Saturday , September 23 2017
Home / ARTICLES 2008-2015 / Karuhanga’s Shs 44bn deal goes bad

Karuhanga’s Shs 44bn deal goes bad

By Julius Businge

But can police expose `true own

But can police expose `true owner’ of Dura Cement Ltd?

When former Nyabushozi constituency MP Elly Karuhanga left parliament in 2001, eye-brows went up over his next move. The soft-spoken and debonair Karuhanga, with charming smile, and cheeky glint in the eye had been a confidante of President Yoweri Museveni who was his constituent.

Karuhanga soon settled in at the chambers of what was to become the top law firm in the nation, the Kampala Associated Advocates (KAA). Along the way, the Nyabushozi seat came to be occupied by one Col. Fred Mwesigye, another Museveni confidante.


Now these three powerful men from Nyabushozi: Museveni, Karuhanga, and Mwesigye are the subject of an investigation by parliament involving the loss of US$ 16.4 million (Approx. Shs 40 billion at current exchange rates) in an alleged dubious cement factory deal traceable to March 7, 1990.

The alleged dubious company, Dura Cement Ltd represented by Karuhanga, was in the financial year 2009/10 paid US$16.4 million in an out-of-court settlement after its limestone mining lease at Dura in Kamwenge district in western Uganda was cancelled by President Museveni. Mwesigye is accused of brokering the deal and introducing Kumar to the President, while Karuhanga gave Museveni legal advice on the compensation claim.

Parliament also wants the URA Commissioner for Domestic Taxes, Moses Kajubi, to be investigated for waiving a 30% tax on theUS$14 million compensation that Karuhanga collected.

But Karuhanga says PAC needs to consult a lawyer on tax matters because it is a principle in that law that “compensation for cancellation of an agreement is not taxable”.

Dubious compensations

Parliament started investigating the case as one of six cases in which the government incurred dubious compensation losses. Up to Shs 200 billion (Approx. US$77 million) is feared to have been lost.

Parliament in March ordered police to investigate Karuhanga and Mwesigye and recommended that the Karuhanga’s law firm, KAA, be “blacklisted from all government business since they caused financial loss to the state”.

At the centre of scandal are a mysterious investor, one Rajesh Kumar Rawal, and a request by parliament to investigators to lift the veil on the “true owners” of a company called Dura Cement Ltd.

The Public Accounts Committee (PAC) of Parliament suspects that Rajesh Kumar and Dura Cement, who are represented by Karuhanga, are “fraudsters”.

Part of the suspicion arises from Dura Cement’s opaque ownership and its links to unidentifiable offshore shareholders namely; Sweetline SA of the British Virgin Islands and Beaver Enterprises SA of Panama.  Such offshore entities are, because of their secretive nature, sometimes used for illegal activities.

Dura Cement appears to have been a Special Purpose Vehicle created solely for the cement deal. The registrar of companies in Uganda is to be investigated for allowing Dura Cement to be incorporated without availing particulars of local directors and address. Karuhanga received the US$16.4 million.

Details of the case show that Dura Cement Ltd improperly acquired the lease from government through Mwesigye without paying a penny; held it for four months without investing a penny, lost it, and demanded US$103 million in compensation courtesy of Karuhanga. The claim was whittled down to US$14.5 but went because of costs of the case to US$16.4 million.

Unveiling mysterious investor

Mwesigye was not available for a comment when The Independent tried to reach him several times. But media reports say the MP has denied any wrongdoing in the compensation for Dura.

Karuhanga too denies any wrong-doing.

“My duty was to represent my client and I will continue to represent them in the best way I can using the law,” he told The Independent in an interview after Parliament instructed the police to investigate him.

The case could become interesting if Dura Cement Ltd’s veil of incorporation is removed and Karuhanga’s clients, the local owners Dura Cement, are exposed. But can the police investigate this top lawyer?

The Director of CID, Grace Akullo, told The Independent at the end of March that her office has not received any instructions to act from parliament.

But following a spate of high profile cases in the Anti-Corruption Court, it will not be surprising if Karuhanga is arraigned or jailed. If that happens, it will be a smear on the reputation of KAA, which is partnered with one of the world’s top law firms, the London-based SNR Denton.

How it started

On August 9, 1996 the National Enterprises Corporation (NEC), the commercial arm  of the Uganda Peoples Defense Forces (UPDF), obtained from the ministry of Energy and Mineral Development, a 21-year mining lease ML 3946 on property LRV 2504, Folio 4, plots 4, 5 and 6 Burahya, Block 162, measuring 278.5 hectares. The term of 21 years was effective March 7, 1990.

