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UTL bailout: Government should have saved ThreeWays Shipping

 

By the time protestors dragged Muammar Gaddafi through the streets of Sirte in Libya during the height of the Arab Spring in late 2011, Uganda Telecom Limited (utl) was spiralling from one financial pitfall to another.

The then Libyan government, with Gaddafi as its leader, was a majority shareholder in utl with about 69 per cent. Around the same time, in the humid terrains of western Uganda, trucks were belonging to ThreeWays Shipping transported rigs and all sorts of materials to mainly Tullow Oil’s wells and camps.

A Uganda telecom outlet

With Gaddafi overthrown, the financial injections from Tripoli to utl ground to a halt. The company slashed its capital investments at a time when its peers such as Airtel were pumping more money in their network operations.

For example, in 2010, utl accounted for six per cent of the total net investment spend in the market. By the end of 2011 that figure had shrunk to two per cent. The company losses more than doubled over the same period. Numerous management shake-ups came after. Utl’s free-fall could hardly be stopped.

On the other hand, ThreeWays Shipping was raking in huge amounts of money. By 2012, the company said it had more than 750 employees. In the same year, ThreeWays had a turnover of $30 million, up from $3.2 million nine years earlier. ThreeWays became the biggest local company operating in Uganda’s oil fields, where foreign firms are dominant. The sky appeared no limit for ThreeWays.

Five years later, utl and ThreeWays found themselves in a similar position: cash-strapped and in need of a bailout. Company managers rushed to the one man who usually has the last word on pretty much everything – President Yoweri Museveni.

Both companies presented two different plans: utl, with Evelyn Anite, the state minister for Investment and Privatisation, as its key negotiator, pushed for a compulsory acquisition of its services – both voice and data – by all government ministries. That particular suggestion, among other proposals such as the writing off of debt, sounded wild.

ThreeWays Shipping got hit by a slowdown in Uganda’s oil industry as protracted negotiations over tax and a route for a crude oil export pipeline took longer than what many players had predicted. A series of bank loans from Standard Charted bank, among other factors, would later lead to the collapse of ThreeWays Shipping.

To recover, Jeff Baitwa, the founder of ThreeWays Shipping, came up with what looked like a brilliant idea: he tried to convince government that Uganda needed an oil fund to help distressed local firms borrow money at a cheaper rate. His reason was that for local content to make meaning in the oil industry, Ugandan local firms have to be at the centre of winning the key tenders, and therefore they need all the help they can get.    

In the end, Anite’s plan to force all government bodies to sign up to utl’s services, outrageous as it sounds, last week received a thumbs-up from Museveni, while Baitwa’s proposals appear to have been shot down before they were even internalised.

ThreeWays was placed under receivership and there is little hope it can ever recover, while utl has received a new lease of life. So, that brings me to the question: which of the two firms – utl (ignore the fact that it is a government company) or ThreeWays Shipping – should government have saved?

While both firms deserve a bailout, it is important to look at what impact the two had/have in their particular sectors to know which of the two should be sacrificed for the other.

The telecom industry has evolved over the years. Due to the heavy competition, the profit margins have been narrowed due to the price wars. Prices for voice and data products have been slashed under the false pretence of labelling them as promotions.

One of the reasons as to why Orange Uganda left the country in 2014 was partly because the price wars had made it difficult for the French company to make money.

Utl is not likely to come anywhere close to the competition that MTN Uganda and Airtel Uganda pose. This is because matching the big two telecom firms requires huge investments in the network, which government might not be ready to commit to the firm. Also, forcing government agencies to sign up to utl services does not necessarily bar the consumption of other products from the competition.

ThreeWays, however, has a different story. The company is purely private. However, it had an impact on how much money the country would make from its oil industry. Being local, some of the oil majors found it cheaper to hire a local transport company than a foreign entity.

As such, the recoverable costs – the first batch of money that government would have to pay an oil production company before profit from the sale of oil is shared – was bound to be significantly lowered.

ThreeWays said that at the start of oil exploration in the early 2000s, daily hire rates for trucks and cranes ranged between $800 and $1,000 per day per semi-trailer truck, and $1,400-$1,800 per day per crane. By 2016, the rates were $300 - $400 and $850 - $1,100 respectively.

The numbers don’t lie. Utl might not be able to influence any price movements in the market. ThreeWays Shipping could. It does not take rocket science to figure which of the two firms is quite critical to the country right now.

jeff@observer.ug

Twitter: @jeff_mbanga

Comments

-1 #1 JoeM 2018-02-07 14:36
UTL is dead, Government should wake up and do something more strategic.

