A new report by the Auditor General has faulted government’s continued injection of money into a textile firm that continues to make losses and can barely run its operations.
The 2012 report, which was only made public last week, questions the government’s continued association with Phenix Logistics (U) Ltd, a textile firm founded by Yuichi Kashiwada, a Japanese national.
“The government has continued to inject funds in a loss making company, with the latest being the guarantee of a loan from JBIC amounting to Shs4.2 billion,” reads Mr John Muwanga’s report, which also wonders why the government keeps increasing its shareholding in the firm yet it has never received any dividend.
The story of the government and Phenix Logistics dates back to 2000. In that year, Phenix acquired assets of the defunct United Garments Industry Ltd (UGIL) from the government through the privatisation process.
However, in the same year, the firm borrowed Shs4.2 billion from the Uganda Development Bank, which it later failed to pay. Mr Kashiwada approached the government for help, the loan having grown to Shs5b, inclusive of interest.
With President Museveni’s intervention, Parliament in 2008 voted to write off the debt. The government, however, opted to convert the debt into shares, obtaining 49 per cent shareholding of the firm.
Earlier in 2007, Phenix had secured an international market for its organic products made in Uganda, making it the first textile company to export genuine organic cotton products. The first consignment of 50,000 units worth $250,000 was flagged off by President Museveni at the company premises in, Industrial Area, Kampala. There would be no other shipment after this. And because of this, President Museveni in September of the same year directed that the company be given $3 million (Shs5.7 billion) to boost Uganda’s exports to the Agoa market.
In 2009, a year after Parliament had written off its Shs5b debt, Phenix turned up with another request for Shs1.3 billion. Lawmakers refused to approve the request although the Daily Monitor established that the firm went ahead to receive the money.
With the debt accumulating, the government went ahead to increase its shareholding in the company to 79 per cent and recently, to 94 per cent. However, besides making the acquisition decisions minus parliamentary approval, the Auditor General has questioned why the government keeps increasing its stake in a company that registers losses every year.
For example, the company in the 2007/8 financial year reported a Shs806 million loss, it shot up to Shs3.9b in 2008/9, another Shs3.4b loss was registered in 2009/10 while in 2010/11 Phenix had a Shs671.2 million deficit.
The firm’s management, however, argues that the government’s decision to invest in Phenix was driven by the need to revamp the production capacities of the company to enable the country take advantage of the African Growth and Opportunity Act market. This, management says, should be the measure of performance and not profitability.
Firms that have got govt bailouts
Tri-Star Apparel over Shs20b
Basajja’s Hides & Skins about Shs20b
Phenix Logistics about Shs15b
BM Technical Services Ltd Unspecified
J&M Hotel Shs2.1 billion
LAP Textiles Limited Shs2.4billion
Uganda Telecom Ltd Shs22.5billion
Speke Resort Munyonyo Shs15b
Uganda Development Bank Shs5.9b
Uganda Printing Publishing Co Shs944m
Uganda Tea Authority Shs295 million
Uganda Growers Corporation Shs186.9b