A year after getting the lease, on June 10, 1997, NEC sub-leased the mining rights to Lafarge/Hima Cement Ltd for the remaining 14 years.

Col. Fred Mwesigye, who was then-NEC’s managing director, signed the deal witnessed by Lt. JM Bangirana, then-NEC’s corporation secretary. The terms of this first phase of the deal are unclear.

But the relationship between Lafarge/HCL and NEC was legally terminated by Mwesigye on Aug. 9, 2006. Lafarge/HCL protested but Col. Mwesigye and company had found another buyer.

To kick out Lafarge/HCL, Col. Mwesigye accused it of breaching the contract when it failed to start work at Dura. To back his claim, he enlisted the legal opinion of the then-Solicitor General (SG), Lucian Tibaruha, who advised there was breach of several covenants which entitled NEC to terminate the sub-lease and re-enter the land.

Enter Dura Cement

Five months later, on Jan.19, 2007, Col. Mwesigye handed the Dura property to the mysterious Rajesh Kumar Rawal.  This time, Kumar was fronting a company called M/s Motorsense Ltd of Nairobi, Kenya and NEC was supposed to be a co-investor in putting another cement factory at Dura.

The Lafarge/HCL lease had just four years to go, but under the new deal, the Commissioner for Geological Survey and Mines, Joshua Tuhumwire, gave DCL an extra 15 years with effect from March 7, 2007 and also doubled the area from 278.5 hectares to 473.5 hectares. Once again Lafarge/HCL protested and took its case to President Yoweri Museveni.

Lafarge threatened to close the Hima Cement factory it was operating if the government insisted on giving the Dura site to Kumar’s Dura Cement Ltd.

The President was also told that the limestone deposits to Dura had been “exaggerated” and could not sustain a factory.

On April 10, 2007, just three months after Col. Mugyenyi gave the Dura site to Kumar, President Museveni ordered Daudi Migereko, then-minister for Energy and Mineral development to hand the site back to Lafarge.

On May 7, 2007 President Museveni wrote to Kumar informing him of the decision and the cancellation was effected on June 7, 2007.

Then-Solicitor General Lucien Tibaruha warned against the decision and said Dura could claim up to US$1.2 billion in compensation for loss of business. In the end, Museveni’s decision was to cost the taxpayer US$ 16.4 million (Shs 43 billion). All the money went to Karuhanga’s Dura Cement Ltd that had not invested a penny.

Indeed on May 28, 2008, DCL filled a case in court through KAA of Karuhanga that culminated in it being awarded US$16.4 million (43.5 billion) in the FY 2009/2010 as compensation for the loss of the mining lease.

Dura Cement Ltd compensation timeline

1990: NEC gets a 21-year mining lease

1997: NEC/Col. Mwesigye sub-leases to Lafarge/HCL

2005: Col. Mwesigye cancels HCL lease

2005: Col. Mwesigye invites Rajesh Kumar to co-invest with NEC

2006 (October): Rajesh incorporates a company-Dura Cement Limited with `secret’ shareholders

2007: DCL gets lease for 19 years without formal tendering and at no cost

2007 (June): Museveni cancels Dura Cement lease.

2008, May: DCL through KAA goes to court. Government hires KPMG to compute Dura compensation.

2009 January: Museveni directs that US$14.5m be paid to DCL

2009/2010: Government pays US$14.5million to DCL

Kumar and Mwesige

The Public Accounts Committee (PAC) of parliament that is investigating the alleged dubious has noted that Col. Mwesigye and Kumar were not strangers. Earlier, in 1997 when then-government owned Hima Cement factory was privatised, Col. Mwesigye had introduced Kumar to Museveni.

Parliament has also noted Elly Karuhanga’s role in convincing the President to accept an out of court settlement.

Karuhanga reportedly based on the figures quoted by KPMG Kenya, an audit firm that Auditor General hired to inspect and analyse the investment gains Dura Cement shareholders could have made for 19 years of the lease. That paved the way for Dura’s compensation.

KPMG, in its first draft report found that DCL was not entitled to any compensation but could be “reimbursed expenses incurred if the expenses could be substantiated and verified”.

In the 2008 report, Kumar submitted a claim of Shs 103 million but KPMG recommended nil compensation for loss. The government side offered to pay US$450,000 anyway.

When Karuhanga swung into the picture, he convinced Museveni and the courts that profits attributable to the DCL shareholders over 19 years would have been US$14,566,890 or US$766, 680 per year. On Jan. 28 2009 president Museveni directed the Attorney General that $14.5m (sh43.5bn) as advised by KPMG be paid to DCL.

