Special Reports

INVESTIGATION: Corruption, Intimidation: Why Museveni is Blocking China’s CCCC From $1bn Kampala-Jinja Expressway Deal

Sometime in late 2019, President Museveni woke up very early at his residence in Nakasero, Kampala in preparation for a meeting with a delegation of wealthy Chinese businessmen.

The armoured presidential convoy left Nakasero at around 8:45am enroute to State House Entebbe.

The Protocol office prepared to receive the businessmen who comprised high ranking officials from China Railway N0. 17, a prominent and hugely influential construction company in China.

The meeting venue was cleaned. The windows were opened to allow in plenty of fresh air considering the president is not a big fan of air conditioning.

On arrival at State House, Museveni received information from Protocol that the businessmen had left the country.

“What happened?” the visibly disturbed President asked.

“Their lives were threatened by people here. That’s why they fled Kampala,” an officer told Museveni.

Museveni was shocked and immediately ordered an in-depth investigation into the incident.

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What happened?

Earlier, China Railway N0. 17 had participated in a bidding process for the construction of the lucrative $1bn Kampala-Jinja Expressway.

The Kampala -Jinja Expressway Project is a Public Private Partnership (PPP) consisting of a 95km limited access tolled expressway between Kampala city and Jinja city.

This road section is located along the strategic Northern trade corridor which originates from Kenya’s maritime port of Mombasa passing through Uganda to Rwanda, Burundi, Democratic Republic of Congo (DRC) and South Sudan.

According to the Ugandan government, the road project is expected to boost trade with regional and global markets, as well as regional integration of the East African Community (EAC).

However, China Railway N0. 17 was eliminated from the bidding process at the pre-qualification stage.

China Railway N0. 17 blamed its failed bid process to alleged underhand machinations of fellow Chinese rival in Uganda, China Communications construction company Ltd (CCCC).

Using powerful lobbyists in Kampala and Beijing, China Railway N0. 17 decided to fight back.

The company wrote to President Museveni, saying it could build Kampala-Jinja Expressway using its own money and recoup the investment through road tolls.

Museveni was excited thus encouraging the meeting at State House.

Letters

According to confidential presidential correspondences which ChimpReports has seen, Museveni revealed that the Finance Ministry told him Uganda could not borrow for the construction of the railway line and other construction projects at the same time.

“My answer was: ‘remove Ayago from the list.’ Let Ayago, when possible, be done by the private sector provided the cost of that electricity is US Cents 5. In spite of this clear guidance, to the extent of removing Ayago from the borrowing list with its 840 megawatts (four times the size of Jinja), some officials in the Ministry of Finance, continued to go behind our back and borrow for Kampala-Mpigi expressway etc,’” recalled Museveni in a letter to former Works Minister Monica Azuba in 2019.

Azuba was seeking guidance on plans to borrow money for the construction of Jinja Expressway.

Museveni added: “When I heard, therefore, of the Jinja-Kampala Expressway, my question was: ‘How about the railway?’ This was because, earlier, I had been told that we could not borrow for the railway because the debt: GDP ratio would breach the 50% level that we have set as a no-go area. We cannot borrow for the railway, but we have already borrowed for the Mpigi Expressway and we are about to borrow for Kampala-Jinja expressway, I was told. How did this come about? Was I not supposed to clear these loans as Head of Government? When did I clear the loan for Mpigi expressway?’”

The Project involves the construction of a green field largely dual carriageway expressway between Kampala and
Jinja

Regarding Kampala-Jinja Expressway, Museveni asked Azuba: “…the Kampala-Jinja expressway is about to go ahead because negotiations with companies and funding agencies etc are already “advanced”. The question, then, is: “Why are you consulting me now?”

China Railway comes into the picture

Museveni said in his letter to Azuba that while he was “still in a dilemma, a Chinese company known as China Railway N0. 17, came forward saying that we did not have to borrow, that they can do the Kampala-Jinja Expressway privately and they will recover their money through road tolls.”

“This was a God-send,” said Museveni, adding, “It meant that that road, which, of course, I want to be done can be done, but without borrowing, so that space is left to borrow for the railway which is part of the real medicine for the economy.”

The President said “immediately, I started hearing murmurings that that will not be allowed to happen. Why? It seems some elements had already been paid to move with the other formula (of borrowing –ED). The other group (China Railway N0. 17) wrote to me confirming that they can do the job; a delegation of theirs came from China, they were given an appointment to come and meet me, but, last minute, they were intimated and had to leave the country. I waited in vain. I have evidence of all this. I also have preliminary information about the whole corruption. I have also involved the IGG in this treachery.”

