A bitter cup of coffee: A brief look into the Parliament Report on the agreement with Uganda Vinci Coffee Company Limited

Today the Plenary Session spoke about the “Report of the Sectoral Committee on Tourism, Trade and Industry on the Investigation of the alleged unfair terms in the MoU between Government of Uganda and Uganda Vinci Coffee Company Limited” published on the 29th April 2022. This is unravelling as the public and media is surrounding it. As the UVCCL company would get tax-wavers, coffee beans monopoly and other parts of the agreement, which is favourable to a company, which isn’t operational or fair for the farmers or coffee industry as a whole.

The UVCCL agreement is already questioned. The Ministry of Finance, Planning and Economic Development (MoFPED) and other high ranking officials adamant defence of it. Only shows how the faulty and unfair, partly illegal agreement was put into play. While this agreement would also endanger and certainly become a real hurdle for a growing coffee industry. A cash-crop turned into a monopoly.

I will not discuss the free-land, the lease or any of those sorts. That is interesting on it’s own, but there are several of other quotes, which just shows how bad this deal was and how in the wrong the authorities are to authorize it. Secondly, the UVCCL was supposed to do magic and get huge funds out of nowhere. While not being operational to build a big coffee processing plant. It just shows how this deal was the rig the economy and the whole coffee sector towards on entity. That’s really despicable…

Here are some quotes from the Parliament Report: MOU is not sincere on the quantity of premium grades According to the MOU, UWCL’s coffee supply requirement for the start of the project is estimated to be 27,000 metric tonnes and 60,000 metrics tonnes at full capacity. The committee was informed by Uganda Coffee Private Sector that the conversion rate of Green coffee to soluble coffee is 3:1 and this means that UVCCL requires about 180,000 metric tonnes of green coffee. The committee however observes that Uganda’s average annual export for the past 5 years is about 5.2 million bags which is equivalent to about 309,000 metric tonnes. This implies that WCCL at full capacity will take 58.2% (180,000 metric tonnes) of Uganda’s coffee production. The committee notes that the stated reason for UVCCL’s desire to “ring-fence” is to ensure uninterrupted supply of high quality soluble beans” (P 23, 2022).

The Committee observes that whereas UVCCL has share capital of USD 10 Million, the money required to construct such a factory envisaged in the agreement is estimated by UCDA to cost about USD 44OM in the first year alone. The committee is convinced that UVCCL given its limited share capital cannot be in position to borrow a sum which is 44 times the value of the company” (P: 28, 2022).

The Committee observes that UVCCL was not eligible to benefit from the 49- year lease extension since it had not complied with the building covenants under the initial Lease agreement. This means that the lease was irregularly extended” (P: 30, 2022).

The Committee further observes that the UVCCL has not, even after the extension of the lease to a full 49-year, done any construction works on site to-date” (P: 30, 2022).

The Committee notes further that, the VAT Act does not grant any person, not even the Minister, the right to waive a tax. In that regard therefore, the Minister acted irregularly and illegally in granting the VAT exemptions to UVCCL” (P: 38, 2022)

The Committee observes that clause 4.2 creates a monopoly in favor of UVCCL to the purchase of superior quality coffee beans from Uganda by restricting Government from registering any contract or acknowledging any arrangement for the export of coffee beans. The Committee observes that this means that no export of super quality coffee beans shall be allowed by Government until the quantity required by UVCCL is attained. Further still, a monopoly is created in favor of UVCCL since it controls the prices it pays for the coffee beans supplied to it” (…) “The committee also observes that this monopoly is a threat to the already existing 47 licensed processors of coffee with possibilities of causing unemployment, loss of tax and in the worst long term scenario, shut down of operations” (…) “This means the farmer has the right to determine how and to whom he or she sells his or her coffee to. The Agreement therefore interferes with the exclusive rights granted to farmers over their coffee by article 26 of the Constitution by pledging the coffee to a single entity without the consent of farmers. The farmer’s proprietary rights have been affected by the Agreement, irreversibly” (…) “The Committee also observes that whereas farmers are being promised premium prices, the agreement is silent on the method of supply of coffee beans to the factory. This therefore, this opens a window for possible contracted brokers by UVCCL since the factory will need constant supply from different regions of the country. Thus reducing the margin on the farm gate price. The Committee is concerned that designating UVCCL as a price determinant will distort coffee prices in Uganda by disregarding the forces of demand and supply, both locally and internationally, in determining coffee prices” (P: 47-49 + 51, 2022).

It is really interesting the whole agreement, as the inept or the gravity of the whole situation was never there. If not, the MOFPED and other agencies involved never studied or thought of the implications of the arrangement. That a company with lacking funds was to build a big coffee processing plant. Secondly, the plant in question wouldn’t be able to fulfil its mission or planned monopoly itself. As the scale of production only will not meet the targets or the available beans for the plant in question. The farmers are producing to much beans for it process. Therefore, the monopoly is faulty from the outset. Thirdly, the agreement is done without thinking or considering the ones processing coffee-beans already, which is 47 companies and their livelihoods are in danger because of this agreement.

The agreement further has irregularly given a lease of land and it has done any construction work on the site. Meaning the company has some funds on paper and exists, but the operational and plant itself is far ahead of time. The UVCCL gotten dozens of advantages, but has nothing to prove for it. Neither does it has anything materialized.

The state has furthered breached several of tax-wavers to the company and given incentives, which is breaching with laws and regulations. It is like a whole enterprise of inept, incompetent and ill-advised high ranking officials inside the MOFPED. It just like all procedures, all protocols and all safeguards of the state has been thrown out of the window in a haste to sign a deal or amend it in favour of the paper-tiger called UVCCL. A brief-case company which is getting monopoly on the coffee-industry.

The company would further undermine the whole industry from the farmer to the exporters. This company would have all the rights and the positive outcomes. The farmers would be locked into selling to it and that after the price it would set. The UVCCL would practically be a state owned enterprise and be the only one allowed to operate. This giving no incentives and no rights to either farmers or former coffee processors of the Republic. Because, the UVCCL would have the monopoly of the industry for years. That is really bitter and shows how destructive this agreement is.

The MOFPED has served some “high above” or “interests” which we don’t know today. Because, we still don’t know who is behind Hawk Limited, which is the biggest shareholder of the company. However, sooner or later that information will trickle out as well. Because, that is the main benefactor of this agreement and a company like that is owned by somebody with influence and power to get such favours from the state. Peace.

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