Vinci coffee deal provides protection to local processors, farmers – AG

The Attorney General has said a memorandum of Understanding which Uganda signed with Uganda Vinci Coffee Company (UVCC) provides protection to the local coffee processors and to the farmers, arguing that the Company will buy the coffee beans at a premium price which shall be equal to or higher than the indicative price set by the Uganda Coffee Development Authority (UCDA) or at the prevailing international price.

READ: Faces behind Uganda Vinci Coffee unveiled

 “I hold a firm opinion, Hon. Members, that the agreement has no harm to the coffee industry and indeed to the people of Uganda. On the contrary, the Agreement will boost the industry in terms of value addition through agro-processing. Let me conclude by confirming that I am a patriotic Ugandan who at all material times acts in the best interest of the Country and of the people of Uganda,” Mr Kiryowa Kiwanuka said in an April 29statement on the legality the deed of restatement and amendment between the government and Uganda and UVCC to the Parliament’s committee of trade tourism & industry.

According to him, the agreement which has sparked public uproar and debate especially from the coffee dealers, provides that the Government undertakes that it will take all reasonable measures to give priority of supply of coffee to the Company before registering any contract or acknowledging any arrangement for the export of coffee beans (including screen 18 and above), so that the Company will have ample supply of coffee to sustain its operations.

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“Clause 4.2.2 of the agreement stipulates that the Company undertakes that it will pay for the priority supply of superior quality coffee beans at a premium price to be determined by the Company but in any case, not lower than the price approved by the Relevant Authority for a particular consignment or the prevailing international price for each respective grade of coffee whichever is lower,” he added.

 Below is the Attorney General’s full statement to the committee;

 Hon. Chairperson, and Hon. Members of Parliament, I have submitted this write up on the request of the Committee on Trade, Tourism and Industry before which I appeared on 27th April, 2022, on the invitation of the Committee to make a presentation on the legality of the provisions of the Deed of Amendment and Restatement between the Government of Uganda and Uganda Vinci Coffee Company Limited (the Company).I will proceed to address you as here under:

1.0 Introduction 

The Government of Uganda entered into the Deed of Amendment and Restatement with the Company on 10th February 2022. The Deed amends and replaces the initial agreement signed in April, 2015, Addendum No.1 signed in December 2015 and Addendum No.2 signed in October, 2017. The import of this is that the parties amalgamated the original agreement with the addenda and restated their agreement within the terms of the Deed. What this essentially means is that the original Agreement and the two addenda are consolidated and contained in a  single document.

Terms of the Agreement. 

Hon. Colleagues, before clearing this agreement in line with my constitutional mandate under Article 119, we studied its provisions and found the Agreement to be in compliance with the laws of Uganda. 

Basis of Incentives to Investors 

The Investment Code Act, 2019 provides for incentives for investors. Section 12 of the Act provides as follows:-

1    12. Qualification for incentives.

An investor who, in addition to the qualifications for incentives set out in any other law, meets the following qualifications for incentives and commences operations after the commencement of this Act, qualifies for incentives -(a) ...(b) engages in any of the priority areas specified in Schedule 2 to this Act; 

The Schedule 2 to the Investment Code Act prescribes priority areas for investment, one of which, is agro processing. Considering that the Company intends to invest in agro processing, it is qualified to be incentivized by Government within the meaning of the Investment Code Act 2019. The undertaking by the Company to invest in Agro Processing is discerned from clause 3 of the Agreement which provides for the project description to the effect that the design, financing, construction and operation of a 60,000 tonne per annum coffee processing facility at the Kampala Industrial and Business Park at Namanve by the Company is to establish a coffee processing plant to process of up to 60,000 tonnes of Uganda's green coffee into final coffee products.

Tax Incentives

Section 12 of the Investment Code Act referred to above recognizes  for incentives set out in any other law. Such laws include the Income Tax Act Cap 340; the Stamp Duty Act, 2014; the Excise Duty Act, 2014; The Value Added Tax Act Cap 349; and the Tax Procedures Code Act, 2014. The Company qualifies for the tax incentives referred to in clause 4 of the Agreement. In particular, the tax laws provide as follows : 

The Income Tax Act Cap. 340 (as amended)

This provides for tax exemptions under section 21(1) (af) which is to the effect that the income of a person carrying on business of processing of agricultural goods is exempt from taxes for 10 years from the date of commencement of business. 

EAC Common External Tarrifs

EAC Common External Tarrif allows duty free importation for all plant and machinery, motor vehicles, construction materials and equipment, packaging materials, and any other materials for use in the project.The Stamp Duty Act, 2014 (as amended). Section 3 of the Stamp Duty Act, 2014 provides for instruments that are chargeable with Stamp duty in accordance with Schedule 2. Under Item 60 A(b)(ii) of schedule 2, instruments relating to strategic investment projects are  exempt from chargeable stamp duty. Hon. Colleagues, this project is a strategic investment.

