RDB investment arm on the spot over loss of taxpayer’s money

Sunday November 26 2017

Rwanda's Auditor-General Obadiah Biraro.

Rwanda's Auditor-General Obadiah Biraro. RDB investment arm on the spot over loss of taxpayer’s money. PHOTO | FILE 

By KABONA ESIARA
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The Rwanda Development Board’s Strategic Investments Department is on the spot for blunders it made in the privatisation of public companies, which led to the loss millions of dollars of tax payer’s money, according to an audit by the Auditor-General.

In a report titled A Performance Audit of Strategic Management of Privatisation Activities, Auditor-General Obadia Biraro gave examples of public assets being sold below their reserve price.

The Rwanda Development Board is responsible for privatisation and divestiture but monies from the sale of some assets have not been collected, according to the report.

“One of the blunders involved the privatisation of three companies at a cost of Rwf335 million ($392,978),” the AG report says.  

The report further shows that some public assets were sold without competitive bidding or carrying out due diligence on buyers. There were also cases of the government spending more on repossessing some of its business units.

Mr Biraro describes the blunders as “acts of omission or commission” during and after the divesture process. 

He cites cement maker Cimerwa, as one example of a public company that was sold to a local investment company, Rwanda Investment Group, at Rwf2.7 billion ($93.1 million) in 2006 without competitive bidding, raising questions about whether the government got value for its money.

“The privatisation guide requires that a public business be privatised in a transparent and competitive process to ensure that a suitable investor is found,” says the AG report.

Other companies that were privatised without a competitive bidding process are Gite Ituze Cyangugu to Cyangugu Catholic Diocese, Ginkoko Rice, Nshili Kivu Tea Factory, Bugarama Rice Mill and Kabuye Rice Mill.

Competitive bidding

However, the Rwanda Development Board said 81 out of the 87 public companies that were privatised were sold through a competitive bidding process.

“Going forward, we shall improve to make sure a competitive bidding process is used,” RDB said in response to the Auditor-General’s report. The board is also faulted for selling Mukamira Maize Mill, Gite Ituze and Nkora Coffee Factory below the reference value.

According to the Auditor-General’s report, the reference value of the three companies was over Rwf253.3 million ($297,138) but they were sold for Rwf151.2 million ($177,368), contrary to the privatisation guide, which requires the selling price to be above or equal to the reference value.

“There were cases of public companies that were sold for an amount that was less than 65 per cent of the reference value. The Rwanda Development Board did not provide documents to explain why the selling price was less than the reference value,” the audit report said.

The repossession of privatised companies that failed to adhere to business plans and contractual obligations is another blunder costing taxpayers’ money.  
The government is forced to refund investors’ money even in cases where they failed to implement a business plan.

For instance, the government paid Rwf449.2 million ($526,943) to repossess Kibuye Guest House and Lake Ihema Fishery an amount that was higher than what investors paid for the public companies.  

Pascal Munyampirwa, the investor who bought Kibuye Guest House for Rwf75 million ($87,980) was paid Rwf174.7 million ($204,935) when the government repossessed the facility.

The government also paid Rwf411.2 million ($482,366) to get Lake Ihema Fisheries back after the investor paid Rwf62 million($72,730) for it.

The report also raised concern over the failure to privatise seven companies that have been marked for restructuring or liquidation for the past 20 years.

The companies include Rubilizi National Hatchery, Gishwati Diary, Zaza Paper Mill, Wisumo Sawmill, Kabuye Rice Mill and RWANTEXCO.  

According to the Auditor-General the companies are in dire straits, which has reduced their value. 

The Auditor-General’s report also raised concern over the transfer of Kabuye Sugar Company, Ovibar — a banana wine plant, Lake Kivu Fisheries, Kinigi Guest House, Kamatsira Sawmill and Cimerwa to investors without their reference value.

Contradiction to best practises

According to the report, the transfers were made in contradiction to best practises, which requires that a bidder does not pay for an asset below its reference price in order for a public business to get value for money.

“Privatisation without a reference value could result in the government losing revenue due to selling below the market value,” Mr Biraro said.

“The Rwanda Development Board is banking on revising the privatisation law and rigorously monitoring investors to reduce the risks cited by the Auditor General’s report.

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