By Haggai Matsiko
Costs continue to soar as NSSF, PPDA, IGG haggle over procurement rules
In NSSF’s current advert running in the media, the bespectacled managing director Richard Byarugaba says: “So every time you think of NSSF, think of it as a promise to remain true to you,” to which the head of Investment at the Fund adds, “to get you a competitive return on your investment” and all staff conclude in a chorus, “and that is our promise.”
The question is, with all the flagship real estate projects such as the Pension Towers remaining impotent, are contributors really getting a competitive return? To many contributors, the answer is an emphatic no.
Yet, Byarugaba likes to present himself as an astute financial manager. You know my record, he likes to say.
But when he called a clear the air press conference about accusations in a heavily loaded dossier to the Inspector General of Government (IGG) implicating his team of “corruption of the highest order coupled with flouting of procedures” that has stalled several multi-billion dollar projects, Byarugaba’s tone was different.
His frustration could not have been more apparent than when he said: “Starting these projects has been one of my greatest failures,” Byarugaba said, “but it is because I am constrained, it takes us two years to procure anything. You all know the story of Pension Towers, the IGG recently stopped it again, it will take us another two years to procure, we will have to start all over again.”
Byarugaba, an ex-banker now heading Uganda’s biggest financial institution, was commenting about the NSSF tri-tower complex that if completed, would have more space than three of Kampala largest buildings; Communications House, Workers House and Crested Towers combined.
When then Micro-finance minister Salim Saleh, commissioned its ground breaking exactly five years ago, Pension Towers was touted to be the greatest piece of real estate in Uganda. Five years later, a foundation is all there is to show for the magnificent building.
By the time the building is constructed, which doesn’t look like anytime soon, it might not even be worth the investment, according to analysts. The land on which Pension Towers is being constructed is in the heart of Kampala and keeps appreciating at a breakneck speed.
Even the self-acclaimed super manager, has failed to get the building rolling. Constrained or not, the provident Fund’s many contributors will have mainly the MD to blame. Some say Byarugaba is behaving like previous managers at the Fund who in order to protect their job, have failed to be forceful enough to make the hard decisions.
With such a scenario, NSSF’s bosses are happier playing it safe by investing in treasury bills and bonds, with the workers paying the ultimate price in lower interest on their savings. Some contributors chide Byarugaba for being a coward, but the former banker probably knows all too well why almost all his predecessors got into hot water; some of them ending up in prison – getting too zealous about the Fund’s real estate investments.
Naturally, the contributors are not amused. “It is the lack of boldness of managers at NSSF that has made it impossible for contributors to benefit from the would-be investments,” a contributor with sufficient knowledge of NSSF, told The Independent.
Many observers say it’s morally wrong for NSSF managers to sit back and enjoy enormous salaries when impotent assets [assets that are not making money] acquired with contributors’ savings are lying in the gutters.
“The Funds managers and PPDA’s red tape is denying contributors their share of interests on their savings,” one analyst who asked to remain anonymous, noted. “With all those assets, how do you keep telling contributors that they will earn a paltry 10 % in interest?”
Valued to make $10.5m or 27 billion per annum, the Pension Towers, which was first conceived in the 1990’s, would have made Shs 273 billion in ten years. At the time, that would have been enough money to erect two other structures of that size.
But as it is, the building is set to be triple its original cost.
Sources told The Independent that when the former NSSF MD, David Chandi Jamwa first came in, he found the cost of the towers at a paltry Shs 40 billion for just 18 floors.
Jamwa, being an accountant, realized that such prime land in value would outgrow 18 floors in a short time. He argued that while the 16 acres of land on which it was to be built was valued in thousands of dollars at the time, within ten years, it would be in millions of dollars.
Indeed, today, the land is valued at over $10 million. That is why Jamwa hired new architects to design a project that would add commensurate value to the land.
By 2008, the building had swallowed more billions than earlier planned due to changes introduced by Jamwa. At the time, Parliament questioned the increased cost, which Jamwa defended citing the modifications.
However, PPDA ruled, rather bizarrely, that if the project had to be modified, NSSF had to procure again. NSSF management argued that since Roko Construction Company was already constructing, halting their contract would mean losing the money that had already been paid to them.
They instead proposed that Roko continues with the construction up to a phase where the Shs 40 billion previously earmarked for the project would be spent. At the time, Shs 40 billion would complete the first phase.
In that process, a retainer wall that Roko hadn’t built well, collapsed killing several workers and injuring several others. The first phase alone, which was supposed to be completed within two years, took four years.
After Roko’s work was done, a new procurement process was initiated and won by a Chinese company, China Civil Engineering and Corporation (CCECC). This also lost it after the Inspectorate of Government in a Jan.21 report halted the contract noting that the bidding process had been contrary to the procurement laws.
