Utl is on the brink of collapse

Thursday April 2 2015

A man walks past Uganda Telecom offices in

A man walks past Uganda Telecom offices in Kampala. For four years, the company has struggled with low cash inflows from its largest shareholder Lap Green. PHOTO BY MICHAELKAKUMIRIZI  

By Didas Kisembo

Kampala. Uganda telecom is at the verge of financial collapse with a Shs366 billion liability, outstripping its total asset base of Shs220 billion, according to the latest audit report Uganda Telecommunications Commission has released.
The Uganda Communications Communication (UCC) has now served the UTL with a notice threatening to revoke its national telecommunications operator licence unless it devises a working strategy to pull itself out of its problems and it has a 60-day ultimatum to come up with it.

“The sector cannot continue this way. The company cannot support the delivery of a decent service and has defaulted on some of its obligations, causing instability in the sector and now something has to be done. UTL and its shareholders must sort out this lest its licence be revoked,” vowed Mr Godfrey Mutabazi, the executive director of UCC in an interview with the Daily Monitor.
The five-page document highlighted six points which UCC deemed as areas UTL had fallen short on, not only as the national telecommunications operator, but also as a business.

Failures
These are; UTL’s failure to comply with audited financial accounts for the two-year period and its failure to pay the set fees for the spectrum/resources assigned to UTL, resulting in a Shs13b debt to UCC.
Furthermore, the notice shows UTL’s failure to honour its obligation to pay interconnection fees to other operators, its failure to deliver quality services set by UCC standards and lastly, the company’s ill health casting doubt of its ability to continue operations.
“The commission reviewed the UTL’s external audit reports for the period 2011-2013 and noted with concern that UTL is consistently making losses and is on the brink of financial collapse,” read the notice in part.
The audit reports reveal that as of December 13, 2013 the company’s assets totaled Shs220b, which are shadowed by its liabilities that stood at a staggering Shs366b.

Mr Ali Amir, the UTL outgoing managing director, upon receipt of the notice acknowledges that the issues cited are true especially on the levy default, the interconnection fees debt and also the company’s ill health but felt that some required some clarification from UTL.
“The aspects of equipment type approval and illegal usage of spectrum are technical issues I feel we needed to interface with UCC more on so that they can factor in our side of events,” Mr Amir notes, adding: “However, that notice sums up the picture.”
Mr Amir expressed his disappointment at things having reached that point and noted that management at UTL is hopeful and confident that the government and Lap Green – the two principal shareholders, shall get solutions to save the company within the ultimatum period.
“I am almost 100 per cent positive that UTL shall not be shut down and a compromise will have been reached before then.”

Possible remedies for UTL troubles
For four years, the company has struggled with low cash inflows from its largest shareholder Lap Green which has 69 per cent shares.
“After the Arab Spring in 2010, LAP was slapped with sanctions from the UN, EU and even US. Since then, only the UN and US lifted theirs whereas the EU’s remains in place,” explains Mr Amir.
“That, coupled with the political instability in Libya, are some of the issues that have affected Lap Green’s capacity to inject capital into UTL.”

In 2011, Mr Donald Nyakairu, then acting managing director of UTL revealed that the company was expecting an investment of about Shs180b from Lap Green to sort out the company’s issues but the money never came through because of the Arab Spring.
Mr Amir says the subsequent troubles the company has experienced tie into LAP green’s and Libya’s fortunes and emphasises that for UTL’s performance to be reversed to the past glory: “The EU has to lift the sanctions to enable liquidity flow from LAP or another investor has to come in and re-capitalise the company. Lap Green is currently trying to source out businesses in Libya that would be interested in buying into UTL’s salvation,” he says.

The other option, according to Mr Amir, would be for the shareholder loans that currently total Shs153b and constitute almost 50 per cent of the company’s liabilities to be turned to equity.
“That would do the company a great deal in helping stabilise.”
He, however, observes that convincing the shareholders to do this may be a difficult task and it is something government and Lap Green would have to discuss.
“With the current status of the company, the shareholder is stuck between a rock and hard place. If they do not accept the loans to be converted to equity and the company collapses, what would they be paid with? However, if they do and the company thrives, they benefit,” he says.
On whether UTL would be open to takeover considering its major shareholder’s troubles, Amir says that is for government and Lap Green to resolve but however in his opinion, it would be a ‘win-win’ for all if another investor swooped in, injected capital and revived UTL.

“Uganda Telecom here to stay”
UTL board chairman, Mr Stephen Kaboyo, in an email to this paper on the matter of UTL’s collapse, emphasised that UTL is a linchpin in the country’s telecommunications sector and noted that the stakeholders shall not let it fall.
“UTL is here to stay. It is true we have regulatory challenges that centre on capitalisation issues. However, I the shareholders – Lap Green and the government of Uganda, are working together to stabilise UTL, reverse the causes of distress, resolve the financial problems and return the company to acceptable levels of solvency, liquidity and profitability,” Mr Kaboyo said.

“We need to recognise that UTL is a centre piece of Uganda’s telecom sector. Its contribution to the ICT sector and the economy cannot be downplayed. UTL employs 460 Ugandans and we are the sole provider of fixed line communication for the entire government machinery.”
Mr Kaboyo is confident that UTL is not beyond redemption.
“UTL has enormous potential, with a bit of tweaking here and there, we shall make the turn and bring the business back on a sound footing,” said Mr Kaboyo.
Mr Mutabazi, the UCC head, however says its future will bank on whether the company can establish to capacity to pull itself out of its mess.

UTL's shareholding
Lap Green, an acronym for Libya Africa Investment Portfolio Green Network (Lap Green), is subsidiary of the Libyan government that was established in 2007 to deal in telecommunication solutions. In 2007, Greencom, a subsidiary of the of the late Col. Muammar Gadhafi’s government, Lap Green bought majority stake into Ucom—a joint venture of Germany’s Detecon, Telecel International from Switzerland, and Orascom telecom from Egypt.
Lap Green maintains 69 per cent shareholding in UTL while government retains 31 per cent. The venture is a big shareholder in a number of telecommunication companies in various countries on the continent.

The collapse of Col. Muamar Gadhafi’s regime in 2011 marked the start of Lap Green’s problems after the UN Security Council slapped a freeze on its assets , with an investment portfolio of more than $66b that were in Geneva, Switzerland. The ban has however been since lifted in part but Lap Green continues to struggle. Additional reporting by Frederic Musisi.

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