The Excise Duty Act, 2014 (as amended)

Section 4 of the Excise Duty Act, 2014 provides for excisable goods and excisable services chargeable with excise in Schedule 2. Under Item 2l(b) of schedule 2 exempts excise duty chargeable on goods and services in agro processing. 

The Value Added Tax Act Cap 349 (as amended) 

Section 19 stipulates that a supply of goods or services is an exempt supply if it is specified in the second schedule. Para l(pp)  of  the  Second  Schedule  to the Value Added Tax  Act exempts the supply  of  the  services and  goods relating to the business of processing of agricultural goods.

Tax procedures Code Act, 2014 

Section 40A of the Tax Procedures Code Act, 2014 allows the Minister responsible for finance to pay tax due and payable by Government arising from a Commitment made by Government to pay tax on behalf of a person. This is the legal basis for Government paying the taxes that may not be exempt on behalf of the Company. This is in tandem with clause 4.1.2 of the Agreement which stipulates that where no exemption from tax is allowed under the laws or the exemption provided is inadequate to provide the Company with comprehensive relief from taxes or other impositions, then the GOU undertakes that it will bear the cost of all such taxes such as PAYE, local service tax and withholding tax.

 0 Non tax Incentives

Social security contributions of the Company's foreign staff

Clause 4.1.3 (e) of the Agreement inter alia provides for exemption from social security contributions of the Company's foreign staff. Section 6 of the National Social Security Fund Act Cap 222 provides for eligible employee as follows:-"

(1) Any employee of or above the age of sixteen and below the age of fifty­ five years except-an employee employed in excepted employment; a nonresident employee; an employee  not employed  in Uganda, who  is declared  by  the  Minister to be such employee and any farmer or artisan who is a member of a cooperative society shall, for the purposes of this Act, be deemed to be an eligible employee.

Section 1 (v) of the Act defines "nonresident employee" to mean: "An employee not ordinarily resident in Uganda who is to be employed  in Uganda for a continuous period of not more than three years or such longer period as is allowed in any particular case by  the managing director; but where a nonresident employee  employed  by an employer in Uganda becomes at any time an employee ordinarily resident or becomes employed in Uganda in circumstances ·which  qualify  him  or her to be an eligible  employee  under this Act, he or she shall not cease to be, in relation to that employer, a nonresident employee before the end of a month" Only the Company's foreign staff that who are non resident are exempted from social security contributions within the meaning of the NSSF Act.

Electricity subsidy

Clause 4.4 provides that the Company shall be given a subsidy so that the price it pays for electricity at the plant does not exceed US 5 cents per unit. This is in line with the current Government policy of promoting manufacturing under import replacement and export promotion strategies and is currently applicable to all investors in Business Parks.

Exemption from work permit fees

Clause 4.1.3 (e) of the Agreement inter alia provides for exemption from work permit fees/ charges of the Company's foreign staff. The foreign staff of the  Company would not be liable to pay such fees as they do not require work permits if they are not in Uganda. Important to note is that the Minister responsible for internal affairs is empowered by the Uganda Citizenship and Immigration Control Act to prescribe matters related to work permits which includes the power to levy and exempt these fees. It is important to note that several companies have in the past and presently enjoy these waivers. I have attached a list of companies that have enjoyed these benefits. 

Other matters

Whether clause 4.2.2 of the Agreement creates a monopoly

Clause 4.2.1 of the Agreement provides that the Government undertakes that it will take all reasonable measures to give priority of supply of coffee to the Company before registering any contract or acknowledging any arrangement for the export of coffee beans (including screen 18 and above), so that the Company will have ample supply of coffee to sustain its operations.This clause is only a part of the agreement which must be read as a whole.

Clause 4.2 must be read together with clause 4.3 which enjoins government to protect local processors in line with applicable national, bilateral, regional and international laws.

Additionally, 'reasonable measures' to be taken by GoU in ensuring the ample supply of coffee is subject to interpretation, and in this case, it includes government actions such as availing extension services to coffee producers aimed at improving quality and increasing quantity as well as any other measures that the Board of Uganda Coffee Development Authority (UCDA) may take in accordance with the law and good industrial practice.

Therefore, to say that the clause creates a monopoly is a misinterpretation of the clause. In the opinion of Uganda Law Society to the Parliamentary Committee on Tourism, Trade and Industry dated 25th April, 2022, the Agreement is Anti-competitive contrary to section 5 of the East African Community Competition 2006. Section 5 of the EAC Competition Act prohibits a person from engaging in concerted practice if that practice has, or is intended to have, an anti- competitive effect in the relevant market. Anticompetitive practices have been set out to include collusion by competitors to fix prices; collusive tendering and bid rigging; collusive market or customer allocation; quantitative restraints on investment, input, output or sales; barring competitors from access to the market or from access to an association or arrangement which is essential for competition; concerted practice restricting movement of goods within the Community.

