NSSF Investments in Umeme Did Not Break Any Law [opinion]

The board and management of the National Social Security Fund has noted with regret a number of misrepresentations being carried in the media regarding the ongoing parliamentary probe into the alleged mismanagement at the Fund.

I would like to reassure our members by clarifying on the numerous misrepresentations being attributed to various witnesses called to the probe, in regard to NSSF’s investment in Umeme, especially the second issuance on the secondary market.

These allegations centre around these three issues NSSF did not seek the clearance of the solicitor general during the Umeme IPO transaction, NSSF did not secure the minister’s clearance during the second Umeme transaction and that the NSSF board did not approve the second Umeme transaction.

But before we I go further, it is important to understand the regulatory framework guiding NSSF and, by extension, NSSF investments. Sections 3(1), 4 (3) and 5 (4) of the National Social Security Fund Act (1985) are very clear on who constitutes the NSSF board and the decision-making processes of the board. Sections 30 and 39 (2c) provide that all excess monies in the Fund shall be invested in such ventures as may be determined by the board and management, in consultation with the minister.

Contrary to public views, it is important to understand that the NSSF Act squarely puts the responsibility of investment on the board and the managing director, in consultation with the minister. “In consultation with the minister” is not similar to “with the minister’s approval”, and as such, the act does not bestow upon the minister, explicit veto powers over the Fund’s investments. The minister’s role is aisory and aice given may or may not be considered while making investment decisions.

To quote the minister, verbatim, while appearing before the parliamentary committee on September 3, she said: “I gave my guidance to the board and management of NSSF, and theirs was a business decision to make.”

I would also like to clarify on the role of the solicitor general in NSSF investments.

The need to consult the solicitor general is contrived from Section 119, sub-section 5 of the Constitution which states that: “Subject to the provisions of this Constitution, no agreement, contract, treaty, convention or document by whatever name called, to which the government is a party or in respect of which the government has an interest, shall be concluded without legal aice from the attorney general, except in such cases and subject to such conditions as Parliament may by law prescribe.”

I wish to draw the attention of everyone to earlier aice by the solicitor general to the Fund, dated October 28, 2013 Ref: ADM19001. The aice emanated from requests for aice dated September 17, 2013 and September 25, 2013 (Ref PCONF94), regarding NSSF’s planned investments in Tanzania Breweries Limited and Cooperative Bank of Kenya Ltd.

The solicitor general, in his response, among others, aised the Fund as thus: “When we read your submissions, there is no indication that they are a contract or a document creating any legal relationship. It is simply an expression by NSSF on how and where they intend to invest the surplus money collected and unnecessary for paying for benefits at the moment.

“Secondly, according to Section 30 of the NSSF Act, it is the responsibility of the CEO (managing director), board and minister to decide on investment of surplus money collected by NSSF.

“It is, therefore, our opinion that your request is not a contract or a document creating a legal relationship to necessitate our clearance in accordance with Article 119 (5) of the Constitution. We, therefore, aise you to conduct the investment in accordance with Section 30 and 39 of the NSSF Act.

“As clearly pointed out by the solicitor general, NSSF’s intentions to invest are not a contract and, therefore, do not require the solicitor general’s “no objection”. However, whenever possible, the Fund has consulted the office of the solicitor general for guidance.

Also, other than the NSSF Act, the Fund is also guided by the Uganda Retirement Benefits Regulatory Authority Act, 2011(NSSF, in May 2013, received a licence to operate as a Retirement Benefits Scheme). Section 67 of the URBRA Act clearly says all investment decisions of the Fund should be guided by a prudent investment policy whose major aim is to secure adequate rates of return on member savings. A Fund’s investment policy is, however, subject to regulations made by the minister, in consultation by the board.

Section 91 (1 amp2) clearly state that the minister can only do this by a statutory instrument and not any other means. Again, the UBRA Act does not give the minister veto powers over investment decisions but, rather, acknowledges the aisory role of the minister. It should also be noted that on April 17, 2014, in line with section 91(1) of the URBRA Act, URBRA issued investment guidelines by way of Statutory Instrument 2014 No.44. Part II 3(3), page 13, of the guidelines states: “The investment policy statement of a scheme shall not require that a decision to make an investment shall be subject to the consent of the sponsor”.

In line with the URBRA Act 2011, the NSSF board revised the existing investment policy in June 2013. The new policy gave the management investment committee (which is chaired by the MD) exclusive powers to decide on a range of investment decisions including equity acquisitions. The committee would then refer the investments to the board investment and projects monitoring committee who would then then recommend to the board.

The board would then approve all investments while the minister would be consulted in line with the NSSF Act. With this background, the Umeme IPO was carried out in the framework of the NSSF investment policy that did not require board approval, but instead required a “no objection” from the minister. But the acquisition of the second tranche of Umeme shares was approved under a new investment policy that did not require a “no objection” from the minister.

It should, therefore, be noted that the Umeme transactions were done within the frameworks of all the guiding laws. The decision to invest, in especially Umeme (two), was approved by the board on a simple majority of 6:5. The presence of dissenting views by some board members does not make the board decision illegal.

The listing and trading of Umeme shares was approved by a series of government regulators such as the Capital Markets Authority, Uganda Securities Exchange, and Electricity Regulatory Authority after extensive due diligence. Umeme’s listing was also approved by government, through the ministry of Energy, and we have reason to believe in the credibility of these approvals.

To date, Umeme is one of the best performing stocks in the NSSF portfolio. The value of the shares bought at IPO has grown by 47.6 per cent from Shs 275 to Shs 406. The value of shares bought during the second transaction has, in just two months, grown by 19.4 per cent from Shs 340 to Shs 406, as of August 21.

The inspectorate of government has previously investigated the investment into Umeme shares at IPO. They concluded that that the investment in Umeme was driven by the benefit for the Fund and did not find evidence of the alleged personal interests. This same issue has been investigated and cleared by the auditor general.

NSSF is a transparently and competently-run organisation, as evidenced by the various achievements over the last five years. We welcome the parliamentary investigation and wish to pledge our total commitment to give all the required information. We trust that the committee will run its proceedings in a fair and equitable manner.

The author is the acting managing director of NSSF

Source : The Observer

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