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13 December 2011

Operational and Financial Restructuring

One of the key objectives of the Reform Program is to monitor financial flows and dues within the Public Enterprise sector and arrange for their settlement.  Ensuing from the various restructuring exercises overseen by PMU, there has been a marked improvement in the settlement of financial dues within the sector.

Loans due to GOU from the PE sector[1] as at close of FY 08/09, amount to Ugx. 597 Billion, of which 90% is in the energy sector (inherited by the successor companies of the Uganda Electricity Board).  Subsidy support to the Public Enterprise sector has been rationalized considerably and has remained relatively stable since 2000 when net subsidy support from GOU was Ugx. 79B, compared to Ugx. 83B[2] in FY 07/08.

Contribution to Economic Development (UGX. Million)

ITEM

FY 06/07

FY 07/08

FY 08/09

FY 09/10

FY 10/11

CAGR

Turnover

 816,472

 971,024

 1,063,914

 1,209,319

 1,717,282

20%

Net worth

1,764,009

1,866,547

 1,883,262

 1,989,074

 1,955,814

3%

As demonstrated above, the Public Enterprises sector has increased in tandem with Uganda’s economic growth with turnover having increased at a compounded annual growth rate (CAGR) of 20% between FY 2006/07 and FY 2010/11.  In aggregate, the sector now represents almost Ugx. Two Trillion in net-worth which is indicative of the significant amount invested in assets in the sector by the close of FY 2010/11.  The growth of the Public Enterprise sector accrues corresponding benefits to the economy in terms of employment, tax and other social indicators which are captured in more detail in the sections covering the impact of the divestiture.

Efficiency and Self Sufficiency (UGX. Million)

 

FY 06/07

FY 07/08

FY 08/09

FY 09/10

FY 10/11

CAGR

Operating Profit

289,840

69,779

 2,106

 660,809

188,492

-10%

Net Profit

(29,592)

31,720

(193,961)

 57,091

 (84,109)

30%

One of the key goals of the reform programme was to reduce Public Enterprises dependency on direct subsidies from Government through making them profitable and more self-reliant.  A key benefit of the reforms is the near-elimination of direct subsidies to commercial PEs and, as indicated above, the Public Enterprises sector in aggregate now consistently covers it operating costs. 

However, aggregate net profit remains a difficult challenge to overcome. This is largely on account of foreign-denominated loans by PEs in the energy sector, arising from which significant unrealized foreign exchange losses have undermined the net profit of such companies.  PMU is working with different arms of GOU to consider capitalizing such loans to improve the balance sheets of the affected to pave way for them to seek more sustainable sources of capital for their various investment programmes.  The success of this strategy is evident in the case of National Water & Sewerage Corporation whose asset base increased from a value of Ugx. 279B in FY 2005/06 (the time the loan capitalization programme was implemented) to Ugx. 562B in FY ended June 2011.  At the same time, the corporation recovered from a net loss of Ugx. (17.2B) in FY 2005/06 to a net profit of Ugx. 10.2B in FY ended June 2011. 

Divestiture Activities

At the onset of the Divestiture process, enterprises in classes II, III and IV were slated for divestiture. However, in the course of the process a number of additional Public Enterprises were also listed for divestiture largely arising from unbundling of the power and communication sectors, reclassification of some enterprises and corporatisation of some government projects.

By end June 2011, a total of 134 divestiture transactions with a sale value amounting to Ugx 424.9 Billion had been concluded. The total features sale proceeds that have been collected and banked onto the divestiture account and sale values that were not received into the account but recognised by sale agreements like debt swaps.




[1] These are Public Enterprises currently monitored under the PERD Act covering 35 Public Enterprises.
[2] Net subsidies excluding subsidies to the power companies (UETCL, UEDCL and UEGCL)