By Karien Mukama
Ownership queries persist in as it fights financial squeeze
As members of parliament witnessed recently when he testified about the “true” ownership of his company, Pioneer Easy Bus’s Managing Director David Ndemeire Bagenda is a master of comic exaggeration. But none of his strokes then matched his answer, when The Independent asked him if claims that, under a new shareholder arrangement, Jacqueline Mbabazi – wife of Prime Minister Amama Mbabazi, has shares in the company.
“Absolutely incorrect,” Bagenda beamed, “on that one you can cut off my arm. As you know we stripped ourselves naked before parliament on the issue ownership.”
He was referring to the very unusual and very public manner in which Pioneer Easy Bus shareholders were laid before Parliament. So why has the question of ownership come up again?
The answer lies in claims that Pioneer Easy Bus could be facing a financial squeeze since it showed stress when faced with a Shs 6.5 billion tax bill from Uganda Revenue Authority (URA) in form of import tax on its 100 buses and reports that it has been compelled to bring on board new shareholders to raise capital locally after failing to secure a Chinese loan, and is allegedly reneging on salary contracts for some of its staff.
In several interviews with Pioneer managers, staff, and public transport experts, it appears speculation about Pioneer’s “true” ownership is fuelled partly by the many times it has changed the allegations of political influence peddling to evade taxes and use of public facilities like the Mandela National Stadium Nambole. Most Pioneer shareholders, like Mathew Rukikaire and Albert Muganga (who is a son-in-law to Sam Kutesa) are powerful NRM insiders and allegations that Jacqueline Mbabazi is involved persist.
Pioneer buses started operations during a taxi strike on March 12 under “emergency” powers without paying the necessary taxes and without number plates. The buses were to have hit the road on March 1 but were delayed over unpaid taxes. Unable to divulge this, Pioneer hid behind technicalities like the lack of bus lanes in the city, quarrels between KCCA officials, and disagreements with ministry of Transport bosses as the reason for delay.
MD Baingana told The Independent that they have signed an MOU with the URA on the tax issues for the buses to get number plates even if negotiations are still on regarding especially Value Added Tax (VAT). Under the current schedule, Pioneer’s operations attract the standard 18% VAT. But Baingana argues that “Transport services are not VATable because the operator cannot claim a refund from URA”.
There has also been a campaign in the media to waive a 25% import duty on the buses. Its proponents say Pioneer is a “government concessionaire” offering a service on behalf of KCCA and cannot without KCCA authorisation, arbitrarily raise the fare which stands at a standard Shs 800 per route per passenger.
But Pioneer’s agitation for incentives like tax waivers and subsidies foments the belief that the Pioneer Easy Bus owners are posturing to exploit their political connections for a profit.
An often cited example of the alleged influence peddling is Pioneer’s setting up of its Operations Office at a government facility, Mandela National Stadium Nambole in Bweyogerere, a city suburb. Why has Pioneer not constructed a single terminal although it promised 5 ultra-modern ones?
Connie Nankya, the company’s spokesperson looks genuinely excited when she says the terminals will be built at a radius of 25km from the city centre along their routes.
“Our goal is to reduce congestion in the city center. We want to inculcate a culture of using buses as opposed to driving to the city center.” She says the bus terminals will have a Park and Ride facility.
For now, however, Baingana defends Pioneers use of a government facility as a base. He says Pioneer Easy Bus pays Shs 6 million in rent for the stadium parking lot that it has fenced off and more for the office space, and facilities it uses within the complex, including the floodlights it hires at Shs 150,000 per night.
“We are not seeking any special favours,” Baingana says. But allegations of political muscle behind pioneer persist partly because of the way its ownership has been changing.
At incorporation on March 1, 2005, Pioneer had six directors; former Prime Minister Kintu Musoke, Faizal Kasujja, Fred Senoga, Aida Wanendeya, Muhammed Kasasa, and Eric Adriko. Despite the political and business muscle of its directors, the project failed to take off. At the time, there were other players like Chris Kakama of City Bus Services who were also interested in the deal.
Ownership changed on January 8, 2009 and all directors except Fred senoga were dropped and Mathew Rukikaire, a historically powerful member of the NRM came on board. Things began to move very fast.
