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NIC Furious Over Shs14b Makerere Pension Scheme
By Alex B. Atuhaire & Emmanuel Mulondo, The Monitor
Uganda
November 8, 2005
Makerere University and the National Insurance Corporation Limited (NICL), are involved in a bitter row that has put to risk billions of staff contributions to the company's life and pension scheme.
The row follows the university's decision reached on October 18, to terminate the staff Deposit Administrative Plan (DAP) with NICL, a life insurance scheme worth Shs14 billion.
About 3,600 Makerere senior academic and administrative staff contribute to the scheme, which was approved by the minister of finance for the employees of Makerere University to cater for retirement and death.
According to the National Social Security Fund Act, DAP is a special scheme, which exempts Makerere employees from paying NSSF contributions.
In an October 21, circular, Makerere University Secretary Sam Akorimo, says the university would terminate the scheme because NICL is shrouded in mystery and that the company may not be in position to pay the 10 percent agreed interest on the contributors' premiums.
But NICL directors, Dr. Martin Aliker and Mr Patrick Bitature, have in a November 2, letter warned that the abrupt decision to terminate the contract was based on wrong information due to an "information gap" and that the consequences arising out of breach of contract would adversely affect the contributors.
60 percent of NICL shareholding was in June privatised to the Nigerian company Industrial General Insurance (IGI). Government holds 40 percent in NICL. The other Ugandan stakeholders who are partners of IGI hold 15 percent.
The NICL directors have asked for an urgent round table with the stakeholders before Makerere terminates the contract to put the facts right.
"It is important that as contributors, we keep it in mind that the source of all the thrown away money, which possibly would increase with court damages and costs for breach of contract, which would themselves be substantial, is the members' contributions to the DAP," reads Aliker and Bitature's letter, copied to all Makerere staff.
NICL have warned that if not quickly addressed in a compromise manner, the costs arising out of the problems "have to be met by staff contribution to DAP."
"There's therefore need to take pragmatic steps to ensure that innocent staff who contribute their money to a genuine cause do not lose it through purposes other than what it was meant for."
As at June 2005, DAP contributors had Shs14 billion on their account. Of this, Aliker and Bitature said Shs1.34 billion would be taken by the company as costs - not less than 5 percent of investments on the fund value and profits and charges that would have accrued to NIC at 4.6 percent rate over five years.
Akorimo had said the university's decision was based on several grounds, including the fact that "the life insurance business of NICL, which included pensions management was not doing well as indicated by the Actuarial report of December 2004."
"The Actuarial report had advised that the 10 percent guaranteed interest on DAP scheme was not viable for NICL. NICL was advised to reduce guaranteed interest to 6 percent [and] that a charge of 2 percent administration cost be introduced," Akorimo wrote.
Government had earlier injected Shs678.6 million to save the company's life insurance scheme after a short fall amounting this was established on the scheme's account. The Uganda Insurance Commission was at the time refusing to renew the company's license for the scheme.
Akorimo's circular says that actually, the "government injection" never took place but instead money was transferred from the company's general insurance account to the life insurance account, in contravention of section 46 of the Insurance Act. The Act requires separation of general insurance from life insurance.
In their November 2, letter, Aliker and Bitature said government, before the privatisation of NICL transferred the sum of $392,082.95, being premium owed by Uganda Air Cargo Corporation (UACC) to NICL, solely to make up the deficit of the Life fund.
"Therefore, the government as a fact, injected the Shs678.6 million, which at that time was required to make NICL Life Business solvent. This information is available and verifiable even with the Uganda Insurance Commission," they write.
On September 19, 2004, the Minister of State for Finance (Privatisation), Prof. Peter Kasenene, wrote to the Executive Chairman of NICL assuring him that government would make good of the Shs678m from the General Insurance Business to the Life Insurance Business.
Makerere also says the status of NICL is unclear in relation to IGI and Corporate Holdings Limited. The government divested 60 percent of NICL to the Nigerian IGI but in turn, "IGI decided to register another company - Corporate Holdings Ltd ((CHL) a foreign company - to acquire and hold the 60 percent NICL shares".
But Aliker and Bitature say the university is out of step with the realities on the ground because CHL was a Ugandan registered company.
The two are part of the six man local representation on NICL's nine-man board.
The other four Ugandan board members represent the minister of finance while the Ugandan IGI partners hold 15 percent in the Nigerian company's 60 percent steke in NICL.
"CHL is a private ltd company registered in Uganda formed to represent the interests of IGI and its local Ugandan partners in NICL. It acquired and holds the Sale shares from the GOU in accordance with the requirements of the PERD Act as reflected in the NICL Share Sale and Purchase Agreement between the GOU and CHL dated 2nd June 2005," NICL directors wrote.
"CHL is therefore the company through which IGI was able to partner with Ugandan local shareholders to purchase 60 percent of NIC's shares.
Government of Uganda entered into clear separate agreements with both IGI and CHL and these define the relationships of the parties. It is therefore not correct to state that CHL was formed after divesture of GOU shares in NIC, when it is the one that entered into the agreement for Share Sale and Purchase Agreement with GOU," the letter says.
Aliker and Bitature also said the company's life insurance business, which included pensions management was doing well contrary to information on which university council based its decision.
They said the Actuary's report and advice to reduce interest on DAP funds did "not take into account the over all financial picture of NIC but only considered treasury rates that were going down at the time." "This therefore failed to take into account other NIC's financial investments, which were strong and sound," they wrote.
They said the other security guarantees available on DAP funds, included the placing of caveats on NIC properties by the insurance commission and further assurance by the director of the privatisation unit of the Ministry of Finance - indicating that the scheme was viable.
The directors said because of being sure of the company's financial strength and soundness, they had declined the advice to reduce interest on DAP funds. They said for the last the years, it was only NICL that had been "subjected to intensive audit per year as shown by the Auditor General NIC's financial statements".
"There's therefore no threat of significantly or at all reducing the total DAP funds available to the members as the advice referred to above was not taken. The new NICL management is confident, based on its track records, of improving on the existing rates on the return on investment," the directors wrote.
Makerere University Public relations Officer, Ms Hellen Kawesa, told Business $ Finance last Friday that the decision to terminate the contract was reached out after a committee headed by the University Secretary, Mr Sam Akorimo, contacted stakeholders. Akorimo declined to comment about the matter when contacted.
But Bitature told Daily Monitor that the decision by Makerere University was neither discussed with NICL nor communicated to the insurance company.
"We have informally learnt that they have terminated the contract," he said.
"We are trying to asses the consequences of this decision but you see a contract, which affects such a number of people and involves such an amount of money cannot be simply terminated in such a way, "Bitature told Daily Monitor by telephone on Friday.
He said NICL had invited the affected Makerere staff for a meeting at Hotel Africana on Saturday, because the consequences of termination of the contract would ultimately affect them.
The Makerere University DAP scheme started in 1996 as a continuation of the Makerere superannuation fund and the retirement benefit scheme that was started in 1968 to cater for retirement and death of senior academic and administrative staff.
Under the DAP scheme, which upgraded the old scheme, members are entitled to death benefits, surrender value if a member left employment irrespective of age, retirement benefits payable in a lumpsum with an option to convert to annuity and a declared interest of 10 percent.
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