But the PAC report notes that KPMG did not make this assessment as “subsequently claimed” by the solicitor general, Billy Kainamura.

Instead KPMG, had said “assuming that all the capital investment, the production quantities, the operating expenses and sale revenues were realized” then the net profit for Dura Cement shareholders could have been US14, 566,890. Since none of these investments and expenses was undertaken, according to KPMG, then Dura Cement was entitled to nil compensation.

The PAC report says: “The Committee found it inexplicable that the sum of US$14.5 million purported to have been recommended by KPMG in the draft report to Mr. Billy Kainamura came to the knowledge of Mr. Elly Karuhanga who used it to brief the President.”

Penalise Karuhanga

The PAC recommends that Karuhanga is penalised for “influence peddling”, the US$16.4 million to be recovered, and Kampala Associated Advocates (KAA) which handled the Consent Judgment which was filled and sealed by the court on October 30, 2009 to be blacklisted.

Asked whether he misled the President on the compensation, Karuhanga denied.

“By the time I visited the president everything about Dura was almost completed,” he said, adding he visited the president at his home in Rwakitura on Jan 5, 2009 for other issues. He said they talked about Dura as a “by the way” and that he advised the president not to just cancel contracts of companies because it would continue to cost the government.

He said government has no chances of recovering the money. He said cancelling Dura’s contract for the sole benefit of Hima Cement violated Article 26 of the constitution which guarantees Constitutional right to property. The article provides that when that right is violated, there shall be prompt payment of fair and adequate compensation, prior to the taking of possession or acquisition of the property.

“Why do you blame Karuhanga when the Solicitor General, the Attorney General, the president including Parliament negotiated and debated the matter?” he asked.

He also dismissed as untrue reports that his lawyers connived with the Attorney General’s office in the compensation deal saying whatever they were doing was under the law and that no one has come out with proof to justify the allegation.

“Whatever we do is professional and is according to the law,” he said. “We don’t believe in bribes.”

Of the deal, then-Attorney General Khiddu Makubuya, said in a letter dated December 29, 2009: “In this process, government has made substantial savings and effectively protected the good image of Uganda as an investment destination,” But PAC says he should be held responsible for failing to discount the US$14.5 million bill to a single US$ 6.5 million. The discounting was recommended since it was paid in one lump sum.

er’ of Dura Cement Ltd?

When former Nyabushozi constituency MP Elly Karuhanga left parliament in 2001, eye-brows went up over his next move. The soft-spoken and debonair Karuhanga, with charming smile, and cheeky glint in the eye had been a confidante of President Yoweri Museveni who was his constituent.

Karuhanga soon settled in at the chambers of what was to become the top law firm in the nation, the Kampala Associated Advocates (KAA). Along the way, the Nyabushozi seat came to be occupied by one Col. Fred Mwesigye, another Museveni confidante.


Now these three powerful men from Nyabushozi: Museveni, Karuhanga, and Mwesigye are the subject of an investigation by parliament involving the loss of US$ 16.4 million (Approx. Shs 40 billion at current exchange rates) in an alleged dubious cement factory deal traceable to March 7, 1990.

The alleged dubious company, Dura Cement Ltd represented by Karuhanga, was in the financial year 2009/10 paid US$16.4 million in an out-of-court settlement after its limestone mining lease at Dura in Kamwenge district in western Uganda was cancelled by President Museveni. Mwesigye is accused of brokering the deal and introducing Kumar to the President, while Karuhanga gave Museveni legal advice on the compensation claim.

Parliament also wants the URA Commissioner for Domestic Taxes, Moses Kajubi, to be investigated for waiving a 30% tax on theUS$14 million compensation that Karuhanga collected.

But Karuhanga says PAC needs to consult a lawyer on tax matters because it is a principle in that law that “compensation for cancellation of an agreement is not taxable”.

Dubious compensations

Parliament started investigating the case as one of six cases in which the government incurred dubious compensation losses. Up to Shs 200 billion (Approx. US$77 million) is feared to have been lost.

Parliament in March ordered police to investigate Karuhanga and Mwesigye and recommended that the Karuhanga’s law firm, KAA, be “blacklisted from all government business since they caused financial loss to the state”.

At the centre of scandal are a mysterious investor, one Rajesh Kumar Rawal, and a request by parliament to investigators to lift the veil on the “true owners” of a company called Dura Cement Ltd.

The Public Accounts Committee (PAC) of Parliament suspects that Rajesh Kumar and Dura Cement, who are represented by Karuhanga, are “fraudsters”.