Like taking over UMEME and invest heavily in the distribution and transmission of electricity to bring power prices down.

Without strategic thinking, this Government is surely driving it's self out of power.
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-1 #2 Debbie 2018-02-07 16:05
Seriously, ThreeWays should be saved. Its private and employs hundreds of unlike UTL where most of the subscribers have left for competition like MTN and Airtel.
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-1 #3 ejakait engoraton 2018-02-07 19:30
THIS is called " using a political solution to solve a financial/commercial decision. The world over , governments come in to bailout companies - private and public- where it is felt that it is in the public interest.

IN other cases, even subsidies are given, either to encourage production or consumption.

The rule is though that absolute DUE DILLIGENCE must be done and even though the decision is a political decision, financial considerations must be the overwhelming factor.

IN UGANDA unfortunately, it depends on where the directors/ owners of the company come from or whom they know in the corridors of power and in same cases, these are schemes just to steal tax payers money, as was the case with BASAJJABALABA.

Impact assessment should be done to establish the impact on jobs, families of employees, revenue to government , impact on other local companies and the general confidence in the business community without creating complacency.
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+3 #4 Masanso Ambrose 2018-02-09 10:26
would have been good if you had also highlighted in your article that the directors of Three ways Limited were charged in court for defrauding MTN of USD $ 3,800,000/= and the Criminal case is pending.

Secondly that they have had a history of defrauding their clients and in fact some of which are Oil Companies.

Suffice to also add is the fact that their problems with Standard Chartered Bank that led to the winding up proceedings started in 2011 when they were at the peak of their business raking in a turn over of over 30 million dollars.

It thus follows that the reasons for the problems they have arise out of their bad business practices and as such have nothing to do with the protracted negotiations in the oil sector.

We can not always privatize profit but always want to socialize our losses.
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+2 #5 Masanso Ambrose 2018-02-09 10:34
The only beneficiaries of threeways dividends when they made good business were shareholders.

I do not remember Threeways paying a dividend to government in 2012 when they were making lots of cash in the oil boom.

It follows that its share holders that should sit on the drawing board and formulate strategies to resuscitate their company. We cant privatize profit and socialize losses
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+1 #6 Drunk and Sobber 2018-02-09 17:20
Regardless if the sentiments, public interest should come above private when it comes to government spending.

Just imagine what would happen if Threeways is given money, that would be opening a pandora box for everyone to start demanding.

I think if indeed Threeways made such amounts of money, they should have saved some for a rainy day and also managed the money better.

All factors considered, I think the decision to first save a national investment over a private one was a much wiser decision. Besides, Ugandans would still have had something to say about the bail out for Threeways.

I just think this article was paid for and not a genuine Journalistic analysis
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0 #7 Akot 2018-02-13 19:45
JoeM,
ejakait engoraton,

Agreed!

This is why good governance comes FIRST, so that there are real policies for National-Private companies!

Uganda is under absolute dictatorship with a ruler who has no interest in what Uganda will be after he is dead at +90 - museveni has cleared way for another 30 years but, what will Ugandans do after?

Until then, the life time president-chief tribal leader will gabmbe & go for what brings him money!

Without Unity to bring change, tribal leaders of lands with: gold-oil-rich agricultural land-national parks...MUST take control of what belong to their people & manage tribal lands for the benefit of their people!
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0 #8 Akot 2018-02-13 19:57
Quoting Masanso Ambrose:


... they have had a history of defrauding their clients and in fact some of which are Oil Companies.

... the reasons for the problems they have arise out of their bad business practices...

We can not always privatize profit but always want to socialize our losses.



Thanks!

This is why there MUST be good governance that renders account to the people! Uganda is a play ground for all fraudulent activities & museveni is the boss of all malpractices!

But then again, it's only Ugandans that have the power, through Unity, to end all abuses they go through & make it clear as to whom their land riches belong & who controls/manage them & how!
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0 #9 Akot 2018-02-13 20:05
Drunk and Sobber, understood!

It's time Ugandans become actors in what goes on in their country!

people all over stand up for their right to social services through tax money but Ugandans just wait & this gives legitimacy to dictatorship-bad rule while looters-opportunists... try their chances in the country!

Do land riches belong to Ugandans or not?

Is sit not time the uneducated-jobless-sick without healthcare... wake up to bring change of governance & give chance to a future?
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