UGANDA AIRLINES: LET SLEEPING DOGS LIE

My jaw dropped to the floor last week when I heard that government was considering reviving the defunct Uganda Airlines. The argument was that since travellers to Entebbe have increased eightfold since the national carrier was wound up the enterprise has become more viable.

They say that the one thing we learn from history is that we don’t learn from history.

Why did Uganda Airlines go down in the first place?

It’s a long story but in a nutshell after the collapse of the East African Airways in 1976 each of the three east African countries went it alone creating their own national carriers. Kenya had headstart as it retained most of the  planes, Uganda was in the throes of the Idi Amin’s regime and never caught any traction, limping on with less than a handful of routes. A selloff its lucrative ground handling services at Entebbe Airport and a bungled privatization process finally forced government to put it out of its misery at the beginning of the last decade.

Since then several government back private airlines have been launched only to collapse spectacularly when the reality of the industry hit them. Air Uganda backed by the Aga Khan is doing much better and is probably our best chance – in the long term, of being our de facto national carrier.

British billionaire Richard Branson once said “If you want to be a millionaire start with a billion dollars and launch a new airline.”

Given the reality on the ground it’s hard to justify the billions of dollars the government would have to pour into an airline to make it viable.

An airlines biggest assets are the routes it flies, the more lucrative the better.

Entebbe airport last year did about 1.5 million passengers that is less than half the amount of traffic that was done on the London-New York route. Entebbe’s passengers are serviced by 20 airlines.

For Uganda Airlines to be viable it would have to compete with British Airways on the London route, Emirates on the Dubai route, Kenya Airways and Air Uganda on the Nairobi route and the list goes on and on.

Assuming we took the hair brained decision to resuscitate the carrier the government would be pouring billions of dollars not shillings into a black hole for at least 10 years before we can even break even.

While we are on hair brained ideas a short cut would be to restrict these other airlines from flying into Entebbe so we can support our startup company. Ink is at a premium so we shall not dwell on that ridiculous notion, except to say it will cause irreparable damage to Uganda as an air destination or transit point for travellers.

Why would we want to revive the airline anyway? Some people have this notion that we need a national carrier to direct traffic to our shores, as a marketing tool for the country to the world and that it would serve as symbol of national pride.

All very true but totally taken out of context for Uganda.

To begin with a national carrier is not a perquisite for anything. The US does not have a national airline – state-owned or otherwise, and does not need one to direct traffic to its shores. And as we learnt with the old Uganda Airlines there was a time with their inability to keep time, cancelled flights and plane crashes it did more harm for our image abroad and the same goes with promoting or decimating national pride.

If government is feeling the money is burning its pockets, it would get a better return for its money by upgrading and expanding Entebbe airport to better manage the increased traffic anticipate with the discovery of oil and growing tourist numbers. As it is now when Emirates lands its Airbus 380, passengers are inconvenienced with delays, what will happen when we have five Boeings landing within half an hour of each other? It will be a disaster.

But why are we even entertaining the idea of government going back into business?

Only this week we learnt that we are losing almost sh400b in treatment for sanitation related decisions partly because we do not have a enough toilets – pit latrines not flush toilets, in the country.

UGANDA'S WATER UTILITY BOSS BOWS OUT

Dr William Muhairwe’s contract as Managing Director of National Water & Sewerage Corporation expired in November. Since then the Corporation has advertised for applicants to the position. Contributing editor Paul Busharizi sat down with the former boss to hear his parting words. Here are excerpts.

Q. How do you describe the situation at NWSC at the moment?

A.    A family which has just lost its head there will be some uncertainity. The situation at NWSC is a normal situation that happens after an abrupt and unexpected exit of a family head. I am very happy that the current transitional leadership is doing well. NWSC has a set of well trained engineers, accountants and commercial officers and an able board. I think given the circumstances they are doing a very good job. They need the support of everyone especially our dear customers and the outside stakeholders.

Q. What was the status of NWSC when you left it?

A.    In my handover report which was received by the board and to great extent prepared by the heads of division and departments – because it was not Muhairwe handing over but the whole team, the status was ok. A healthy company, consistently growing over the years from 1998 to 2011, building up its revenues from a paltry sh21b to the current sh131b as per audited accounts, from losses of about sh4b to an ever increasing operating profit of oversh30b. A good cashflow with fixed deposits for any eventualities, all these can be verified from the annual audit reports. Financially NWSC was and still is a very strong institution.