Part of the suspicion arises from Dura Cement’s opaque ownership and its links to unidentifiable offshore shareholders namely; Sweetline SA of the British Virgin Islands and Beaver Enterprises SA of Panama.  Such offshore entities are, because of their secretive nature, sometimes used for illegal activities.

Dura Cement appears to have been a Special Purpose Vehicle created solely for the cement deal. The registrar of companies in Uganda is to be investigated for allowing Dura Cement to be incorporated without availing particulars of local directors and address. Karuhanga received the US$16.4 million.

Details of the case show that Dura Cement Ltd improperly acquired the lease from government through Mwesigye without paying a penny; held it for four months without investing a penny, lost it, and demanded US$103 million in compensation courtesy of Karuhanga. The claim was whittled down to US$14.5 but went because of costs of the case to US$16.4 million.

Unveiling mysterious investor

Mwesigye was not available for a comment when The Independent tried to reach him several times. But media reports say the MP has denied any wrongdoing in the compensation for Dura.

Karuhanga too denies any wrong-doing.

“My duty was to represent my client and I will continue to represent them in the best way I can using the law,” he told The Independent in an interview after Parliament instructed the police to investigate him.

The case could become interesting if Dura Cement Ltd’s veil of incorporation is removed and Karuhanga’s clients, the local owners Dura Cement, are exposed. But can the police investigate this top lawyer?

The Director of CID, Grace Akullo, told The Independent at the end of March that her office has not received any instructions to act from parliament.

But following a spate of high profile cases in the Anti-Corruption Court, it will not be surprising if Karuhanga is arraigned or jailed. If that happens, it will be a smear on the reputation of KAA, which is partnered with one of the world’s top law firms, the London-based SNR Denton.

How it started

On August 9, 1996 the National Enterprises Corporation (NEC), the commercial arm  of the Uganda Peoples Defense Forces (UPDF), obtained from the ministry of Energy and Mineral Development, a 21-year mining lease ML 3946 on property LRV 2504, Folio 4, plots 4, 5 and 6 Burahya, Block 162, measuring 278.5 hectares. The term of 21 years was effective March 7, 1990.

A year after getting the lease, on June 10, 1997, NEC sub-leased the mining rights to Lafarge/Hima Cement Ltd for the remaining 14 years.

Col. Fred Mwesigye, who was then-NEC’s managing director, signed the deal witnessed by Lt. JM Bangirana, then-NEC’s corporation secretary. The terms of this first phase of the deal are unclear.

But the relationship between Lafarge/HCL and NEC was legally terminated by Mwesigye on Aug. 9, 2006. Lafarge/HCL protested but Col. Mwesigye and company had found another buyer.

To kick out Lafarge/HCL, Col. Mwesigye accused it of breaching the contract when it failed to start work at Dura. To back his claim, he enlisted the legal opinion of the then-Solicitor General (SG), Lucian Tibaruha, who advised there was breach of several covenants which entitled NEC to terminate the sub-lease and re-enter the land.

Enter Dura Cement

Five months later, on Jan.19, 2007, Col. Mwesigye handed the Dura property to the mysterious Rajesh Kumar Rawal.  This time, Kumar was fronting a company called M/s Motorsense Ltd of Nairobi, Kenya and NEC was supposed to be a co-investor in putting another cement factory at Dura.

The Lafarge/HCL lease had just four years to go, but under the new deal, the Commissioner for Geological Survey and Mines, Joshua Tuhumwire, gave DCL an extra 15 years with effect from March 7, 2007 and also doubled the area from 278.5 hectares to 473.5 hectares. Once again Lafarge/HCL protested and took its case to President Yoweri Museveni.

Lafarge threatened to close the Hima Cement factory it was operating if the government insisted on giving the Dura site to Kumar’s Dura Cement Ltd.

The President was also told that the limestone deposits to Dura had been “exaggerated” and could not sustain a factory.

On April 10, 2007, just three months after Col. Mugyenyi gave the Dura site to Kumar, President Museveni ordered Daudi Migereko, then-minister for Energy and Mineral development to hand the site back to Lafarge.

On May 7, 2007 President Museveni wrote to Kumar informing him of the decision and the cancellation was effected on June 7, 2007.

Then-Solicitor General Lucien Tibaruha warned against the decision and said Dura could claim up to US$1.2 billion in compensation for loss of business. In the end, Museveni’s decision was to cost the taxpayer US$ 16.4 million (Shs 43 billion). All the money went to Karuhanga’s Dura Cement Ltd that had not invested a penny.