Basing on a contract signed on October 9, 2008 with China National Aero Technology Import and Export Corporation Beijing Company (CATICBJ), a bus manufacturer, Pioneer Easy Bus was supposed to import about 200 buses on one main condition; it had to get a US$15,260,000 loan (Approx. Shs 38 billion at an exchange rate of Shs 2,500 per dollar) from China’s state owned Export-Import (EXIM) Bank.
The loan, however, was conditioned on Pioneer getting a “payment guarantee” from the Ministry of Finance of the Republic of Uganda.
On March 11, 2009, Pioneer, through then-KCC Acting Town Clerk, Ruth Kijjambu, wrote a request to the Ministry of Finance for the “payment guarantee” by peddling the venture as Public Private Partnership (PPP) between then-Kampala City Council (KCC) and the named directors.
But as the Secretary to the Treasury, Keith Muhakanizi, told The Independent recently, the Ministry of Finance on April 9, 2009, refused to give the guarantee.
“What we did as the Ministry of Finance is to sign what is called a Senior Lenders Stepping-in Rights. This means that should the directors of pioneer buses misbehave by mismanaging the company or failing to honour their debt obligations, the senior lenders (any company that would have lent them money) have the right to step in and do whatever is possible to bring the company back to sanity and be able to execute its obligations,” he said.
Under normal Public-private partnerships, the Pioneer directors, Rukikaire and Senoga, were expected to inject in the money while the government or KCC as its representative, provides services like terminals, workshops, and bus lanes and stages. It was, therefore, surprising that the directors were seeking the government payment guarantee and aimed to finance the venture with the Chinese loan.
While turning down the request, Muhakanizi also advised that “the regulatory roles required of KCC mean that it cannot be engaged in the project as a joint venture partner given the conflict of interest that might arise”.
A payment guarantee means that the government commits to pay the bus supplier if Pioneer Easy Bus “fails” to pay the loan. Effectively, Rukikaire and Senoga were not putting in any money and although the government, as Muhakanizi warned, could not legally get shares in the venture, was expected to bear the business risk. The deal collapsed because it required parliament’s approval and its pushers sensed it would not get it. They switched to plan B.
Under this plan, on June 19, 2009, then- Kampala Mayor Nasser Sebaggala wrote to then-minister of State for Transport, Simon Ejua, to approve KCC’s requests for Expression of Interest (EOI) into the venture and a week later, on on June 25, 2009, a no-objection was given. Effectively, Pioneer Easy Bus Ltd now had the deal but not the financing.
Sources told The Independent that Pioneer approached other city bus service operators like Ben Conolly Pejj. Ltd and City Bus Service Ltd to buy shares but they refused.
Pioneer had allegedly violated the final evaluation, the agreement, and rules of the bidding. According to the Bid document, page 12, Clause 3 (Ref: KAMP516/SUPLS/2009/010/), each company was expected to take up only two, out of the four routes; east, west or north and south. KCCA is yet to assign the other routes. Critics claim Pioneer has them in the bag and is waiting to become strong enough to monopolise them.
“Having ill treated us in such a manner, they came back asking us whether we could buy shares from PEB,” one of them said, “There is no way I could waste my money into such a corrupt business. I have my business which has been operating even before the PEB came into place. I wouldn’t want to waste what I have worked for all my life to those swindlers.”
New shareholder challenges
But Pioneer’s search for financing led to a change of ownership – once-again, on May 7, 2010.
Rukikaire retained majority shares (4,171), Fred Senoga and Mark Gasuza’s Atlantis Holdings Ltd followed with 1800 shares, Invespro Holdings Ltd of David Baingana and John Nsamba (1170), Urban Transport Company Ltd, owned by Sulaiman Nsubuga, Erias Kiwemula, Fred Golola, John Kirangwa and John Tinkasimire (333), Deluxe Solutions Ltd of Nicholas Ecimu and Nicholas Opio (1000), and Kenlloyd Logistics Uganda Ltd of Albert Muganga, son-in-law to the powerful Foreign Affairs Minister, Sam Kutesa whose status remains unclear since he “stepped aside” over alleged corruption (1526). But other names like Jacqueline Mbabazi, James Yefeo, Moses Kiiza and John Masanda continue to float around.
Effectively, however, Rukikaire, Senoga, and Muganga control Pioneer. But other shareholders like Baingana, Ecimu, and the Nsubuga Urban group, who jointly control just over a 25% of the company, are critical. Some of them are law firms. The question is: whose interests do they represent?
