by the Office of the Auditor General showed that Uganda Telecom was indebted to the tune of UGX668 billion.
The biggest chunk of the debt is in pension liability to former Uganda Posts and Telecommunications Corporation employees (UGX165,048,246,917) and an assortment of largely private sector creditors, whom the telco owes UGX63,079,412,417.
Other creditors include Uganda Revenue Authority (UGX9,786,780,845), Uganda Communications Commission (UGX62,469,304,749), Uganda Communication Employees Contributory Pension Scheme (UGX2,353,904,321) and National Social Security Fund (UGX15, 462, 575,874).
However, the telco owes several other creditors, up to UGX336.3 billion, but this is still in court, pending determination. Another debt of UGX28.7 billion, the Auditor General could not verify, apparently due to “insufficient information”.
The audit also showed that as of June 30th 2021, the telco’s non-current assets stood at UGX184 billion. Additionally, Uganda Telecom’s 9.13% shareholding in a sub-sea internet cable company- the West Indian Ocean Cable Company (WIOCC) was valued at UGX55.45 billion. The Auditor General also said that the telco had 11 properties worth UGX.57.5 billion whose ownership was, however, contested by Uganda Telecom’s sister companies i.e. Posta (U) Ltd, Uganda Broadcasting Corporation (UBC), and other entities.
Uganda Telecom also had UGX 113.65 billion in uncollected debts.
All the above assets added together are equivalent to approximately UGX410.6 billion— some UGX257.4 billion less than its UGX668 billion in liabilities.
In simple terms, even if Uganda telecom sold all its assets- including the contested ones, it would still need UGX257.4 billion to pay its debts.
Instead of doing the right thing and recapitalising Uganda Telecom so that it can pay up its debts and revitalise its network, the government came up with a smartass move. Smart and legal on paper, but downright dishonest.
On the 8th of April 2021, the government incorporated a new company called ― Uganda Telecommunications Corporation Limited (UTCL). UTCL is fully owned by the government of Uganda, with the Minister of Finance holding 60% and the Minister of ICT & National Guidance, holding 40%.
UTCL, posturing as a new investor, gave an offer to the administrator to buy Uganda Company. On the 23rd of February 2022, an asset sale and purchase agreement was entered between UTCL and Uganda Telecom for the acquisition of all the assets and business of Uganda Telecom.
Under the deal, UTCL would pay UGX256,892,142,642 and USD15,643,151.25. This brings the total value of the deal to about UGX316,455,270,323 or approximately USD 81.3 million.
The UGX316.4 billion sale proceeds however are UGX351.6 billion short of the required amount to pay off all creditors.
In September 2022, a new Board for UTCL was inaugurated by Hon Evelyn Anite that is Chaired by Dr. Grace Sekakubo, the Head of Centetech, the ICT arm of Centenary Group. The other Board members are Mr. Jimmy Adiga the former CEO of BRAC, Mr Tom Sekakuto a former technician with Uganda Posts and Telecommunications Corporation, Ms. Maximilia Byenkya a lawyer, Ms Agnes Ojambo an Auditor, Ramathan Ggoobi, the Permanent Secretary and Secretary to the Treasury (PSST), as well as Ms. Aminah Zawedde, the Permanent Secretary of the Ministry of ICT and National Guidance.
Has the government learnt any lessons from Uganda telecom’s expensive failure?
Just when you would have thought that the government has learnt from its mistakes, it has not.
Over and above running away from paying its creditors and choosing to plead insolvent, the government through its newly registered telco, UTCL, hasn’t even paid up fully for the purchase of the Uganda Telecom assets yet.
CEO East Africa Magazine understands that the government has only paid 28% of the UGX256,892,142,642. It had also earlier paid USD15,643,151.25 to Trade and Development Bank (TDB) that Uganda Telecom owed to the development bank, an amount that was considered part of the sale price. The balance, according to our sources, the Ministry of Finance, Planning and Economic Development is going to issue a letter of comfort.
It is this balance that is holding up the process of ending the Administration.
“Once the letter is issued by the minister, showing when the government will clear the balance, it will be presented to the court, so the court can okay the transfer of the assets to UTCL. This will also mark the end of the administration process,” said the source.
Assuming the government pays up the remaining balance on time, it will still need to raise another USD230 million (UGX874.4 billion) to invest in the new company. According to a study that CEO East Africa Magazine has seen, this is the amount needed, to completely revamp Uganda Telecom, to bring its network, power systems, fleet, data centres, IT Systems, people and brand to match what the competition has.
According to the study, Government would then start seeing ROI by the end of the third year.
But financing is one bit of the problem. The government would also need to keep fix governance by both appointing competent people, but also giving them the independence to execute strategy.
In an interview with CEO East Africa Magazine, Steven Kaboyo the former Uganda Telecom Board Chairman, between 2014 and 2017 says that while there is a strong case for resuscitating the national telco, the shareholders (government) must avoid mistakes of the past.
He argues that even the though the telecom market is nearly duopolistic with MTN Uganda and Airtel Uganda commanding about 95% of the market, there is still room for Uganda Telecom to leverage its ownership by the government, to become a niche “telecom for the government”.
“This means, that their business model has to be tuned to that and incentives deliberately created around that by the government to support their own,” he says.
He however reiterates that the fundamentals of corporate governance have to be addressed first and government must correct the mistakes of the past.
“Some good amount of CAPEX has to be put in place to update the almost obsolete. With the technology advancement, out there, there is no way a 2G network that UTL has can compete,” Kaboyo says.
“Secondly with the company balance sheet still weak, a good amount of OPEX has to be provided for the company to run its day-to-day operations thirdly, “governance must be improved and one major consideration is to put in place a management contract whereby a team of professionals that have expertise in running telecoms are hired under a management contract to run the company with clearly set targets,” Kaboyo reiterates.
He also says government entities must learn to pay their bills with sister government agencies. He also says political leaders must learn and or be restrained from interfering with the running of government-owned entities especially those competing in the same space with private sector players.
“The main challenge with many government-owned entities is interference and taking the services for granted. These companies must be run as private businesses and manage their bottom line to the letter. When government uses the services of these providers, it must pay just like anybody else, and if at all credit must be capped to a certain level to avoid cash flow challenges. It is not that government does not have the funds to pay for services, it is only a matter of discipline,” he adds.
Another expert familiar with Uganda’s Telecom industry, whom the CEO East Africa Magazine spoke to, also stressed the importance of getting a competent, independent and non-conflicted board with sufficient turnaround experience to the scale equivalent to that required for Uganda Telecom.
“UTCL being a new company with a new Board would require a highly experienced and seasoned Board,” said the source.
The same source expressed reservations, on the current model in which the ministers and their Permanent Secretaries are given too much power on the appointment of boards and chief executives of government-owned companies that play in heavily competitive environments.
“If in the past, self-serving politicians, who are most times inexperienced and with no proven commercial experience, have been the problem; if they have been over-meddling in the affairs of government-owned companies, and appointing incompetent people, what problem are we solving by replicating the same model? Isn’t this new wine in old bottles?” wondered the expert.
The expert also agrees with Kaboyo that the independence of Uganda Telecom needs to be fiercely guarded and as much distance kept between the politicians and ministry technocrats, who lack basic commercial experience.
“It is important that people with competence and commercial telecom experience are hired. It is even more important that their independence be protected by all means. The current set-up, where ministries and the politicians and technocrats therein are given too much power, I am afraid may take the new telco back to the past; a past that it must run away if it is to succeed. Otherwise, this will be another expensive experiment,” she said.