The IGG noted that while CCECC had won the contract, its bid was Shs 20 billion higher than its competitor, China National Aero-Technology International Engineering’s (CATIC).
The cancellation came at the backdrop of a PPDA investigation showing that procurement procedures had been flouted. This investigation had been instigated by an application for an administrative review by CATIC.
At the time, Byarugaba assured contributors that the procurement process for Pension Towers had been done in line with PPDA rules and that the review was a normal process.
“This request for an independent audit of this procurement is founded on our commitment to accountability and transparency in the management of the Fund,” he said.
However, in another turn of events, CATIC withdrew its application only for another complaint to emerge from concerned workers and contributors to NSSF about the same procurement. PPDA would continue with its investigations, whose findings the IGG based on to cancel the contract.
PPDA findings showed that NSSF pre-qualified CCECC the company in the re-evaluation exercise yet the company did not meet the preliminary requirements. PPDA found that CCECC, which submitted defective powers of the attorney and used experience of subsidiary companies in its bid, should not have passed the pre-qualification stage but had been awarded the contract.
It should also be noted that while the best evaluated bidder (CCECC) was supposed to be displayed on the NSSF notice board for public view from July 30 to August 10, 2012 as required by law, the documents were ‘stolen’ earlier on July 27, 2012.
“In light of this,” the IGG noted on Jan.21, “I find it difficult as the custodian of these documents and all the procurement-related information to guarantee confidentiality of information regarding the just concluded evaluation process of the Pension Towers project.”
Based on these and the fact that the re-evaluation committee could not have been fair and impartial in re-evaluating the bids having evaluated the initial bidding process except one, the IGG cancelled the contract and also directed that NSSF implements their resolution of outsourcing services for procurement of projects worth above $2.5 million.
“The whole of the bidding process for Phase II of the Pension Towers should be cancelled owing to the amount of information about it that has gone out to various bidders, staff of various institutions involved in review processes and the general public, as well as the persistent allegations of corruption,” the inspectorate said in its report. Jan 21.
CCEC had been the best bidder of the 20 companies that had expressed interest. Of these, only 17 had returned the bids and three, all Chinese, were shortlisted.
Sinohydro Corporation Limited was third, CATIC second and CCECC had emerged the best bidder, offering to do finish Phase II of the towers for Shs 223.5 billion.
Observers with insight into the sector told The Independent that at this rate, the project is set to consume over Shs 300 billion by the time it is completed. “How do you halt an on-going transaction?” a source wondered, “in this NSSF inertia and PPDA, IGG pingpong, contributors are losing money, for 20 years the project is still not done, just imagine how much money it would have made.”
Currently, Byarugaba like the Fund’s previous managers finds himself facing another probe that makes him averse to real long-term investments despite being at the helm the country’s richest financial institution.
Critics say NSSF bosses, if they are to add value to contributors’ savings, have to be more firm and aggressive in making investment decisions. Unfortunately, the managers at NSSF – afraid of losing their jobs – have resorted to decisions that add little value to workers’ savings.
“Because of our procurement rules,” Byarugaba says, “it takes us forever to build anything in this country; Whether PPDA is a good thing or not, is another thing.” That is one reason why the Fund is now resorting to outsourcing the procurement function.
However, Cornelia Sabiiti, the Executive Director, PPDA, citing corruption that costs Ugandans about Shs 30 billion, told local media that the delays to such projects occur because they have to intervene where the process is not transparent.
But Sabiiti, also conscious of the impact of the lengthy processes, acknowledges that there is need to shorten time frames and the bidding period, among other lengthy processes. Some observers say the liberalisation of the Pension sector will free the Fund from some of the bureaucracy that makes procurement almost impossible.
Others say the procurement for large scale projects should be outsourced to international firms/consultants to avoid unnecessary delays that impact negatively on the country’s economic progress.
These chronic procurement delays, which have also bedeviled other priority government projects like Karuma power project, also explain why of the 14 NSSF properties, only three are developed. Nsimbe Estates and Temangalo, two of the largest projects, have been on hold for years due to the same procurement bottlenecks.
For now, contributors continue to wonder why the only positive news at the Fund is the increase of monthly collections. NSSF, the managers say, now collects Shs 50bn monthly, and boosts of a Shs 3 trillion balance sheet.
Why NSSF doesn’t invest this money in solid investments remains an enigma giving many contributors red faces.
Of the Shs 3 trillion, for instance, 82% is invested in short term fixed income assets such as government bonds, and fixed deposit accounts in commercial banks. Only about 6% is invested in equities and a paltry 12% is in real estate.
Because of this awkward investment mix, it is only 2008 in NSSF history that the Fund paid an interest rate as high as 14%, which was just above the average inflation rate of 12%.