The Agreement is only for support of a private investment initiative in accordance with the law. The Agreement is not in respect of any of the anticompetitive practices. In the same vein, the article 16 of the COMESA Competition Regulations, 2004 cited by Uganda Law Society does not apply to the matter at hand given that the Agreement does not have an effect on trade between member states; and neither does it prevent, restrict or distort competition within the Common market in the COMESA Region . Article 28 of the COMESA Competition Regulations, 2004 which is also cited by the Uganda Law Society has  no relevance whatsoever, to the matter at hand as it relates to unconscionable conduct in consumer transactions. Moreover, some of the reasonable measures are to be undertaken through UCDA. It is instructive to note that the composition of the Board of UCDA include representation from processors, exporters, farmers and roasters.

Coffee pricing

Clause 4.2.2 of the  Agreement stipulates that the Company undertakes that it will pay for the priority supply of superior quality coffee beans at a premium price to be determined by the Company  but in any case, not lower than the price approved  by the Relevant Authority for a particular consignment or the prevailing international price for each respective grade of coffee whichever is lower.The import of this clause is that the price at which the company will buy the coffee must be the same as or higher than the prevailing international market prices set by the rules of demand and supply

OR the price set by the Uganda Coffee Development Authority in the performance of its functions to issue indicative prices at which coffee may be traded in accordance with section 5 (g) of the National Coffee Act No.17 of 2021. The indicative  prices issued by Uganda Coffee Development Authority (UCDA) are intended to protect farmers from exploitation and unfair trade practices.

4.3. Consultations

According to MOPPED, UCDA was consulted and participated in the negotiations and preparations of the Agreement. The participation by UCDA whose board has representation of farmers, processors, exporters, roasters, means that consultations were undertaken. The execution of the Agreement by Government was informed by the overall Government Policy to invest in value addition, and in this case, agro processing. Government policies such as the NDPIII which enshrines value addition are widely consulted on, and the implementation of the same is an executive function. The agreement was executed in the performance  of executive functions pursuant to the policy on value addition which is also enshrined in the National Coffee Act, 2021.

Company representative's signature on a part designated for the Company's witness.

It is the general principle of contract that a person of full age and understanding is bound by his or her signature to a document.

In the instant matter, much as the company's representative signed on the part of the company's witness, her name is clearly indicated exactly below her signature, which name also appears as the person who had been intended to sign on behalf of the company as a party-being the board chairperson. Further, the company representative's signature is appended onto every page of the deed. The Company's intention to be bound is therefore unequivocal and the same has not been disputed by the Company.

It is noteworthy that the Company Secretary signed as a witness under the particulars of the Company's Board Chairperson. Both representatives also signed on every other page of the Agreement. There is no evidence that either of them denies or disputes the signatures. The execution of the agreement is therefore valid.  

Whether the Agreement can be terminated without a clause on termination.

It is a generally acceptable  principle of contract that parties have a right to terminate a contract at any time. The right to terminate a contract is inherent in every contract. The contract may be terminated on account of breach through issuance of reasonable notice in that regard. In the alternative, a contract may also be terminated by consent of the par ties. Therefore, the absence of an express clause on termination of the Agreement does not preclude either party from termination of the same. The termination clause serves to lay down details regulating the termination process only and not to bestow a right to terminate, perse. Clause 5.2 of the Agreement takes cognizance of the right to terminate the contract at any time prior to the lapse of the contract duration. 

Investment License 

Hon. Colleagues the investor had earlier obtained an investment license which is said to have lapsed. Section 19(1) of the Investment Code Act provides that a foreign investor shall not invest and  participate in the operations of any  investment activity in Uganda before registration with the Authority. This provision does not prohibit the signing of a contract without registration but only forbids foreign investors from engaging in investment operations and activities without registration. Therefore, the investor will be expected to renew or have in place an investment licence prior to engage in further investment activities and operations under the Agreement. The Agreement was therefore validly entered into.  

1.0 Conclusion 

Hon. Colleagues, I wish to reiterate my earlier verbal presentation before the Committee on Trade, Tourism and Industry that the Agreement entered into with the Company is in compliance with the laws of Uganda. The contract also expressly provides protection to the local coffee processors and conversely, to the farmers in the sense that the Company will buy the coffee beans at a premium price which shall be equal to or higher than the indicative price set by the UCDA or at the prevailing international price.

1     I hold a firm opinion, Hon. Members, that the agreement has no harm to the coffee industry and indeed to the people of Uganda. On the contrary, the Agreement will boost the industry in terms of value addition through agro processing.Let me conclude by confirming that I am a patriotic Ugandan who at all material times acts in the best interest of the Country and of the people of Uganda. For God and my country

ATTORNEY GENERAL