Yes there were many challenges and we never failed to apologise to our customers every tie we got a chance to address them on the issues of dry zones. NWSc has become a victim of its own success. Every person is indeed entitled or wanted to connect to the NWSC grid its good service – the numbers grew from 50,000 household subscribers in 1998 to about 300,000 todate.  Unfortunately the facilities did not grow at the same pace. We were lucky that our predecessors had built more capacity than we required at the time. These capacities were exploited to cater for increasing demand. We also worked on wastage and added revenues. We were able to reduce wastage from 50 -70% in some towns to the current average of between 15 to 25% in towns outside Kampala and to about 30 to 39% in Kampala. But there is a level below which you cannot keep reducing the Non-Revenue Water, hence you need more greenfield investments. Hence the money we had mobilized from the donors for Kampala 20m Euros to revamp the three water works in Gaba and establish one in Mukono and Katosi and another $150m - $200m for  upgrading upcountry stations. So given good leadership which I am sure is going to emerge from a transparent process and a strong balance sheet NWSC will continue to shine.

Q. Recently there have been reports that your team glossed over the problems of NWSC and cooked the books, what do you say?

A.    This is a bit absurd. NWSC is a statutory body audited annually b y the Auditor General. He appoints one of the big four auditing firms – Deloitte & Touche, Ernst & Young, KPMG or PWC to audit NWSC books. These firms rotate every two to three years. So it’s shameful to suggest that these big firms are being manipulated to produce wrong figures and audit. In the last audit 2011, the AG himself wrote even gave our accounts a clean b ill of health.

Q. How about the rosy image of NWSC that you cultivated?

A.    It is the same problem. NWSC operates in the public domain. Either the customer has the service or they don’t and it is there for everyone to see. Our customers and many stakeholders know what they have been going through in the past, present and in other places. They see and compare and can talk for themselves. So it is an insult to our dear customers to suggest they can be manipulated to believe that the customer service of NWSC and the overall public image can be manipulated.

Q. Why didn’t you reapply for your job that the board had left the option open to you?

A.    I think this is what generated a lot of anxiety at the NWSC and in some parts of the public. Looking at the number of people who have applied especially those from within, it was very clear that we had groomed successors who were waiting for the rain to stop and they come in so any suggestion of a resurrection from retirement was likely to be fought and challenged. And I was not quick to tell them that this is their time now, they should compete for the job transparently and fairly. Hence the rumours and anonymous documentation doing the rounds in the media, intelligence services and parliament etc.

I had made it clear to the board and the minister and later to the press that I was quiting.

Q. Given your experience with NWSC especially that you saved the corporation from being flogged off, would you say 13 years later that we have achieved a critical mass of managers to manage our own parastatals? Or is the problem bigger than our lack of managerial capacity?

A.    I always believed that Uganda has or had a critical mass of managerial capacity to manage its own affairs. Look at the old UDC companies, most of them if not all of them were being managed by Ugandans and were doing very well. My experience at NWSC confirms that if you allow a favourable environment, you don’t interfere but give only the required guidance, whether political or socio-economic, certainly our parastatals or even other institutions will be properly managed. So the problem is not lack of capacity of managers but more lack of conducive “non-interfered” with political, social and economic environment for the managers to operate in.

COMING TO TERMS WITH THE UGANDA OIL CHALLENGE

At the beginning of this year government gave final approval for Tullow to invite partners French firm Total and the China National Offshore Oil Company (CNOOC) to help develop their oil filed in western Uganda. At last count it is estimated we have 2.5 billion barrels of oil under the ground in the Albertine region and this is after exploring less than a half of the potential oil basin. 

Real oil production will begin within three years but before then huge infrastructure developments will begin in earnest – roads, railway lines, pipelines, airfields. Poor little Uganda is going to see more money than it has ever dreamed of. Hopefully the heckling has died down and we now need to start plotting how to extract maximum benefit from this finite resource. 

