Parliament has deferred its decision on the proposal for government to acquire 150,000 preference shares in Roko Construction Limited worth 202 billion Shillings.

Speaker Anita Among directed the Minister of Finance to first take into consideration the different concerns of Members of Parliament and come back before parliament with a position before a vote is taken.

This followed a debate in the Wednesday plenary sitting where the House received a report from the Finance Committee Chairperson, Keffa Kiwanuka and a minority report by Butambala County MP Muhammad Muwanga Kivumbi.

The proposal for the purchase of Roko shares was first tabled before parliament two weeks ago when the Minister of State for Finance, Henry Musasizi indicated that Roko is facing severe liquidity challenges that have constrained its ability to execute contracted projects and adversely affected payments to its suppliers.

Roko currently has projects with signed contracts worth 1.064 trillion Shillings of which 696.6 billion Shillings are government projects. The company’s indebtedness, as of May 31, 2022, stood at 202.4 billion Shillings. It also has contingent liabilities from bank Guarantees for ongoing projects worth 130.9 billion Shillings while its indebtedness to financial Institutions totals 35.7 million Shillings and USD 20.7 billion and dues to local suppliers stand at 46.8 billion Shillings.

Roko’s liquidity situation arose primarily from 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, escalation of financing costs, weak Corporate Governance, and inadequate management.

It’s on this basis that President Yoweri Museveni directed the Minister of Finance to negotiate the Government’s acquisition of shares to salvage the company and allow it to implement outstanding project contracts.

Finance Committee Report In his report to Parliament, MP Kiwanuka recommended that Roko should be expeditiously audited, as a condition precedent to signing the Share Subscription Agreement –SSA, by the Auditor General to particularly look at and certify the material assets, debtors, creditors, governance and management.

He noted inadequate and insufficient due diligence by the government noting that the Uganda Development Corporation (UDC) which was requested in November 2019 to initiate the process of acquiring equity in Roko through the necessary valuation of the Company was not allocated funds to do so.

“Whereas the Committee is satisfied with Roko’s own assessment and government’s assessment based on its interface with Roko and Roko’s creditors, as condition precedent if this bailout is agreed, the Committee strongly recommends that Roko should be expeditiously audited by our Auditor General. This would require that 800 million Shillings is made available for this work,” said Kiwanuka.

The Kiboga East MP also recommended that the Share Subscription Agreement (SSA) should be amended to include reporting arrangements to parliament on the performance of the company, after bailout, every after six months.

He also said that government prioritizes payments for all outstanding arrears to contractors and that payments for work executed by contractors, are paid promptly, to mitigate the impact of cash flow constraints as a result of delayed payments.

Kiwanuka recommended that government acquires the preference shares in Roko taking into consideration the different issues highlighted.

Minority Report However, MP Kivumbi in his minority report dissented on several issues like lack of due diligence, the case for majority shares and equity, risk of preferential shares, numerous court cases of Roko, unfair selection of Roko, insensitive timing of the proposal, and others.

The minority report is also signed by Karim Masaba, the Mbale Industrial Division MP, Nabukeera Hanifa, the Mukono Woman MP and Kampala Central MP, Muhammad Nsereko.

“In the recent past due to failure to undertake due diligence, the same Roko Construction Limited together with FINASI entered into an agreement with the government to construct a specialized hospital in Lubowa. To date no substantial progress has been registered and this prompted the House to reallocate 319 billion that was proposed for promissory notes. This too reaffirms the need to contract a competent firm to undertake due diligence before the House pronounces itself on the proposal,” reads part of the minority report.

Kivumbi, who doubles as Shadow Minister for Finance recommended that approval of the share purchase be stayed until due diligence is undertaken by independent competent professional accounting firms. He says that this will inform decision-making processes of parliament.

The minority report further recommends that government should acquire 51 percent of the ordinary shares of Roko Construction Limited as a condition for the acquisition of preference shares.

Kivumbi says that there is a risk that if there is no such conditioning, Government may prioritise preference shares. He told parliament that majority shareholding will ensure that government has both a stake in ownership and control and that it will also be in line with the Presidential directive of acquiring equity in the Company.