Museveni’s recent letter to Kasaija

The development underscores increased widespread corruption in Uganda’s infrastructure projects.

The kickbacks involved in the financing and procurement processes of multi-million dollar road construction deals partly explain why the cost of these projects paid by the Ugandan taxpayer remain high.

Contractors usually compromise quality of the materials used in these projects to compensate for fatty bribes offered to senior government officials hence shoddy works.

Alternatively, the contractors increase the cost of the infrastructure projects to include the bribes handed to these decision makers.

Confessing that large sums of money are being borrowed without his knowledge and clearance underscores the grim state of affairs in the country.

CCCC constructed the Entebbe Expressway and is expanding Entebbe International Airport

Experts who spoke to us on condition of anonymity given the sensitivity of this story, said China Railway N0. 17 was possibly lying to the president to circumvent the procurement process.

“The entire cost of the Kampala-Jinja Expressway is about $1bn. Feasibility studies by Uganda National Roads Authority (UNRA) show that motorists will pay Shs 100 per kilometre on these Expressways. Unless you want to charge higher road tolls, which the government doesn’t want, you would hardly recoup that ($1bn) investment even in 20 years. Secondly, there are two new roads (Mukono–Kayunga–Njeru and Kira-Kalagi-Kayunga-Njeru-Jinja roads). Why would one leave new tarmac roads to pay road tolls?”

Museveni Blocks CCCC

ChimpReports has now learned that Museveni decided that CCCC which is suspected of conniving with Ugandan wrong elements to intimidate China Railway N0. 17 should not be given the contract to construct Kampala -Jinja Expressway.

“I therefore, decided that we cannot accept this corruption. If the suspected corrupt elements scare away China Railway N0. 17, then my decision is that I will not accept the companies which were being fronted by the groups the IGG is now investigating. The European Union and ADB Funding that is ready for the project should be used by other companies that are not part of this cloud of corruption,” Museveni told Azuba then.

Museveni advised Azuba to consider a French company for the project.

“The French Ambassador, the other day, brought to me some groups that they say can do the work,” Museveni told Azuba.

An investigation shows the President was referring to Vinci Concessions (construction and maintenance for infrastructure and public network projects), one of the largest construction firms in the world.

Vinci has since formed a consortium with Sogea Satom, which is involved in creation of civil engineering structures, installation of electro-mechanical equipment, distribution networks and treated water storage reservoirs in Uganda, to bid for Kampala Jinja expressway.

Apart from CCCC/ China First Highway Engineering Company Ltd; KJ Connect (with Vinci Concessions as the lead member); other consortia competing for the Kampala-Jinja Expressway deal include Strabag/ICITAS, AIIM/STOA and CCKS Consortium and CCKS Consortium (China State Construction Engineering Corporation Ltd, China Wu Yi Co. Ltd, Korea Expressway Corporation and SK Engineering and Construction).

Emphasis

In his follow up letter to Finance Minister Matia Kasaija on May 26, 2020, Museveni reiterated that Chinese companies involved in acts of corruption should not be allowed any closer to the multi-billion dollar Kampala-Jinja Expressway project.

“I have received your letter of the 7th of May, 2020, on the proposal to borrow $229.47m from Africa Development Bank (ADB) and the $105m from the French Agency for Jinja-Kampala Expressway,” said Museveni in another confidential letter seen by ChimpReports.

“I support the loan provided two conditions are observed. Condition number one, the debt: GDP Ratio of Uganda must not exceed 50% if we add it to other – priorities, especially the Standard Gauge Railway and the rehabilitation of the metre gauge railway.  Secondly, the Chinese companies that I identified myself trying to corrupt our system and manipulate our government must not be part of that effort,” Museveni emphasised.

Debt

These loans will increase the country’s total nominal public debt that stood at Ushs. 47.305 trillion (USD $12.55 billion) at the end of June 2019 from Ushs.42.07047 trillion at end of June 2018.

The existing debt stock constitutes of Ushs 31.098 trillion (USD $8.35 billion) as external debt, while Ushs 16.207 trillion is domestic debt (USD $4.2 billion). In terms of shares, external debt takes the largest share of total public debt at 66% while domestic debt is 34o/o of total public debt.

The estimated nominal debt as a percentage of GDP as at end June 2019 stood at 37%, increasing the risks of public debt sustainability if the productive capacity of the economy grows at a much lower rate, while the Present Value (PV) of public sector debt to GDP stood at 27 .29% as of end June 2019. This is relatively below the Public Debt Management Framework threshold of 50 per cent.