Indeed on May 28, 2008, DCL filled a case in court through KAA of Karuhanga that culminated in it being awarded US$16.4 million (43.5 billion) in the FY 2009/2010 as compensation for the loss of the mining lease.

Dura Cement Ltd compensation timeline

1990: NEC gets a 21-year mining lease

1997: NEC/Col. Mwesigye sub-leases to Lafarge/HCL

2005: Col. Mwesigye cancels HCL lease

2005: Col. Mwesigye invites Rajesh Kumar to co-invest with NEC

2006 (October): Rajesh incorporates a company-Dura Cement Limited with `secret’ shareholders

2007: DCL gets lease for 19 years without formal tendering and at no cost

2007 (June): Museveni cancels Dura Cement lease.

2008, May: DCL through KAA goes to court. Government hires KPMG to compute Dura compensation.

2009 January: Museveni directs that US$14.5m be paid to DCL

2009/2010: Government pays US$14.5million to DCL

Kumar and Mwesige

The Public Accounts Committee (PAC) of parliament that is investigating the alleged dubious has noted that Col. Mwesigye and Kumar were not strangers. Earlier, in 1997 when then-government owned Hima Cement factory was privatised, Col. Mwesigye had introduced Kumar to Museveni.

Parliament has also noted Elly Karuhanga’s role in convincing the President to accept an out of court settlement.

Karuhanga reportedly based on the figures quoted by KPMG Kenya, an audit firm that Auditor General hired to inspect and analyse the investment gains Dura Cement shareholders could have made for 19 years of the lease. That paved the way for Dura’s compensation.

KPMG, in its first draft report found that DCL was not entitled to any compensation but could be “reimbursed expenses incurred if the expenses could be substantiated and verified”.

In the 2008 report, Kumar submitted a claim of Shs 103 million but KPMG recommended nil compensation for loss. The government side offered to pay US$450,000 anyway.

When Karuhanga swung into the picture, he convinced Museveni and the courts that profits attributable to the DCL shareholders over 19 years would have been US$14,566,890 or US$766, 680 per year. On Jan. 28 2009 president Museveni directed the Attorney General that $14.5m (sh43.5bn) as advised by KPMG be paid to DCL.

But the PAC report notes that KPMG did not make this assessment as “subsequently claimed” by the solicitor general, Billy Kainamura.

Instead KPMG, had said “assuming that all the capital investment, the production quantities, the operating expenses and sale revenues were realized” then the net profit for Dura Cement shareholders could have been US14, 566,890. Since none of these investments and expenses was undertaken, according to KPMG, then Dura Cement was entitled to nil compensation.

The PAC report says: “The Committee found it inexplicable that the sum of US$14.5 million purported to have been recommended by KPMG in the draft report to Mr. Billy Kainamura came to the knowledge of Mr. Elly Karuhanga who used it to brief the President.”

Penalise Karuhanga

The PAC recommends that Karuhanga is penalised for “influence peddling”, the US$16.4 million to be recovered, and Kampala Associated Advocates (KAA) which handled the Consent Judgment which was filled and sealed by the court on October 30, 2009 to be blacklisted.

Asked whether he misled the President on the compensation, Karuhanga denied.

“By the time I visited the president everything about Dura was almost completed,” he said, adding he visited the president at his home in Rwakitura on Jan 5, 2009 for other issues. He said they talked about Dura as a “by the way” and that he advised the president not to just cancel contracts of companies because it would continue to cost the government.

He said government has no chances of recovering the money. He said cancelling Dura’s contract for the sole benefit of Hima Cement violated Article 26 of the constitution which guarantees Constitutional right to property. The article provides that when that right is violated, there shall be prompt payment of fair and adequate compensation, prior to the taking of possession or acquisition of the property.

“Why do you blame Karuhanga when the Solicitor General, the Attorney General, the president including Parliament negotiated and debated the matter?” he asked.

He also dismissed as untrue reports that his lawyers connived with the Attorney General’s office in the compensation deal saying whatever they were doing was under the law and that no one has come out with proof to justify the allegation.

“Whatever we do is professional and is according to the law,” he said. “We don’t believe in bribes.”

Of the deal, then-Attorney General Khiddu Makubuya, said in a letter dated December 29, 2009: “In this process, government has made substantial savings and effectively protected the good image of Uganda as an investment destination,” But PAC says he should be held responsible for failing to discount the US$14.5 million bill to a single US$ 6.5 million. The discounting was recommended since it was paid in one lump sum.

Leave a Reply

Your email address will not be published. Required fields are marked *