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Business | Uganda Telecom (UTL) Bailout | Government Should Have Saved ThreeWays Shipping

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Posted February 8, 2018 by Ugandan Diaspora News Team in Business ~ 1,933 views

     

By the time protestors dragged Muammar Gaddafi through the streets of Sirte in Libya during the height of the Arab Spring in late 2011, Uganda Telecom Limited (utl) was spiralling from one financial pitfall to another.

The then Libyan government, with Gaddafi as its leader, was a majority shareholder in utl with about 69 per cent. Around the same time, in the humid terrains of western Uganda, trucks were belonging to ThreeWays Shipping transported rigs and all sorts of materials to mainly Tullow Oil’s wells and camps. 

With Gaddafi overthrown, the financial injections from Tripoli to utl ground to a halt. The company slashed its capital investments at a time when its peers such as Airtel were pumping more money in their network operations.

For example, in 2010, utl accounted for six per cent of the total net investment spend in the market. By the end of 2011 that figure had shrunk to two per cent. The company losses more than doubled over the same period. Numerous management shake-ups came after. Utl’s free-fall could hardly be stopped.

On the other hand, ThreeWays Shipping was raking in huge amounts of money. By 2012, the company said it had more than 750 employees. In the same year, ThreeWays had a turnover of $30 million, up from $3.2 million nine years earlier. ThreeWays became the biggest local company operating in Uganda’s oil fields, where foreign firms are dominant. The sky appeared no limit for ThreeWays.

Five years later, utl and ThreeWays found themselves in a similar position: cash-strapped and in need of a bailout. Company managers rushed to the one man who usually has the last word on pretty much everything – President Yoweri Museveni.

Both companies presented two different plans: utl, with Evelyn Anite, the state minister for Investment and Privatisation, as its key negotiator, pushed for a compulsory acquisition of its services – both voice and data – by all government ministries. That particular suggestion, among other proposals such as the writing off of debt, sounded wild.

ThreeWays Shipping got hit by a slowdown in Uganda’s oil industry as protracted negotiations over tax and a route for a crude oil export pipeline took longer than what many players had predicted. A series of bank loans from Standard Charted bank, among other factors, would later lead to the collapse of ThreeWays Shipping.

To recover, Jeff Baitwa, the founder of ThreeWays Shipping, came up with what looked like a brilliant idea: he tried to convince government that Uganda needed an oil fund to help distressed local firms borrow money at a cheaper rate. His reason was that for local content to make meaning in the oil industry, Ugandan local firms have to be at the centre of winning the key tenders, and therefore they need all the help they can get.

In the end, Anite’s plan to force all government bodies to sign up to utl’s services, outrageous as it sounds, last week received a thumbs-up from Museveni, while Baitwa’s proposals appear to have been shot down before they were even internalised.

ThreeWays was placed under receivership and there is little hope it can ever recover, while utl has received a new lease of life. So, that brings me to the question: which of the two firms – utl (ignore the fact that it is a government company) or ThreeWays Shipping – should government have saved?

While both firms deserve a bailout, it is important to look at what impact the two had/have in their particular sectors to know which of the two should be sacrificed for the other.

The telecom industry has evolved over the years. Due to the heavy competition, the profit margins have been narrowed due to the price wars. Prices for voice and data products have been slashed under the false pretence of labelling them as promotions.

One of the reasons as to why Orange Uganda left the country in 2014 was partly because the price wars had made it difficult for the French company to make money.

Utl is not likely to come anywhere close to the competition that MTN Uganda and Airtel Uganda pose. This is because matching the big two telecom firms requires huge investments in the network, which government might not be ready to commit to the firm. Also, forcing government agencies to sign up to utl services does not necessarily bar the consumption of other products from the competition.

ThreeWays, however, has a different story. The company is purely private. However, it had an impact on how much money the country would make from its oil industry. Being local, some of the oil majors found it cheaper to hire a local transport company than a foreign entity.

As such, the recoverable costs – the first batch of money that government would have to pay an oil production company before profit from the sale of oil is shared – was bound to be significantly lowered.

ThreeWays said that at the start of oil exploration in the early 2000s, daily hire rates for trucks and cranes ranged between $800 and $1,000 per day per semi-trailer truck, and $1,400-$1,800 per day per crane. By 2016, the rates were $300 – $400 and $850 – $1,100 respectively.

The numbers don’t lie. Utl might not be able to influence any price movements in the market. ThreeWays Shipping could. It does not take rocket science to figure which of the two firms is quite critical to the country right now.

Source — The Observer


About the Author

Ugandan Diaspora News Team

Ugandan Diaspora News Online is an independent, non political news portal primarily aimed at serving Ugandans who work and reside outside Uganda. Our aim is to be a one stop shop for everything Ugandan and the celebration of our Ugandan heritage.

One Comment


  1.  
    ES

    Thanks for the write-up. Did Threeways collapse mainly because it was funding debt at a high cost or because its business model was struggling? How has Threeways funded its debt in the past and who are its main competitors? Are they facing similar debt funding issues… I don’t know, I would say that most local companies would love access to lower interest debt in order to compete so why just oil-related companies? I don’t agree with the UTL bail-out either, if they can’t compete in the marketplace this may just buy more time and not much else.





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