Museveni visiting China in 2018

This investigative website understands that Parliament’s Committee on National Economy on the proposal by government to borrow money for the expressway, has equally endorsed Museveni’s directive to lock out the Chinese.

“The Committee noted that there a number of companies that were trying to interfere with the procurement processes under this project, as noted by the President in his letter to the Minister of Finance, Planning and Economic Development, dated 17th May, 2020,” the report reads in part.

”The Committee recommends that bidders that interfered with the bidding processes during the implementation of this project should be disqualified, as directed by H.E. the President,” the MPs decided.

The 38-member Parliament committee included Hon. Syda Bbumba Namirembe (Nakaseke North), Hon. Lawrence Bategeka (Hoima Municipality), Hon Thomas Tayebwa (Ruhinda North) and Hon. Aston Kajara Mwenge South among others.

Details of the Expressway:

The tentative interest cost of the ADB loan at 2.25% per annum on the loan disbursed is lower than the standard discount rate used of 5% recommended by IMF and World Bank.

This implies that the tentative present value of the loan (US$ 109.04 million) is typically smaller than the nominal value of the loan contracted (US$ 229.47 million).

This implies that the country’s total future payment for this loan is cheaper than the proposed amount to be borrowed in present terms. The loan is highly concessional, since its tentative grant element 52%o is larger than the threshold of 35%, recommended by IMF/World Bank. The concessionality of this loan is further influenced by its long maturity and grace period.

The Project is a PPP Availability based Design, Build, Finance, Operate, Maintain and Transfer (DBFOT) from Government to a private Concessionaire over a concession period of 30 years.

The project is allotted to a single Concessionaire but implemented in phases as follows:

Phase 1 / Lot 1: 53km urban expressway divided into two sections

Section 7 comprising the Kampala Southern Bypass (KSB) an 18km dual Urban Expressway of 2X2lanes with design speed up to 100kph which connects with the Kampala-Jinja Mainline Expressway and the newly constructed Kampala-Entebbe Highway.

Section 2 runs 35km along the Northern corridor from Kampala Central Business District to Namagunga with first 3km being 4×4 lanes, and remaining sections being 3×3 lanes for a design speed of up to 120kph.

Phase 2 | Lot 2: Section 3 is the last stretch of the Kampala-Jinja mainline expressway covering the remaining 42km from Namagunga, ending at Jinja where it interfaces with the recently constructed New Nile Bridge.

This component also comprises construction of several major structures including viaducts, grade separate interchanges and tolling stations; plus up to 30km of ancillary roads.

Budgetary Implication

The project is part of the approved Public Investment Plan with an approved estimate provision totalling Shs 388,909,215,000.

The project is also included in the FY 2020121 draft budget estimates for Uganda National Roads Authority (Project code 1278 under Vote 113) with a provision of Shs 3,442,049,000 under Government development budget of the project to largely support payment of contract staff salaries and other staff benefits under the project.

Uganda will mobilize USD 300.17 million (19% of total project cost) as counterpart funds for the project towards the right of way clearance (Compensation of Project Affected Persons) for the project.

The African Development Bank and the Agence Francaise de Development (AFD) will provide 15% (USD 229.46 million) and 7% (USD 105 million) of the project cost that will be borrowed by government in form of Viability Gap Funding (VGF) as its contribution for phase 1 of the project.

The European Union will also provide 7% (USD 105 million) of the total project as a grant blended with the AFD funding for phase 1 VGF of the project. 13% (USD 200 million) and 8% (USD 120 million) of the project costs is debt/project finance divided into commercial tranche and DFI tranche respectively that will be mobilized by the concessionaire.

In addition, 11% of the costs will be financed by equity that will 1-6 mobilized by the concessionaire. 13% (USD 200 million) *% (USD 120 million) of the project costs will be raised through project financing (capital market) to be raised from the local and international capital markets in the form of bonds respectively to support the KJE SPV.

Economic and Financial Return

Overall the project is expected to produces a net economic benefit of USD 2,062 million, at 12 % economic opportunity cost of capital (EOCK).The Economic internal rate of return (EIRR) for the project over the concession life is projected at 29%. The financial Internal Rate of Return (FIRR) of the project is 11.4%.

The economic benefits will accrue to four main stakeholders – road users, the Government of Uganda, local labour and the financial investors. As the road will be significantly improved, road users will be spending less on maintenance, fuel and oil, and wear and tear. The government is expected to benefit directly through tax and expected additional revenues from the executing agency (UNRA).

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