To illustrate. According to the most recent figures I could find it costs between $6 in Saudi Arabia to $40 in Angola to produce a barrel of oil. At peak production it is expected that Uganda will be doing 200,000 barrels a day. Assuming a wildly optimistic $6 a barrel production cost it will cost $1.2m about sh3b a day or sh21b a week or sh90b a month or … you get the point. The cost of production will include labour, food, accommodation, transportation and several other service costs a lot of which will provided here. Tullow says they have already spent about $1b in their oil exploration endevours and expects by the time we hit peak production they and their partners will have shelled out $10b. 

"The scale of operations and the ripple effect through the economy is going to be like nothing we have ever seen before.

 

But as it is now we are woefully unprepared for what’s to follow. Recently we had to import air-conditioned buses from our neighbours to ferry delegates to the Inter-parliamentary union meeting, because we could not find the required number of the air-conditioned buses locally. Tullow officials say to ship in their equipment and various supplies they will have at least 500 trucks on the road at any given time and there is no single trucker here who can meet their needs. And yet trucking is one of those things where we are doing well considering.

 

It reminds me of when the South African supermarket Metro came to town in the early 1990s and because of the volume of imports they would be handling – nothing compared to what the current supermarket chains handle, they were allowed their own bonded warehouse. The local traders went up in arms pointing to this as an indication of how government favours foreigners over locals. But the reality was that our traders with their little lockups or share of the counter could not muster the volumes to get this “preferential” treatment.

 

The Ugandan businessman will need to step up his game. Out of necessity the Ugandan businessman will have to scale up his operations just to get the crumbs. They will first of all need to get more organized, seriously considering partnering or merging their operations to achieve scale, explore alternative funding options and adopt better management practices....

 

Easier said than done but the alternative is too dire to contemplate. International firms with experience in servicing the oil industry are already setting up shop in Uganda in anticipation of things to come. If our businessmen are not ready to step to the plate these firms can easily shut them out of the business and we will have only ourselves to blame.

 

Maybe to give our own a leg up government may want to consider making local input a condition of these businesses operating here. The nature of the local input could assume any form, from local partners to a percentage of their inputs be from local suppliers. This kind of affirmative action always has its pitfalls but none that cannot be worked out. Meanwhile all the above is premised on the current situation where we are assuming we have only 2.5 billion barrels of oil under our soils, imagine if it turns out we have even double that?

KENYA OIL FIND AND IT’S IMPACT ON UGANDA

Last week Kenya announced it had discovered oil in the desolate Turkana area in the country’s northwestern region, throwing up ugly regional chest thumping that was not only uncalled for but missed the point of regional integration entirely.

Tullow’s Kenyan unit struck oil at a depth of about 1,000 meters. The company has a licence to prospect in an area over 67,000sqkm or about six times the size of the licences in Uganda.

“The oil that was discovered in Kenya is much lower than what has been discovered in Uganda,” Energy minister Kiraitu Murungi said, speculating that the deposits could be more than the hundreds of millions of barrels discovered in the neighbouring country.

"Of course minister Murungi is an honourable man and will be forgiven for being over effusive in his assessment of Kenya’s prospects, but any oil man worth his salt knows you cannot make such sweeping statements after drilling only one well....

In the earlier part of the last century around 1925, twenty seven oil wells were drilled in western Uganda. Oil was discovered but commercial viability could not have been determined at the time. They plugged up the wells and went away.

Uganda has determined commercial viability now after 63 wells have been drilled.
Some Ugandans have suddenly got into their heads that now that the Kenyans have discovered oil the long term viability of our own oil industry has been put in jeopardy.

Their argument suggests that because of the new find interest in Uganda’s proven reserves will wane when viewed against the less than certain results of the Kenyan wells.

To put the Kenyan find in perspective the Ngamia-1 oil well puts Kenya where we were at the beginning of the last decade a less charitable assessment actually suggests that they are where we were in 1925.

Ugandan experts suggest that Kenya’s development if fast tracked will be where Uganda is today in a minimum of three years.

All the above not withstanding we are not in competition with Kenya. Just as southern Sudan remained unbothered about our finds.

Going by current confirmed reserves of around two billion barrels it is expected that at the peak of our production that we will be drawing up to 200,000 barrels a day. Currently Uganda’s oil demand stands at about 34,000 barrels a day and regional demand many times over. A recent study said that by 2015 regional demand would have jumped almost fourfold to 37 million tons from ten million tons in 2010.

