Questions galore as govt adds Roko to toxic roster

An analysis of recent state investments shows a pattern of fraud, waste, and abuse of taxpayer money even as the government eyes a multi-billion stake in the ailing firm Roko Construction Limited.

On Thursday, the government tabled a proposal before the House seeking approval to acquire 150,000 preference shares worth more than Shs202b in Roko Construction Limited. Once one of the most thriving enterprises in the country, Roko has struggled in the past few years following the death of its founder Rainer Koehler.

Roko was incorporated in Uganda in 1969 and has since been part of Uganda’s development journey. In 2020, the Roofings Group—joined by 26 other companies—sought a court declaration to have the construction giant wound up for allegedly failing to clear huge debts.

One of Roko’s biggest projects, which is behind schedule by more than two years, is the new Shs270b Parliament block. In 2020, it emerged that the government was one of Roko’s biggest debtors with more than Shs46b owed to the company.

In November 2020, Finance minister Matia Kasaija wrote to Roko promising to clear government debt within four months. The commitment, however, wasn’t met, prompting the government to take the latest move to acquire shares into the beleaguered company. The purchase of shares will doubtless elicit debate in the coming days as legislators flesh out the details of what kind of role and holding the government will have in the company.

Democratic Party (DP) President Norbert Mao opined that instead of buying a stake into Roko, the “money should go to the Uganda People’s Defence Forces (UPDF) Construction Unit to enable it get state of the art equipment and working capital.”  Roko, he further said, “should get a long-term concessional loan from UDB (Uganda Development Bank).”

Sources familiar with the mooting of the proposal say President Museveni has a soft spot for Roko. The company’s other advantage is its local and regional profile (Rwanda and South Sudan). In Uganda it has executed projects like Workers House, Crested Towers, the Namugongo Shrine, Bank of Uganda, Mapeera House, Acacia Mall, Rwenzori Towers, dfcu Towers, Imperial Mall and Apartments Entebbe, the Latitude Hotel, Mestil, among others.

Government explains

In a detailed explanation addressed to the House Speaker, the government committed to inject $42m or Shs157b in Roko through acquisition of 150,000 preference shares at a nominal value of Shs1m per share and a share premium of approximately Shs57.13b. The government acquisition will be paid for across five years.

Parliament heard this past week that Roko has been faced with severe liquidity challenges that have constrained its ability to execute contracted projects. The company’s liquidity problems were triggered by delayed payments on major projects, failure to refinance expensive shilling loans with cheaper external financing, the impact of the Covid-19 pandemic on the construction industry while financing costs continued to escalate, weak corporate governance and inadequate management.

Roko, according to the government, currently has signed contracts worth Shs1.064 trillon, of which Shs696.6b are government projects.

“The consequence of the company’s collapse would, therefore, impact these projects negatively. The Uganda National Association of Building and Civil Engineering Contractors (UNABCEC) estimates that the government would incur an additional Shs120b in placing these contracts with new contractors if the company was wound up,” the government paper notes.

The document indicates that in October 2019, President Museveni directed the Finance minister to negotiate the government’s acquisition of shares in Roko.

“The President’s directive was premised on the following: The absence of a government-owned construction company, which subjected the government to the use of private companies that are nearly wholly foreign-owned and domiciled. The government currently spends Shs950b per annum on projects in the roads and power sectors that are implemented by foreign companies,” the document reads.

The other reasons fronted by the President are that Roko was implementing a significant number of government projects, making it a suitable local partner. The need to lower construction costs for government projects and the need to build the capacity of local firms in strategic sectors and industries were also mentioned.

Chequered past

History suggests that the Ugandan taxpayer has good reason to fret. The 2022/2023 budget report flags some of the projects where the taxpayer’s money is being fluffed. On the 264-bed specialised hospital worth Shs1.4 trillion, the House committee notes “no evidence for works done in Financial Year 2021/2022 despite issuance of Promissory Notes worth $113.25m.” In the current budget the hospital project was allocated more than Shs319b.

On Soroti Fruit Factory, the Parliament budget committee report reasons “continuous allocation of funds from government to purchase fruits for running the factory does not make business sense.”  Shs2b had been allocated to the project to purchase fruits, which Parliament halved.

Elsewhere, Atiak Sugar factory—in which the government through Uganda Development Corporation (UDC) acquired 40 percent shares—has required bailouts since inception. Businesswoman Amina Hersi Moghe owns 60 percent shares valued at Shs119b. Recently, the project temporarily closed shop thanks to inadequate cane supply.

While the government’s shareholding in Munyonyo Commonwealth Resort is uncertain, questions have been raised over it regardless. Parliament rejected a proposed allocation of Shs84.6b to the resort because of uncertainty regarding government’s shares and dividends from the deal. During one of the sessions to approve the budget, the Trade Committee chairperson, Mr Mwine Mpaka, revealed that Shs12b of allocations to the facility is unaccounted for, and that vital documents have been stolen from the Finance ministry.

In a minority report, shadow Finance minister Muwanga Kivumbi proposes that the government converts to shares all funds invested into Munyonyo; UDC nominates a board representative and the Board of Munyonyo Commonwealth Resort Limited is fully constituted; ensures that Munyonyo Commonwealth Resort Limited has the most recent Annual Report and Financial Statements; among other things.

The revival of the Uganda Airlines was clothed in optimism. The national carrier is, however, likely to join the long list of projects that feed off the taxpayer’s limited resource envelope. Less than five years since its revival, the airline has had three bosses, a disbanded board and returned massive losses. All this has played out amid allegations of nepotism, fraud and corruption. 

UDC’s take

In an interview, Mr Patrick Birungi, the UDC executive director, expressed optimism about the investments the government is making.

“Industrial establishments are not kiosks to a return on investment very quickly. They are making losses and will continue to make losses and that is acceptable. I never expected them to make profits in the first year. It is a normal process and what matters is that what they are doing is right,” he said.

On Roko he said UDC “strongly support the idea of supporting and backing local industry” and that it “envisage[s] a situation where we build the capacity of Roko to continue doing what it does best.”

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