The board of Uganda’s state-owned Kilembe Mines Ltd has been suspended through a presidential directive following its opposition to the mine’s privatisation.

According to the Privatisation Unit of the Ministry of Finance, Planning and Economic Development, Kilembe is classified as a Class lll public enterprises the category the government is seeking to privatise.

The president also ordered an investigation into the affairs of the board by the Inspector General of Government.

The presidential order was officially communicated to Kilembe board chairman Watuwa Bwobi in a letter dated December 30, 2008, (a copy of which The EastAfrican has seen) by the Permanent Secretary in the Ministry of Energy and Mineral Development Fred Kabagambe-Kaliisa.

Mr Bwobi recently retired as director at the Ministry of Energy and Mineral Development.

Minister of Energy and Mineral Development Daudi Migereko declined to comment on the issue but referred this paper to the Privatisation Unit of the Ministry of Finance, Planning and Economic Development.

Privatisation Unit spokesperson Jim Mugunga said, “I am not privy to discussions in State House.”

However, he confirmed that the president had directed the committee to expedite divestiture of Kilembe in line with the new government policy on investment in mineral exploration and exploitation and in keeping with the Public Enterprises Restructuring and Divestiture Act (PERD).

President Museveni argues that firms involved in mineral exploration should strive to add value in order to fetch better prices on the world market.

“President Museveni believes that foreign exchange earnings from mineral exploitation should benefit the Uganda community as a whole,” said Mr Mugunga, adding, “As a result, an American firm, John T. Boyd Company, was last week hired as the transaction adviser for the divestiture of Kilembe following a tendering process.”

The Kilembe board angered the government when last August it decided to hand over 70 per cent of the shares of Kilembe to Uganda Gold Mines Ltd, which had abandoned the mines a few years ago when copper prices nosedived to a level that made the enterprise unviable.

The handover happened at a time when copper prices had skyrocketed to about $8,000 per metric tonne from a low of around $200 per tonne.

The handover to Uganda Gold sparked a row between the Ministry of Energy and Mineral Development — which appointed Kilembe’s board — and officials of the Ministry of Finance, who are in charge of handling the mine’s privatisation.

Informed sources said that the Ministry of Finance was suspicious of the decision by the Kilembe board to hand over 70 per cent of the company to Uganda Gold and appealed to the president to reverse the decision, pointing out that the country would lose billions of shillings from potential investors interested in buying the copper mines.

Sources say about 40 potential investors have expressed interest in the company, while initial studies estimate its value to be more than $1 billion due to the strong demand for copper worldwide.

Other sources say the Ministry of Finance expressed discomfort over the award of the licence to Uganda Gold and doubted the company’s financial ability and also questioned the decision to let the company manage other assets of Kilembe Mines.

The ministry was also wary of the fact that Uganda Gold’s bid was unsolicited and had not been subjected to due diligence.

The decision by the Kilembe board contravened the Public Enterprises Restructuring and Divestiture Act as well as the Cabinet sub-committee decision to privatise Kilembe.

The committee is chaired by the Minister of Finance, Planning and Economic Development Dr Ezra Suruma, under whom the Privatisation Unit falls.

The Ministry of Finance was particularly irked by what it saw as that the board’s attempt to delay the privatisation of Kilembe — which following the recovery of copper prices on the world market stood, a better chance of being sold to private investors.

The sources said that despite the concerns of the Ministry of Finance, officials of the Ministry of Energy and Mineral Development went ahead to push through the deal with Uganda Gold.

Earlier efforts to privatise the mines failed because investors felt the project was not viable after the world prices of copper hit rock bottom.

Sources close to the Ministry of Energy and Mineral Development said the order was made following a meeting at State House, Kampala between the president and the Kilembe board at the end of last year.

“Around the time the PERD Act was written, the copper mines of Kilembe were as good as dead because the prices of copper on the world market had collapsed. The government therefore wanted to get rid of them.

But because of the substantial improvement in copper prices, the government is seeking a strategic investor to partner with to replace the old equipment,” said Mr Mugunga.

In the 1960s and early 1970s, copper was ranked the country’s third highest foreign exchange earner before Idi Amin’s military junta decided to buy the copper mining company from its original Canadian owners.

The mines, at Kilembe in, southwest Uganda, were closed when copper prices collapsed on the world market.

The government of Uganda owns 99.06 per cent of the company while 0.04 per cent is owned by the Toro kingdom.

Kilembe Mines also owns a hydropower generation plant on River Mobuku that generates 5MW of electricity, earning the company Ush200 million ($101,522) per month.

In addition, the mine company owns a lime factory, a workshop, a forest and a timber treatment plant.

About four million metric tonnes of copper ore are estimated to be available in the area explored.

The majority of the company’s 500 square kilometre landholding remain unexplored.

Mining Company under which they secured exploration licence number 0138 for 217 square kilometers.

Meantime, the sources added, Uganda Gold was claiming that they had spent about $2.3 millions in its operations between the time they were first awarded the mining licence in September 2004 to mid-2006 when they abandoned exploration after reportedly running short of capital.

However, a letter by Fred Nyakana, a former Kilembe board chairman, written in 2006, said that exploration by Uganda Gold was behind schedule.

He said the company had only drilled 3,900 metres by the time it abandoned the project after one and a half years. He said that it was evident the company could not accomplish the work as stipulated in the licence.

After laying low for about two years, the sources said, Uganda Gold Mining resurfaced after the government got offers from foreign companies as far as Russia, the United States of America (USA), United Arab Emirates to either take over the management, enter into joint ventures or buy into KML.

In addition, Uganda Gold Mining Limited has sued KML for alleged breach of contract in terminating its licence. The matter is at the Centre for Arbitration presided over by former Chief Justice Samuel Waako Wambuzi.

The company is seeking $2.3 million in compensation it claims to have invested in KML, $8 million interest that has accumulated from the day the licence was terminated.

The Board of Directors at the state-owned Kilembe Mines Ltd has been suspended, after standing in opposition to the government’s policy of privatising the copper mines. Sources say the suspension was ordered by President Yoweri Museveni.

The EastAfrican has further learnt that President Museveni has also directed that the affairs of the mines board be investigated by the Inspector General of Government (IGG) to find out if there was any wrong doing.

Official sources told The EastAfrican that Kilembe board angered the government when they decided to suspend government policy of the privatisation of the mines.

They also decided to hand over the company to Uganda Gold Mines Ltd, the firm that abandoned the mines a few years ago when copper prices nosedived to a level that made the enterprise unviable.