The government acquired 150,000 shares from Roko Construction Ltd private firm without approval of the Parliament, a new report by the Auditor General has revealed.
The report which warned of likely future legal dispute noted that government violated Section 22(1) of the Public Finance Management which prohibits any government vote from entering any contract, transaction, or agreement that binds the government to a financial commitment for more than one financial year or which results in a contingent liability, except where Parliament authorises the financial obligation or contingent liability.
“The company in the resolution dated 22nd October 2021, and filed at URSB on 25th July 2022, resolved that 150,000 preference redeemable shares of UGX1,000,000 issued at a premium of UGX.380,367 per share be allotted to the Government of Uganda,” the report dated December reads in part.
“In a special resolution of the company dated 22nd October 2021 and filed with the URSB on 14th July 2022, the company resolved to increase its share capital from UGX.15Bn to UGX.222.13Bn and to create 150,000 preference redeemable shares to be allotted to Government of Uganda,” it adds.
Roko Construction Ltd, Mr Edward Akol, the AG said filed an amended company Memorandum and Articles of Association for the company with the URSB on July 20, 2022 in which they indicated their share capital as Shs222.130Bn divided into 15,000 ordinary shares of Shs1m each and 150,000 redeemable preference shares issued at a premium of Shs380,367 per share.
From his findings, Mr Akol noted that the entire deal was concluded on October 22, 2021, when the company issued the share certificate for the 150,000 redeemable shares to the government yet the parliament passed the purchase on July 21, 2022.
The development resurrects questions that were raised by Members of Parliament during debate and passing of the controversial proposal for the government to acquire these shares.
After months of intense debate, Parliament on July 21 passed the proposal by the government to acquire the 150,000 redeemable shares from Roko Construction Ltd at Shs207.13b.
In a record less than 60 seconds, the deputy Speaker Thomas Tayebwa said,
“I have received information from colleagues from the executive that the issue of Roko has to be resolved today or allow the company to die. The issue of procedures won’t be used today.”
“I want the House to vote on this matter whether you allow it or you don’t allow it so that a decision is made. I want to ask the question that the house approves a proposal by the government of Uganda to acquire 150,000 preference shares worth Shs 207.13 billion in Roko. Those in favour say aye. The ayes have it… Thank you, I adjourn the house till Tuesday, next week,” he ruled amid protests from MPs.
The proposal that had earlier been brought by the Finance Ministry received rejection, especially from the members of the opposition.
Finance State Minister in charge of General Duties Mr Henry Musasizi while presenting the proposal, told MPs that Roko had been faced with severe liquidity challenges that constrained its ability to execute 10 contracted projects, which had in turn affected its ability to pay various suppliers and the financial sector.
He added that Roko is currently significantly indebted. Its indebtedness as of May 31, 2022, is Shs202.4 billion, and also has contingent liabilities from bank guarantees of Shs130.9 billion.
Butambala County MP Muwanga Kivumbi who presented the 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, and insensitive timing of the proposal, and others
Finance committee chairperson and as well Kiboga East MP Keffa Kiwanuka (NRM) recommended that Roko should be expeditiously audited, as a condition precedent to signing the share subscription agreement (SSA), by the AG.
A section of 32 opposition MPs led by the then Leader of Opposition in Parliament (LoP) Mathias Mpuuga had before the passing of this proposal, signed on a petition seeking Members to vote on both the majority and minority reports which had studied the proposal, and that the question be properly put to the House to decide whether to approve or reject the government proposal.
These also lined up a team of five lawyers to petition the court in case their motion is defeated in the August House. The lawyers included; Nkunyingi Muwada (Kyadondo EastMP), Hanifa Nabukeera (Mukono Woman MP), Yusuf Nsibambi (Mawokota South MP) and Abdallah Kiwanuka (Mukono North MP).
Mr Mpuuga told the Weekly Observer that the vote on Roko Construction Company Ltd was handled in a manner that impeached the sanctity of parliament.
The matters had been handled on July 20, 2022, when the house received, debated, and considered the reports from the finance committee.
“When we received the order paper for the sitting on Thursday, the matter of Roko Construction was listed as business to follow and in our rules; the speaker has powers to alter the order paper of the day. The powers, however, don’t extend to import- ing matters of business to follow, which Tayebwa did to our consternation without notifying members of the house including the LoP and the minister concerned,” Mpuuga said.
“We have petitioned the house expressing displeasure and we shall have this matter formally presented to the house and we shall ask the house to make a decision. Parliament is an honourable house and at all times should reflect the wishes of the people and those wishes are reflected through the manner of debate and presentation of issues on behalf of the people,” he said.
Butambala County MP who doubles as the Shadow minister of Finance Muwanga Kivumbi said; “I received communication from a friendly force that Tayebwa planned to make a call on Roko. First I didn’t believe it. We were in the finance committee in the morning. The impression was that the issues of Roko could be rested for some time. I asked the speaker, are you willing to make this call? ‘’ he said yes.”
“The speaker told me; that today I regret being a speaker. I have received a call from President Museveni that I have to make this call no matter what,” Kivumbi said, adding, “In a few minutes the call was made.”
Shadow Foreign Affairs Minister yesterday told DaParrot that the AG unearthed exactly what they were talking about.
“The government and the finance ministry continue to operate in disregard of the law, and this must ultimately cause loss to Ugandans and tax payers. Contractual law does not look at intent however good the intention but on capacity of the contracting party to contract. A purchase in the name of government of shares before Parliament approval is not sustainable in law since capacity to contract must exist before a contract is entered,”
He added, “Consequently it amounts to impunity and unlawful expenditure for government or finance ministry to contract or pay out government funds, not appropriated or approved by parliament. This disregard of the known procedure is housed under impunity. In essence and in event of dispute or claim for refund or compression, ROKO can successfully challenge the government and even deny any purchase of shares whatsoever. Meaning the likelihood of losing all that money spent is almost 100%. Because government can not successfully prove a lawful purchase of the 150,000 shares to demand dividends/ profits or demand any refund,”
Mr Akol in his report says the deal to seal the purchase was made on October 22, 2021, when the company resolved to increase its share capital from Shs15b to Shs222.13b, by creating the 150,000 shares that were later allotted to the government.
“The share certificate issued by the company for the 150,000 redeemable shares for the Government, was issued on the 22nd day of October 2021,” reads part of the report.
Section 90 of the Companies Act provides that “a certificate, under the common seal of the company or any other title evidencing securities under the Act or any other law, specifying any shares held by any member shall be prima facie evidence of title of the member to the shares.”
“This implied that the prior allotment and purchase of shares were done before Parliament’s approval. Furthermore, the failure to follow proper process by the entity undermined the controls in place and may lead to legal disputes in the future,” reads part of the report.
It added, “I noted that the process of purchase of shares and consequently binding government had been completed before the approval of Parliament,” Akol said in the report.
Officials from Roko Construction Ltd were unreachable by press time, likewise efforts to get a comment from the government was futile as the officials from the finance ministry who acquired the shares did not pick up our calls by time of filing this report.
