Every financial year, Government allocates resources to public corporations and state enterprises where it owns shares.
These enterprises which are independently managed, are supposed to operate efficiently, make profits and pay dividends to Government. Their financial performance is therefore of interest to Government.
According to Section 3 of the Public Finance Management Act (PFMA), 2015 (as amended); “A Public Corporation means an authority established by an Act of Parliament other than a Local Government which receives a contribution from public funds, and any public body which in a financial year receives any income from public funds”.
Similarly, “A State Enterprise means a body established under any Act other than the Company’s Act or a Local Government Council, and a company registered under the company’s Act in which the Government or a state enterprise has controlling interest”.
According to Auditor General’s Report for the financial year ended June 30, 2022, various public corporations and state Enterprises made losses, with Uganda airlines registering the biggest loss.
The Government Consolidated Summary Statement of financial performance of public corporations and State enterprises only reports on; government shareholding, total income, total expenditure, dividends declared, retained earnings, and net worth of entities.
However, key performance assessment parameters, such as; profitability, return on assets, liquidity assessment, and debt analysis are not reported on.
As a result, the Auditor General, John Muwanga computed these ratios using audited financial statements for further analysis of performance of Public Corporations and State Enterprises.
The Auditor General assessed a total of 22 entities out of the 50 Public Corporations and State Enterprises.
Profitability of enterprises
“I analysed profitability of 18 public corporations and state enterprises and noted that only ten (10) made profits/surplus in the year under review, with Uganda Electricity Transmission Company Limited (UETCL), Uganda Electricity Generation Company (UEGCL) and NEC Luwero Industries Limited posting profits of UGX.37.7Bn, UGX.27.9Bn and UGX.7.9Bn, respectively. I further noted that Mandela National Stadium registered a surplus of UGX.78.8Bn from UGX.1Bn posted in the previous year on account of government support of UGX.80Bn received during the year,” the Auditor General’s Report reads in part.
In comparison with the previous year, a number of state enterprises and corporations including; Uganda National Oil Company (UNOC), UEDCL, Civil Aviation Authority (CAA) and Uganda Broadcasting Corporation (UBC) recorded significant reductions in losses from the previous year, while entities including NEC Luwero Industries Limited and NEC Farm Katonga Limited registered improved profit positions of over 100% from the previous year.
This was mainly attributed to the recovery of the related industries from the negative effects of COVID-19.
“Conversely, Uganda National Airlines Company Limited posted a higher loss of UGX.266Bn from UGX.164.6Bn recorded in the previous year on account of low industry recovery from COVID-19 effects, which slowed down the Airline’s expansion efforts into new markets like China.”
The Uganda Airlines’ losses growing by over Shs 100bn in one year meant that the cumulative losses incurred by the Airline in the last three years is Shs 532bn, considering that the business lost Shs 102bn in the financial year 2019-2020 when it started operations.
The revived Airline which had envisioned to have 19 to 21 routes opened in the first 2 years of operation, has only opened 11 routes.
The national carrier currently serves regional cross-border routes including; Nairobi and Mombasa in Kenya, Bujumbura in Burundi; Dar es Salaam, Kilimanjaro, and Zanzibar in Tanzania; Johannesburg in South Africa; Kinshasa in the Democratic Republic of Congo, Mogadishu in Somalia; Juba in South Sudan and Dubai in the United Arab Emirates.
Meanwhile, the Auditor General reported that Uganda Electricity Transmission Company Limited (UETCL), Uganda Electricity Generation Company Limited (UEGCL) and Uganda Printing and Publishing Corporation (UPPC) registered reduced profit positions by over 60% from the previous year.
This was attributed to foreign exchange losses (UETCL), delayed commissioning of Karuma Hydro powerplant (UEGCL) and stiff competition in the market (UPPC).
Other loss-making enterprises included; Uganda Railways Corporation (UGX.32.3Bn), Uganda Air Cargo Corporation (UGX.9Bn), and Kilembe Mines (UGX.2.4Bn).
