State of Affairs at Uganda Telecom Limited-in administration

Uganda Telecom Limited (UTL) is an insolvent company whose shareholders are Ucom, a Libyan Government entity and Government of Uganda (GoU) through the Ministry of Finance, Planning and Economic Development holding 69% and 31% respectively.

In March 2017, Ucom wrote to GoU withdrawing any future funding from UTL with all its Directors resigning from the Board. Following the due process of the law, UTL was put under Administration with a view of making it healthier, attract investment and settle creditors. The Official Receiver who is the Registrar General of URSB was appointed as the Administrator.

The Administrator entered into an Administration deed with the shareholders where they ceded to him all theirpowers to run the company. He can sale its assets either in piecemeal or as a whole, among others. His powers are derived from the Insolvency Laws of Uganda that among others require him to work independent of shareholders and put Creditors rights at his forefront.

The Administrator found UTL in a sorry state. The company was heavily indebted with liabilities estimated at over UGX 900 billion owed to various creditors including statutory bodies (URA, NSSF and UCC), shareholders and suppliers against an estimated asset value of UGX 148 billion. Interconnect partners like MTN and Airtel, utility companies and key suppliers were interrupting services due to nonpayment of their services. Employees were highly demotivated with salaries not paid on time, customers churning at a high rate and the company faced with a lot of revenue leakage. The top management team was earning in hundreds of millions at the expense of the company. Sites were being switched off slowly and it was only a matter of days before the company closed.

The Administrator had two options to either liquidate the company or try and optimize its operations, make the company healthier and attract investment. The latter option was chosen due to the strategic nature of the company to the economy and after realization that the company was suffering from two curable diseases – poor corporate governance (mismanagement) and no capital injection in several years.

We wish to clarify the following;

a) Communication with Ministry of Finance – we have had several cordial engagements with MoFPED most recent a meeting was called on Wed the 19thJune 2019 at MoFPED where these issues were discussed. A subsequent meeting was yesterday between the MoFPED and Attorney General where am informed it was agreed that the Attorney General provides a legal position in writing.

b) Audit / Accountability – As Administrator I have not blocked any Audit however, I share the same view as the Auditor General that this is not the right time for an audit. Final Accounts will be availed for auditing at the end of administration due on 22ndNovember 2019. Nonetheless the law requires us to make periodic reports every 6 months. These have always been done and shared with court and all creditors. They are public documents.

c) Indebtedness – its is true the company is heavily indebted. On commencement of Administration we asked all creditors to indicate amounts UTL owed them and the claims were up to a tune of UGX. 940bn. After a rigorous exercise the verified figure stands at UGX. 530bn. Some of the creditors shied away from verifying their claims and others were found to be fictitious.

d) Revenues – UTL’s monthly revenue has stagnated at an average of UGX. 4.2bn since commencement of Administration. Efforts to increase it have been hampered by lack of funds to upgrade the network that does not meet customer’s expectations. With all these limitations the ISP revenue has grown by 16% from UGX. 2.2bn in April 2017 to UGX. 2.6bn however the GSM revenue has reduced by 61% from UGX 793m in April 2017 to UGX. 308m in May 2019 because we running a 2G network compared to competition at 4G.

e) Monthly Operational Expenditure – with even more sites switched, the cost of fuel and power going up and the rate of failure of equipment increasing due to old age, we have still been able to reduce the monthly operational expenditure (OPEX) by 16% from UGX 5.7bn in April 2017 to UGX. 4.7bn in May 2019. The wage bill has been reduced by 40% from UGX. 1.6bn in April 2017 to UGX. 1bn in May 2019. Site security cost have reduced by 12% from UGX. 235m in April 2017 to UGX. 207m in May 2019. The fuel and electricity costs have increased by 20% and 8% respectively mainly due to increase in unit rates from suppliers. Site maintenance costs have increased by 127% from UGX.230m in April 2017 to UGX. 523m in May 2019 mainly due to daily breakdown of very old equipment. Over one hundred generators have been overhauled, battery banks overhauled, grid extended to sites and several sites that were switched off by our predecessors switched on.

f) Investor – as part of my mandate am required to source an investor and use the proceeds of the sale of assets to settle creditors. The process commenced in January 2018 and we have since then received over 20 expressions of interest and held discussions with those potential investors. We are yet to be successful with any of them. Specifically, Teleology Holdings Limited, reached the stage of being given an offer that lapsed because they failed to meet the conditions of the offer. The company is still available for a strategic investor and we continue with engagements.

g) Employee Matters – at the commencement of administration top management that was earning exorbitant salaries were let go. Even faced with uncertainties about the future, employees are highly motivated due to constant engagements, paying their salaries on time that was previously unheard of, resuming their medical insurance that had been stopped and providing them tools of trade like safety gear. We have since encouraged them and been able to start a SACCO to help them with personal credit lines since Commercial banks attach a big risk to the company and hence cannot offer them salary loans.

Since Commencement of Administration, the Administrator has registered a number of other milestones in a bid to make the company healthier and attractive for investment:

1) UTL is now supplying over 350 from about 118 before administration of the major Government Ministries, Departments and Agencies (MDAs) with internet and telephone services. Several Corporate entities, International Agencies, Embassies and SMEs continue to use UTL’s internet and telephone services.

2) UTL’s strategic asset of shareholding in West Indian Ocean Cable Company (WIOCC) was at the verge of being lost and we have since restored this relationship. As a result, internet bandwidth capacity has been increased from 1G to 2.5G by utilizing the capacity from WIOCC and also installed automatic backup to ensure better user experience. More capacity is available for UTL.

3) Using professional valuers, the asset value that was initially under declared at $40m is now at $84m composed of investment in a submarine cable company (WIOCC), land and buildings, machinery, equipment, good will and spectrum.

4) The creditors’ claims that stood at $250m have since been verified and now stand at $145m eliminating fictitious claims and those that could not be supported by Creditors.

5) We have positively influenced the reduction of the cost of telecommunications services in Uganda. The cost of internet to MDAs has reduced from $300/Mbps to $70/Mbps and the ripple effect is spreading to the private sector. Voice interconnect costs have reduced from UGX. 112/- per minute to UGX.65 – 25 per minute resulting into cheaper calls across the networks of UGX 3/- per second and UGX. 150/- per minute.

6) Through various interventions that include switching on sites that had been previously switched off, paying fuel and power companies on time, overhauling generators, extending the power grid to sites and various equipment repairs, the average network availability has been improved from 75% to 95% a growth of 20% points.

7) Staff and service providers are now paid on time. As a result of this and several engagements, employees are now fully focused on the revamp and more service providers have expressed interest in working with UTL.

8) We have been able to address the challenges of revenue leakages, rampant thefts and unnecessary spending resulting into savings.

9) We have deployed over 213Kms of last mile fiber to extend services to our customers and increase our network reliability for connectivity to our network sites.

10) We have enabled Mobile money interoperability with MTN and are currently finalizing connectivity with Airtel. That means that a UTL customer is able to send and receive money to/from MTN and soon will be able to do the same with Airtel as well.

All these achievements have been made while using internally generated funds with no borrowing or financial support from anywhere else.

UTL’s entering into administration did not stop it from being insolvent. It is still unable to meet all its costs and the Administrator has to prioritize and optimizeresources on a day to day basis. UTL still carries the burden of debt accrued before administration that is expected to be cleared by the consideration from the sale of assets to the potential investor. The monthly revenue has stagnated at circa UGX. 4.2bn and growth is curtailed by lack of CAPEX and outdated technology compared to competition.