VZCZCXRO3846
RR RUEHGI RUEHRN RUEHROV
DE RUEHKM #1691/01 3040842
ZNR UUUUU ZZH
R 310842Z OCT 07
FM AMEMBASSY KAMPALA
TO RUEHC/SECSTATE WASHDC 9571
INFO RUCNIAD/IGAD COLLECTIVE
RUEHXR/RWANDA COLLECTIVE

UNCLAS SECTION 01 OF 02 KAMPALA 001691 
 
SIPDIS 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD KTDB PGOV UG
SUBJECT: UGANDA: PARLIAMENT INVESTIGATES AGOA ISSUES 
 
REF: KAMPALA 0039 
 
¶1. (SBU) SUMMARY: Parliament's Committee on Finance, Planning, and 
Economic Development met October 18 to begin an inquiry into the 
status of companies exporting under the Africa Growth and 
Opportunity Act (AGOA) and the implications of renewing production 
at Tri-Star Apparels.  The inquiry comes on the heels of the Auditor 
General's report that identified the failure of 
government-subsidized Tri-Star exporting under AGOA.  The Ugandan 
Government requested that Parliament write off Tri-Star's debt and 
infuse government money into another company, Phenix Logistics. 
Questions about payment and tax breaks for U.S. lobbyists to promote 
AGOA also are under investigation.  END SUMMARY. 
 
¶2. (SBU) Parliament's Committee on Finance, Planning, and Economic 
Development launched an investigation into the demise of Tri-Star 
Apparels, a heavily subsidized company exporting under the Africa 
Growth and Opportunities Act (AGOA).  Earlier in the year, Libyan 
Africa Portfolio Textiles (LAP) acquired 60 percent of Tri-Star, 
after the Ugandan government pumped USD 11 million into the failing 
company (reftel).  The influx of funds looked like a promising 
short-term fix, but over the long-term the picture looks grim, 
according to Hassim Wasswa, an economist at the Ugandan Export Led 
Growth Strategy and AGOA Country Response Office. 
 
¶3.  (SBU) In a meeting with Econoff on October 30, Wasswa argued 
that LAP would do little if anything for Tri-Star.  He stated that 
the GOU met jointly with LAP and Managing Director of Tri-Star, 
Veluppillai Kananthan.  Wasswa described the meetings as lackluster 
and that neither party was willing to take an active stance in 
reviving Tri-Star.  He suggested that this might be the result of 
both parties reevaluating the factors which limit profitability, 
such as high transportation costs from land-locked Uganda.  Wasswa 
said that although the President may not continue subsidizing 
Tri-Star, he wanted to pump money into the textile industry. 
 
¶4. (SBU) The Parliamentary committee was specifically interested in 
examining Tri-star's financing.  Moreover, it will interview 
Tri-Star's management, including Gerald Ssendawula, the former 
Minister of Finance, Planning, and Economic Development, and other 
officials from the ministries of finance, tourism, agriculture, and 
internal affairs, and the Bank of Uganda (the Central Bank).  The 
committee established a 45-day timeframe for the investigation. 
 
¶5. (SBU) The Auditor General's report released on October 16, found 
that the Bank of Uganda gave out bad loans worth USD 941,000 to four 
companies including Tri-Star.  The GOU had guaranteed a loan of USD 
5 million, with an additional guarantee of USD 7.5 million from the 
Bank of Uganda. In 2003, the GOU guaranteed the company, USD 3.5 
million with a USD 4 million Bank of Uganda guarantee.  In September 
2007, President Museveni directed USD 3 million be given to Phenix 
Logistics to boost Uganda's exports to AGOA markets.  Parliament's 
public accounts committee wrote a letter to the Treasury Secretary 
protesting the planned write-offs for Tri-Star and Phenix Logistics. 
 Committee Chairman, Naadala Mafabi, told a press conference that, 
"officials in the Ministry of Finance should be ashamed.  We are 
talking about half our national budget illegally given to 
individuals and now they want to write off this money.  The 
taxpayers' money must be recovered as a matter of urgency." 
 
¶6. (SBU) Parliament also investigated another government subsidy for 
Phenix Logistics, which exported USD 50,000 in organic cotton 
T-shirts to the U.S. earlier this year.  Mike Mukula, the National 
Resistance Movement's (NRM) eastern party chairman and several 
ruling party members of Parliament (MPs), reported that the 
President "strong-armed" the party's MPs into approving a USD 5 
million subsidy for Phenix Logistics during a ruling party caucus 
meeting on September 23.  Rebel parliamentarian, Henry Banyenzaki, 
complained to the press. 
 
¶7. (SBU) In addition, the committee is looking into the role of the 
Whitaker Group, a U.S. lobby firm which the GOU granted tax-free 
status on a USD 1 million per year contract.  Elijah Okupa, one of 
the committee members, told P/E chief on October 15 that negative 
press reports about governmental tax breaks offered to the Whitaker 
Group to promote AGOA were being investigated.  Furthermore, the 
services the Whitaker Group has provided would be examined in 
relatio to its USD 1 million contract. 
 
- - - - - - - - - - 
OTHER AGOA MATTERS 
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¶8. (SBU) Officials of Dunavant Cotton, a USAID implementing partner 
in northern Uganda, report that an arrangement has been reached with 
the Government regarding areas where competing cotton companies can 
invest.  The Government, which supports Boweevil, another cotton 
investor, told Dunavant that Boweevil will have exclusive buying 
rights in Lira District to supply cotton to Phenix Logistics. 
Dunavant was told it could buy from Acholiland. 
 
KAMPALA 00001691  002 OF 002 
 
 
 
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COMMENT 
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¶9. (SBU) President Museveni's commitment to AGOA is unwavering. 
Parliamentarians are not anti-AGOA, but instead disagree with 
government subsidies being used to prop up non-viable businesses or 
support expensive lobbyists at taxpayers' expense.  Parliament wants 
to better understand Uganda's returns on its investment in AGOA 
companies. 
CHRITTON