And these estimates are based on known demand, suppressed demand – that demand that only shows up when supplies have been established, may push these figures much higher.

"A real concern for Uganda may be if Kenya reneges on a deal signed in around 2007, which mooted the regional development of a second refinery to be located in Uganda. Uganda’s waxy oil dictates that if we built a pipeline to the coast for instance it would require heating to keep the oil flowing, with our irregular power supplies this could prove a challenge....

The commercial viability of a refinery has been established and with or without regional help we should be able to set it up ourselves. It is in our strategic interests to refine our own oil, capturing all the value that come with refining.

Not only may we be able to produce petrol, diesel, kerosene and aviation fuels the oil byproducts have uses in the pharmaceutical, plastics and cosmetic industries.

What would be useful for the region would for each of us to put aside our parochial interest and work at maximizing the leverage to the region that these new heaven sent bounties can afford us.

For example we might want to develop them together, maybe each country should take out equity in each others projects. This way we can guarantee each others markets for the projects, extract more value from our resources and attract credible investors.

If this region becomes an oil and gas producing region – Tanzania, Rwanda and Mozambique are far along the way to developing their own natural gas resources, we can begin to punch above our weight if well utilized. And that is where the focus should lie not in nursery ground my-daddy-is-stronger-than-your-daddy antics.

THE BEGINNING OF WARREN BUFFET'S BILLIONS

Although I had no idea, age 25 was a turning point. I was changing my life, setting up something that would turn into a fairly good-size partnership called Berkshire Hathaway. I wasn’t scared. I was doing something I liked, and I’m still doing it.

#KONY 2012: A CASE OF THE END JUSTIFYING THE MEANS?

At the beginning of this month the video Kony2012 was uploaded on to Youtube.

The video uses the plight of “night commuters” thousands of children who fled the surrounding villagers and descended on Gulu by night to escape possible abduction from their homes, to highlight the savagery of the LRA.

The video’s promoters have unabashedly called for more military aid to the affected nations to put rebel leader Joseph Kony out of action once and for all.

By the time of writing this article, the 30-minute video had been watched more than 84 million times, the video literally went viral.

The producers were hoping for 500,000 viewers when they uploaded the video. But a combination of strong emotional cues – read suffering children, the suggestion that viewers could make a difference by passing it on and the roping in celebrities from Justin Bieber to Oprah Winfrey to transmit the video, all made it possible for it to become the most viral upload in history.

However criticism of the video has also come in fast and thick as well.

The detractors have rounded off on how the video has simplified the suffering of the people in northern Uganda during the two decade long civil war and also how things have moved on, that the video is not relevant to the present time.

You know what they say, if you wake up and find your friend is an overnight success know he has not been asleep.

The footage from the video dates back to 2003 when a trio of US youth – Jason Russell, Bob Bailey and Laren Poole stumbled upon the “night commuters” after a failed bid to document the southern Sudan civil war.

Touched by the plight of these kids trapped in a war that was none of their making and with seemingly no sight in end, at least according to these “parachute” journalists, the young men went back to the US and started a campaign in campuses and highschools to spotlight the kids plight and rally support for a more determined effort against Kony.

They reached hundreds of thousands of children with their video and by 2008 it had become the top foreign policy issue for US students, according to Time magazine, on par with the anti-apartheid campaign of an earlier generation.
Since then Kony became the first individual to be indicted by the International Criminal Court, the US congress has passed a law directly targeted at the LRA and President Barack Obama has sent 100 special-operations troops to help bring Kony to book.

So the video’s recent success on social media was not an overnight success. In fact it is a perfect case study for the “tipping point” phenomenon.

Truth be told, by the time the filmmakers happened on the LRA insurgency in 2003 it was on its last feet in northern Uganda. The 9/11 attack on the World Trade Center, the subsequent isolation of the Khartoum regime – Kony’s backers for a long time and Uganda’s withdrawal from the DRC all conspired to ensure that the LRA’s days were numbered.

The video and the reaction to it makes one think.

To begin with Africa’s issues cannot gather much traction in western conscious unless we play to the stereotype that they can relate to: of war, disease, poverty and blood thirsty big men. The filmmakers played to this stereotype and while it offended our delicate African sensibilities, they got the more than the desired reaction from their target audience – the youth of America.

