New Vision (Kampala)

8 March 2008

Uganda: Sh44b Deal to Minister' Son-in-Law Halted

Kampala — UGANDA'S public procurement authority has halted a contract worth $26m (sh44b) awarded to a local company, Kenlloyd-logistics, to restock the oil reserves in Jinja.

The energy ministry contravened public procurement rules when it used selective tendering instead of open bidding, according to the Public Procurement and Disposal of Public Assets Authority (PPDA).

The authority has suspended the deal as it investigates the procurement process, which it says had other flaws as well.

"The whole process should be stayed," said Edgar Agaba, the PPDA director.

"We need to investigate Kenlloyd. Though it is a registered company dealing in oil, we need to know more about it and how it got the tender. We need to be careful to ensure that the Government's interests are safe-guarded."

The project to restock the Jinja depots with 30 million litres of fuel was meant to help Uganda overcome fuel shortages like the ones experienced in the past few months because of post-election violence in Kenya.

Kenlloyd-logistics was registered in Uganda in 1997. It deals in logistics and commodities and only started dealing in petroleum in 2003.

The company's executive director and majority shareholder, Albert Muganga, is foreign affairs minister Sam Kutesa's son-in-law. He owns 65% shares.

Muganga insists that his company won the contract on merit and not because of political influence. "It was an open tendering process which we won," said Muganga. "My wife, Ishta Kutesa, has no connection with the company."

But documents obtained by Sunday Vision show that Elizabeth Kutesa, another daughter of the foreign minister, has been guaranteeing loans worth billions of shillings for the company and was at one point a signatory to the company's dollar account at Stanbic Bank.

"The directors Albert Muganga, John Masanda and Elizabeth Kyomugisha Kutesa be appointed and are hereby appointed signatories of the said account," reads one document.

Elizabeth Kutesa previously worked for Hunton & Williams, a London law firm which was given a sh1.2b contract in 2005 to improve the Ugandan government's image in Europe, a deal which drew widespread criticism.

Kenlloyd is a partner of Vitol Group, an international oil company which pleaded guilty in 2007 to larceny in connection with an oil-for-food deal in Iraq.

According to the plea, Vitol paid $13m in kickbacks to Iraqi officials for oil purchases and allowed false representations to be made to the United Nations that no kickbacks were paid.

Muganga confirmed that the company is in partnership with Vitol for its operations in the East African region.

Energy minister Daudi Migereko, however, said Kenlloyd is a subsidiary of Vitol Group.

Kenlloyd-logistics in January this year also entered into a joint venture with Gulf Energy and Libya Oil Kenya for the purpose of incorporating a company in the United Arab Emirates.

In addition, Kenlloyd last year guaranteed a loan of $102,760 for "SPLA (Sudan People's Liberation Army) beneficiaries", according to a resolution of the company's board meeting of March 21. It is not known who the beneficiaries are or what the loan was for. K

enlloyd has a share capital of sh10m. On the URA list of top tax payers in the petroleum sector, it came number 17 last year. It paid sh1.5b in taxes, compared to sh105b paid by Shell, sh47b paid by Caltex and sh46b paid by Total.

Nevertheless, managing director John Masanda insists that his company has the capacity to handle a project of this magnitude given their regional presence. He points out that they have representations at both Mombassa and Dar-es- Salaam ports.

He also explained that the company has been supplying fuel to construction companies and individuals who own fuel stations in Kampala.

Migereko also insists he followed due process. But internal sources said the ministry diverted from the normal procedures because of the biting fuel crisis.

The decision to restock the oil reserves was made at a cabinet meeting on January 10. Subsequently, the ministry sent out letters to several oil companies in Kampala inviting them to tender. The companies were given five days, from January 16 to 22, to prepare and come in person with their bids.

According to the PPDA, this was against government procurement procedures. Legally, the ministry was supposed to advertise publicly, calling for bids within 45 days.

The advert was not placed in the newspaper, as required by law. The ministry also asked the oil companies not to submit their bids in advance, as required by law, but come with them in their hands.

A total of 11 companies applied. The bids were opened on January 22 and forwarded to the contract committee for selections. They were Shell, Caltex, Gapco, Moil, Mogas, Hass Petroleum, Mafuta, Kobil, Kenlloyd-Logistic Ltd, Phoenix and Matan.

Matan was disqualified on grounds of not being registered in Uganda. Total and Petro Oil were eliminated because they brought in their bids too late.

Besides the argument by Migereko that Kenlloyd-logistic quoted the lowest price, it is not known how the contract committee arrived at the winner.

"This has raised questions within the ministry but we were facing a crisis so those opposed gave up," a source in the ministry said.

According to documents seen by Sunday Vision, the prices quoted ranged from $780 per cubic metre to $1,400 per cubic metre. Prices quoted varied depending on whether delivery would be made by road or rail, and whether it was petrol or diesel.

The ministry signed the contract with Kenlloyd at the end of February and this was approved by the Justice Ministry.

Sections of the Procurement Act allow a government office to flaw the tendering process in case of a crisis. However, the norm is that the ministry informs the procurement office beforehand, which was not done in this case.

The contract document stipulates that payment would be made upon delivery. To effect this agreement, the ministry needed to open a letter of credit to the company, a promise by the bank that the client will pay.

But the energy ministry did not have the money to effect the letter of credit and had to turn to the finance ministry. The finance ministry in turn needed the approval of parliament to release the money.

But after hearing the PPDA last week, Parliament decided to temporarily halt the process until the minister clears the allegations that his ministry flawed the procurement process.

"It is our opinion that this parliament waits to approve the request until we submit our report in two weeks time," Agaba of PPDA had told the MPs.

The Auditor General, too, has declined to authorise the release of the sh45b, arguing that the expenditure would rise beyond the 3% government's supplementary ceiling.

There is only one operational fuel depot in the country, located in Jinja. The depot was commissioned in 1988 but it is said to be in a sorry state.

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