A glimpse at eight govt loss-making enterprises 

Eight government entities made losses of more than Shs300b in the last financial year, according to the Auditor General’s (AG) report that has red-flagged the persisting trend of non-profitability in State and public enterprises.

In the report for the year that ended June 2022, Mr John Muwaga assessed the profitability of 18 companies, 10 of which he found to be profitable. The aggregate losses registered, however, far eclipse the profits. The 10 enterprises made a profit amounting to Shs163.12b, only half the Shs331.28b losses made by the eight bodies.

In the previous report of 2021, only half of the assessed enterprises were making profits.

According to the report, the three-year-old Uganda National Airlines Company Ltd posted a higher loss of Shs266b from Shs164.6b in the previous year. This was attributed to “low industry recovery from Covid-19 effects, which slowed down the airline’s expansion efforts into new markets like China”.

Experts have previously predicted the airline to break even in five to seven years, this leaves the airline with less than two years to reverse the negative performance. 

Other loss-making enterprises included Uganda Railways Corporation. Uganda Air Cargo Corporation and Kilembe Mines. This may affect the entities’ ability to meet future obligations or investments, the AG noted.

Low revenue performance and high cost of operations for entities, a number of running projects which are still under Work in Progress (WIP) and not generating revenue, and the impact of the Covid-19 pandemic were sighted, alongside others specific to an enterprise,  to be causing the non-profitability of the firms.

“I noted that 56 percent of the assessed companies made profits while others were not making profits, thus affecting their return on assets, ability to pay dividends to government, and ability to settle their obligations as they fall due,” the AG said.

“These enterprises, which are independently managed, are supposed to operate efficiently, make profits, and pay dividends to the government,” he added.

Enterprises like Uganda National Oil Company (UNOC), UEDCL, Civil Aviation Authority (CAA) and Uganda Broadcasting Corporation (UBC) while still making losses, recorded significant improvement in their performance compared to the previous year.

UNOC, whose losses reduced from Shs34.7b to Shs1.3b, explained that the profits would be realised after oil, tentatively expected in 2025.

“The management explained that UNOC’s anchor investment projects are greenfield projects, which require three to four years of construction, after taking a Final Investment Decision (FID) before revenue can be generated. So far the government has provided funding for UNOC’s equity in EACOP, while for Tilenga and Kingfisher, UNOC is carried up to First Oil. These projects can only generate revenues after First Oil,” the AG notes

Reduced profits

Some of the leading profit-making bodies including the Uganda Electricity Transmission Company Ltd (UETCL) and Uganda Electricity Generation Company Ltd (UEGCL) reported a fall of more than 60 percent in their profit positions. UETCL’s profit fell from Shs112b in 2021 to Shs37.7b. UEGCL’S returns fell by Shs64b.

The same downward performance was registered by the Uganda Printing and Publishing Corporation (UPPC). This was attributed to foreign exchange losses (UETCL), delayed commissioning of Karuma hydro power project (UEGCL), and stiff competition in the market (UPPC). The Uganda Microfinance Support Centre recorded a fall in profit from Shs30b to Shs1b.

The National Enterprise Corporation (NEC), the commercial arm of the Uganda People’s Defence Force and NEC Farm Katonga Ltd registered improved profit positions of more than 100 percent from the previous year, mainly attributed to the recovery of the related industries from the negative effects of Covid-19,’’ the report further indicated.

Mandela National Stadium registered a surplus of Shs78.8b from Shs1b on account of government support of Shs80b received during the year.

President Museveni while meeting the NRM Parliamentary Caucus in August 2022 said only profit-making parastatals should be left to operate independently.

“If the government wants to have parastatals, have money-making parastatals, so that when you say you have got a board, it is a money-making board; not a money-eating board. Have no board where there is no money making,” he said.

 Cabinet in February 2021 approved a roadmap for rationalisation of government agencies, commissions, authorities, and public enterprises, citing among others attempts to save funds. In the list released last year, entities such as UEGCL, UETCL, and UEDCL will be returned to the line ministry. 

The report also establishes that despite making profits, the bodies do not pay dividends to the government.

“I noted that only Housing Finance Bank Ltd declared a dividend pay-out of Shs20.5b in the year under review. I further noted that although some companies were making significant amounts of profits, they were not paying dividends to the government. Examples included UETCL, UEGCL, UEDCL, NEC Luwero Industries Ltd, and NEC Construction Works & Engineering Ltd, among others. The enterprises attributed the non-payment of dividends to the loss-making positions and retention of funds to fund planned investments/projects.”

The AG also raised a red flag on the weak monitoring, adding that the government does not maintain a comprehensive database of public corporations and state enterprises to enable independent verification of the number of entities consolidated in the summary statement.

“Therefore, these companies should put in place strategies to improve their performance and deliver to the expectations of the government. In addition, the government should develop appropriate financial and non-financial performance assessment indicators for each category of public corporations and state enterprises to enable comprehensive and standardised performance assessment.

 “Whereas the government policy to invest in critical sectors of the economy is commendable, it is important to ensure that such investments are operating efficiently and effectively to meet sector objectives. There is a need for government to strengthen the supervision and monitoring of these entities,” the 2021 report recommended

The law

Section 3 of the Public Finance Management Act (PFMA), 2015 describes a public corporation as an authority established by an Act of Parliament other than a local government that receives a contribution from public funds, and any public body that in a financial year receives any income from public funds. A state enterprise means a body in which the government or a state enterprise has a controlling interest.

The report also highlights that some enterprises were not audited.

“I noted that 50 public corporations and state enterprises were supposed to be consolidated…However, only 34 entities were consolidated and 12 were disclosed as having not submitted summary statements for consolidation. I further noted that four consolidated summary statement submitted by the Accountant General,’’  Mr Muwaga said.

Loss-making state enterprises

Profitable state enterprises