How improved performance of the two companies tends to attract increasing hostility from parliament and the public
The Members of Parliament in Uganda, supported by a loud section of
our chattering elite class, seem determined to hold to wrong things
dearly even in the face of overwhelming evidence. Last year, a select
committee of parliament recommended that government terminate a
concession agreement with electricity distributor, Umeme. It provided
considerable grist to the anti Umeme mill. Then two weeks ago, another
select committee recommended that then-minister of Finance, the chairman
of the board and the managing director of the National Social Security
Fund (NSSF) are punished for buying shares in Umeme; a company they
claimed is “making losses”. Again, the anti NSSF-Umeme coalition went
wild in celebration.
Yet the complaints raised by parliament against NSSF buying shares in
Umeme cannot stand even mediocre scrutiny. They claim that NSSF did not
seek clearance of the Solicitor General (SG) before buying the shares.
To be fair to the legislators, this is based on the evidence given by
the SG to the committee. Yet the parliamentary committee should have
invited NSSF officials and hear from them as well – a basic principle of
natural justice. It turns out that NSSF actually sought clearance from
the SG office. In a reply dated October 28, 2013, the SG advised that
this request was unnecessary since in buying shares on the stock market
there was no legal contract, agreement, treaty or document to sign,
which needed such clearance.
A visitor to Uganda hearing the number of investigations by
parliament, IGG, PPDA and the cacophony of shrill alarms by our
chattering classes would think NSSF’s purchase of Umeme shares was the
stuff that makes companies lose money. Let us examine the facts: NSSF
invested Shs70 billion in buying Umeme shares between December 2012 and
May 2014. Over this period, the value of the shares NSSF bought has
increased to Shs 116 billion, an increase of Shs 46 billion or 65% in
value. Over this same period, NSSF has been paid dividends by Umeme of
Shs9 billion – 15% of the investment. For 2014 financial year, NSSF is
likely to get dividends of another Shs11 billion, bringing her total
dividend to Shs20 billion – almost 30% of the investment. The capital
gain plus dividends bring the total benefit to NSSF to Shs66 billion –
which is over 95%, return on investment in two years. This is an
investment decision any investor in the world would be dreaming about,
yet in Uganda it has being described as the most toxic.
Secondly, let us examine the performance of the two companies, which
have become a subject of vicious attacks by parliament and a section of
our chattering elites. The current NSSF management has significantly
reduced the problems of corruption that had plagued the institution.
They have made an impressive business turnaround of the fund in spite of
constant harassment by our so-called democratic institutions but which
could be best described as “empowered envy”.
Since 2010, NSSF revenues have grown from Shs160 billion to Shs577
billion (350% growth) while its operating expenses have grown from Shs45
billion to Shs65 billion (30% growth). Compliance has grown from 47% to
75%, assets under management from Shs1.3 trillion to Shs5.2 trillion,
monthly collections from Shs28 billion to Shs60 billion, cost to income
ratio reduced from 98% to 13%, cost of administering the Fund fell from
3.5% to 1.3%, the time between a retiree lodging his/her claim and
getting his/her benefits has reduced from 105 days to 12 days, and
finally, the interest paid to NSSF subscribers has increased from 3.0%
to 11.5%. What more do the hecklers want?
The thing about our country is the degree to which sections of our
elite are determined to cling unto their biases and prejudices (even in
the face of overwhelming evidence) as if these biases and prejudices are
gold. In spite of the many restraints imposed upon it by endless and
mindless fiddling in its operations, NSSF is one of the best-managed
pension funds on the African continent and beyond. I say this based on a
broad continuum of indicators including return on invested capital,
return paid to subscribers, the turnaround rate of claims,
revenue-to-cost ratio, rate of growth etc. Our nation should be taking
pride in such a well-managed fund.
Let us come to Umeme. It is one of the most successful electricity
distribution companies on our continent in terms of loss reduction, rate
of connection and profitability. Electricity losses are going up
everywhere – Kenya, Tanzania, Rwanda, South Africa, etc. In Uganda,
Umeme has reduced them from 40% in 2010 to 19% today and is projecting
to reach 14% in 2018. For every one percentage point reduction in
electricity losses, Umeme saves government (the taxpayer) $3.5 million
per year. So today it is saving government $73.5 million per year. When
Umeme did a Second Public Offering, the leading global equity firms with
$1.3 trillion worth of funds under management were lining up to get a
piece of the Umeme pie. On average these companies got only about 37% of
what they asked to buy.
While our nation’s state-mismanaged UEB (Uganda Electricity Board),
and its successor Uganda Electricity Distribution Company, were
loss-making and depending on state subsidies, Umeme makes profits and
pays billions in taxes to government. It has assets worth $400 million
while its market value on the stock exchange is $380 million. In 2014,
its revenue was Shs960 billion, with profits of Shs178 billion. It pays
over Shs150 billion in taxes, spent $95 million on capital expenditure
in 2014 (i.e. investing in the network) and plans to invest $450 million
in the network over the next five years. What more does parliament and
other hecklers on Umeme want the company to do?
It is possible that MPs know that these two companies are performing
well. Because they are heavily indebted it is very likely that they are
trying to use their constitutional power of oversight to threaten the
managers of these companies thereby forcing them to bribe them. And what
about Uganda’s chattering classes? It seems that a section of our elite
class is suffering from social frustration. Unwilling to accept that a
significant source of their frustration is their own laziness or lack of
creativity or innovation they are constantly looking for a villain to
attribute blame for their frustrations. If this suspicion carries any
water at all, then NSSF and Umeme are victims of circumstances beyond
their control.
amwenda@independent.co.ug
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