But isn’t that how you tell a good story? You find the audience where it is with its preset prejudices and misconceptions and graft your tale on, if you don’t you lose them.

It’s a classic case of does the end justify the means?

Secondly it is clear that the main stream media will never give Africa’s message a chance. It is telling that these middle class youth had had no inkling of the LRA and Kony in 2003 more than a decade after the insurgency begun, despite it having been reported intermittently on western media.

Fortunately the proliferation of social media today may give our stories a fair shake. We can circumvent the traditional media and get our message straight to the opinion leaders in western capitals.

And finally this story is a good illustration of the fact that no meaningful achievement comes without work driven by a far sighted conviction.

You may criticize Invisible Children’s co-founder Russell for his lack of appreciation of the nuances of the conflict and championing a cause he knows little or nothing about. You may criticize him for trying to bankroll his NGO with proceeds from the video – I heard they had already racked in about $5m. You may even criticising him of overlaying a good guy-bad guy Hollywood script on real human suffering.

But you cannot criticize him for not backing up his passion with action in the best way he and his friends knew how, something you cannot accuse some of the “leaders” nearer the action.

I suspect some of our averse reaction to the video is our sense of guilt at being unable to raise as much awareness – however slanted, about a situation that we lived with for years.

UGANDA CAPITAL SEATING ON A GOLD MINE

Last week I had a meeting on Lumumba Avenue. In planning to make my 10 am meeting I set off 30 minutes ahead of time from home. I was not anticipating any traffic but was providing for the street’s horrendous potholes.

Having braced myself for the rough ride on that road I was therefore pleasantly supplied when I found that the road had been freshly laid and uncharacteristically smooth ride I so enjoyed I almost passed my destination.

About a week prior to my trip KCCA boss Jennifer Musisi announced that they had collected sh520m in dues from tax operators in a single day – the most Kampala’s authorities had ever collected in one day in their history.

Meanwhile whenever I am in the Wandegeya area I can’t help but marvel at the speed at which the market is being put up. By this time next year I can bet they will have completed the project.

All these bode well for KCCA in more ways than just good PR.

A few years ago people involved with capital markets argued that KCC at the time, had sufficient revenues to flot a bond of the stock exchange. A bond is the way companies or governments borrow using the stock exchange. My friends argued that given the real estate KCC commands they could collateralize it and issue a bond against it. The major challenge they pointed out was that it was hard to verify the monies KCC was getting from its assets around the city and worse still whether city hall was getting all the money due to it.

But now the taxi operators paying straight into the banks a situation that may also obtain when the new markets are up are running, for the first time in a long time KCC’s revenues are looking more transparent.

It goes back to the old say, money follows towards good organization. KCC’s money woes have always been more a function of bad management than a general lack of money.

KCCA may not take advantage of this potential new funding options because they can get cheaper donor money and secondly in order to access this donor funding any bond issues are discouraged.

Besides now would not be a good time to borrow from the local markets, as yields on benchmark treasury bills are only just coming off historical highs. Often times corporate or municipal bonds are priced a few percentage points above treasury bill yield rates. In Uganda the 182-day bill is usually used as the reference point. At least week’s auction the yield on this bill was 19.81%.

But if inflation continues to fall prompting a reduction in treasury bill issues by the central bank, we can then expect a drop in yield rates making bond issues more viable.

That aside an argument can still be made for borrowing more dearly from local markets even if the donor money is cheaper because such issuances will help firm up the bond market infrastructure reducing our over reliance on foreign funding.

Beyond KCCA’s ability to have independently verifiable revenues they need to rejig their image to one of impeccable integrity. Investors want to know that they will be paid back whatever the circumstances, an impression the government and the central bank have managed to create over the years with their Treasury bill and bond auctions.

Regardless of what is happening in Uganda’s politics or economics investors, going by the record of the last 20 years, investors know they will be paid when the government paper they are holding comes due. We all like to keep our money where we are assured we will get it when we need it.

The point is we as a nation are not as helpless as we have been led to believe. We just need to get more organized and subsequently transparent in our dealings and the money will be there for the taking. And secondly relying on foreign capital – sensitive to its own political interests that may not necessarily be aligned to ours, is an unsustainable model.