Muwanga warned that this may affect the entities’ ability to meet future obligations or investments.
He advised the entities to develop clear strategies to improve operations and adopt efficient financial management practices to lower operating costs and increase revenue generation. He also advised that Government should consider recapitalizing the most affected entities to revamp their operations.
Return on assets
The Return on Assets shows the percentage of how a company’s assets are generating revenue. It measures management’s efficiency in using the enterprise’s assets to generate earnings. Although companies that require large initial investments will generally have lower return on assets, Muwanga reported that ROAs below 5% are generally considered inadequate.
The Auditor General assessed the Return on Assets of 16 enterprises/corporations and noted that six (6) entities, including; The Microfinance Support Centre Ltd, Mandela National Stadium, NEC AGRO SMC Limited, Insurance Training college, NEC Construction Works & Engineering Limited, and Uganda Printing and Publishing Corporation posted a favourable return on assets of over 5%.
However, ten enterprises/corporations registered a poor performance on return on assets of below 5%.
The worst performing enterprises were; Uganda Electricity Distribution Company Limited, Uganda Railways Corporation, Kilembe Mines Limited, Uganda National Airlines Company Limited and Uganda Broadcasting Corporation (UBC).
The noted performance was mainly attributed to low revenue performance and high cost of operations for entities such as UBC, Uganda Airlines, CAA and Uganda Railways Corporation among others.
For the electricity sub-sector, the low ROAs were attributed to a number of running projects which are still under Work in Progress and not generating revenue (UEGCL & UETCL) and desire by Government to reduce the electricity tariff which limits profitability of the related entities.
“For Kilembe Mines, the entity has continued to post a negative ROA mainly due to the fact that the mine is still under care and maintenance without the core business activity of mining due to the delayed divesture process,” the report reads.
This implies that the Companies/Corporations are not generating enough income from the use of their assets.
The Auditor General’s Report reads that only Housing Finance Bank Limited declared a dividend pay-out of 20.5 billion shillings in the year under review.
During the year, Uganda Property Holdings Limited and Housing Finance Bank Limited paid out dividends declared in the previous year totalling to 400 million shillings and 6.1 billion shillings respectively.
The Auditor General further noted that although some companies were making significant amounts of profits, they were not paying dividends to Government. Examples included; UETCL, UEGCL, UEDCL, NEC Luwero Industries Limited, and NEC Construction Works & Engineering Limited, among others.
The enterprises attributed the non-payment of dividends to the loss -making positions and retention of funds to fund planned investments/projects.
“I advised the Accountant General to ensure that profit making enterprises provide a share of government dividend,” Muwanga advised.
The Auditor General analysed the ability of Public Corporations and State enterprises to meet their short term financial obligations by comparing the current assets and current liabilities.
The Auditor General noted that thirteen entities were above the ideal threshold, implying that they are able to meet their liabilities as they fall due.
However, out of the 13 entities, 8 had excessively higher current ratios of 4 and above. They included UNOC, Mandela National Stadium, NEC Luwero Industries Limited and UEDCL among others.
The very high current ratio implies that the Companies are not efficiently utilizing their current assets or short-term financing facilities.
Five (5) entities had ratios below 1.5 and may have a challenge of paying their obligations as and when they fall due. These included; UEGCL, UBC, Kilembe Mines Limited, NEC Construction Works & Engineering Limited and Uganda National Airlines Company Limited.
“Government established public corporations and state enterprises with an objective of ensuring efficient and effective management of government operations while delivering services to the citizens. I noted that 56% of the assessed companies made profits while others were not making profits, thus affecting their return on assets, ability to pay dividends to
Government, and ability to settle their obligations as they fall due. Therefore, these companies should put in place strategies to improve their performance and deliver to the expectations of Government. In addition, Government should develop appropriate financial and non-financial performance assessment indicators for each category of Public Corporations and State Enterprises to enable comprehensive and standardised performance assessment,” the Auditor General, John Muwanga recommended.