Under this deal, Rukikaire effectively lost control. Although, he has 41% of the company, other shareholders like Muganga, Senoga, and either Baingana or Ecimu can easily out-vote him. It’s therefore, unclear who controls Pioneer easy Bus. What is clear is that NRM is strongly represented by Rukikaire and Kutesa’s son-in-law, Muganga. Only Senoga represents the bus industry.
Rukikaire is a laid-back gentleman but he has recently been in the news for the wrong reasons. The National Bank of Commerce (NBC), of which he is the chairman, is battling a take-over bid by its minority shareholders backed by the Abu Dhabi-based International Investment House which injected US$ 9.97 into the bank but now wants more control or its cash.
There are reports that Rukikaire and NBC majority shareholders, Amama Mbabazi and Information Communication Technology Minister Ruhakana Rugunda lent themselves Shs 7 billion from the bank, did not pay it back, and have recently declared the debt “non-performing”.
Albert Muganga of Kenlloyd-Logistics famously suffered a setback in 2008 when his firm lost a Shs 45 billion deal to procure fuel to restock the government’s oil reserves in Jinja over allegations of corruption. Not a rosy shareholding picture, some would say.
Under these new shareholders, Pioneer imported and operates a fleet of 100 Yutong buses supplied by Zhengzhou Yutong Bus Co. Ltd of China which is among the top five bus manufacturers in the world.
“Yutong Bus Ltd is a private company that did not need government intervention,” says MD Baingana of the new suppliers, “we got a US$10 million loan from Standard Chartered bank.”
Baingana says they have injected over US$ 5 million more into the venture mainly as pre-operation expenses but admits their operations have so been “haphazard”. Their contract with Kampala Capital City Authority (KCCA) requires them to import another 422 buses before the end of the year. That is where problems start. What will happen if Pioneer cannot fulfill its contract?
A lot is hanging on Pioneer Easy Bus’s promises. Introduced under the Bus Rapid Transit (BRT) system for easing traffic congestion in the Greater Kampala Metropolitan, Pioneer Easy buses were unceremoniously thrust onto the road on March 12 in the heat of a taxi drivers strike.
But without the promised bus-only lanes, designated stages and terminals, it’s not unusual to find a Pioneer Bus fighting for space and passengers with taxis. The Shs 800 fare is a major hook for passengers and the Yutong bus’s big eyes and wider orange frame are quite intimidating. But for now, the nimbler taxis appear to be successfully staring them down.
Kampala has had bus services before. City Link, owned by influential businessmen Gordon Wavamunno, suspended services citing stiff competition from taxis.
Kampala’s infrastructure is largely to blame. Informal and unplanned, it favours taxis that have no schedules, no routes, and no strict regulations. Taxis also have flexible fares and easily adapt and retain enough passengers to remain viable.
A 2005 study of institutional, financial and regulatory frameworks of Urban Transport in Large Sub-Saharan Cities recommends that public transport buses have to be affordable, safe and offer high quality services to survive.
The study says big buses are, in principle, more efficient because they carry a large number of passengers at a time, meaning unconges ted routes and high productivity.
But the study also warns that any investment in mass transit systems has to be very carefully evaluated, to ensure that the system is both economically and financially viable.
KCCA has to learn from other cities with Bus Rapid Transit systems. Hong Kong, for example, has an urban density of 301 persons per hectare compared to Uganda that has 48 per hectare. The demand for public transport is, therefore, lower in Kampala.
Hong Kong city authorities have also discouraged use of private vehicles and taxis in the city centre by charging steep parking and congestion fees.
Aware of risks like driving when drunk, overloading and uncertified drivers, authorities ensure that bus operators are well trained and monitored.
An influential bus owner in Kampala says it is good to move from a “low capacity system” – 14-seater taxis, to a higher one – buses that carry 60. But he is concerned about the lack of planning.
“An efficient public transport system needs proper bus terminals, shelters, lanes, fully trained staff, and powerful institutions to monitor it. The roads also need to be smoother and wider to allow public buses to co-exist with ordinary traffic. This is something our country does not have.
“We do not have that infrastructure in our city and that is a big risk for the company.” he told The Independent.
“Pioneer can only survive if proper infrastructure is in place and public transport is left for them, otherwise, they will not operate for long.”