“Preferential shares pose limitations, particularly on control. Unlike ordinary shares where shareholder enjoys both ownership and control, the shareholder of preferential shares only enjoys ownership and lacks voting rights. Hence a preferential shareholder cannot influence the governance and direction of the Company. This is affirmed by the limitations detailed in the Rights Attaching to Redeemable Preference Shares that were laid in Parliament,” further reads the minority report.

Kivumbi argues that the government as a preferential shareholder will only attend annual general meetings of the company but cannot vote. He adds that irrespective of being entitled to 2 seats on the Board of Directors with veto powers on loan acquisition and annual company budget, it is a hoodwinking proposition.

Also cited by Kivumbi are the court cases against Roko. He said that it was unfortunate that the committee never ascertained the implication of the cases in Court on the proposed acquisition of shares.

“The critical question that the committee never enquired was whether it is permissible and advisable to invest such colossal amounts of money into a company which is subject to several Court proceedings. On the face of it, the proposal is unjustified in absence of comprehensive due diligence. Therefore, on what basis did the Attorney General base on to make clearance of this proposal,” he questioned.

The minority report also noted the unfair selection of Roko for government intervention yet the committee was informed that the government had received several requests from financially distressed construction companies. Kivumbi said that unlike Roko, the rest were subjected to comprehensive viability assessment by UDC.

He recommended that the Ministry of Finance briefs the House on all businesses that have approached the government for financial support and the status of their requests.

Also noted by the minority report is that the proposal was presented at a time when citizens are gripped by financial stress, others in Karamoja dying of hunger, fuel shortages, and runaway commodity prices and strikes for salary increments.

Mathias Mpuuga, the Leader of Opposition questioned the proposed purchase of shares in Roko saying that it was unfortunate.

“This House should not be invited in duplicity. If it is a grant, it is a grant and we should discuss the terms of a grant not business. Who doesn’t know the implication of being a preferential shareholder? You have no powers to vote, you are only given preference when the company makes a profit, on dividends only. The company can declare zero dividends for the next century,” said Mpuuga.’

He asked the Minister of Finance to go back and act neater, describing the present proposal as ugly.

Anita Among, the Speaker of Parliament said that processes of securing shares in a company or lending to a company and then recovering requires adequate regulation and clarity of the policies to safeguard the money.

“Issues of due diligence must be done…in case you decide that you are going to buy shares, that firm must be audited first. And this should not only look at Roko as the motion presented, let’s look at other companies. We need to take precaution on all this,” Among noted.

She directed that the Minister of Finance presents to the House a list of all local companies that have been bailed out by government in three months. She also asked for the criteria used for the bailouts.

Ministers Defend Proposal Musa Ecweru, the Minister of State for Works defended the government proposal saying that the directive his Ministry has is to identify all companies (Construction) that are Ugandan and need support in different ways.

“The kind of support that the Minister of Finance has come to ask parliament is one such intervention. I want this House to know that in the next few days, we shall be presenting specifically public works companies which are local but need us to employ different tools,” said Ecweru.

He says that some of the tools include preferential treatment to make the local companies stand on their feet.

Henry Musasizi, the Minister of State for Finance, said that since due diligence is a precondition for some things to happen, the Ministry undertakes that they shall continue to do due diligence. He also noted that there is no relationship between Roko and the Lubowa specialized hospital construction.

Musasizi also noted that government will come up with clear criteria on bailouts.

“Regarding institutional safeguards, this arrangement has an agreement and we agreed for government to have 2 representatives on the board, a chief internal auditor responsible for establishing an internal control environment to prevent risks and flaws,” he explained.

Sarah Opendi, the Tororo Woman MP said that parliament should not be used to do wrong things.

She fumed: “The President’s letter is clear, what does it cost us to do due diligence and the government comes back.? This parliament should not be used.”

The same sentiments were raised by Adjumani Woman MP, Jesca Ababiku and the Speaker directed that the House gives the Minister of Finance time to rectify issues raised by MPs and come back before parliament with a report on actions and measures taken.

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