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Uncertain Clouds Hover over Start of $1bn Kampala-Jinja Expressway

Uganda National Roads Authority (UNRA) has made structural adjustments in the planned Kampala-Jinja Expressway, a move that will delay delivery of the much anticipated infrastructure project, Chimp Corps report.

Officials said the $1bn project had to be reviewed due to high contingent risks, financing, land acquisition, overbidding among other reasons.

Uganda has an estimated population of 40 million and one of the highest global population growth rates averaging 3.4 percent per annum in the last decade against a 1.2 percent global average.

This growth is expected to increase pressure on the roads network.

While existing public transport services (matatus and buses) are well used, current forecasts shows if capacity is not improved, by 2037 there will be a complete breakdown in transport reliability along the corridor.

The public had hoped that rolling out the Standard Gauge Railway line and Kampala-Jinja Expressway would ease traffic on the crucial trade corridor.

But unfolding events indicate these projects will take longer than expected and the proposed new design looks different.

The new design will see the expressway stretch from Nakawa via Kinawataka and then dodge Mabira forest before crossing through Buikwe and Nyenga to Jinja.

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The Head of Design at Uganda National Roads Authority, Eng. Patrick Muleme said the roads authority would need to acquire majority of the land by financial close which means high contingent risks for Government of Uganda if financing documents are signed and land not provided as anticipated.

Muleme, who Thursday spoke at Standard Chartered Bank’s 2nd Public Private Partnership (PPPs) conference in Kampala, said land acquisition is at the heart of delayed infrastructure projects in the country.

“UNRA has money but it can’t pay because someone doesn’t agree. Why should public projects be stalled?” he wondered.

He further said delays in providing the site access risks delaying the start of construction for Kampala-Namagunga line which is needed to relieve immediate congestion.

“Historically land acquisition is problematic in Uganda and continues to slow down key infrastructure projects. In a PPP, not only will government face delay risk but financial implications arising from committed financing not being drawn down and contract variations,” said Muleme.

Structure

UNRA intends to partner with the private sector to Design, Build, Finance, Operate and Transfer a limited access 95km tolled expressway.

The project to be procured in two Lots as follows: Lot 1: 35km of the Kampala Jinja Mainline commencing at Kampala and terminating at Namagunga (“Section 1”) and the Kampala Southern.

The Bypass (“Section 2”) and Section 1 and Section 2 together being “Lot 1”; and Lot 2: 42km of the Kampala Jinja Mainline commences at Namagunga, terminating at Jinja (“Section 3”).

Muleme further cited limited competition, saying high uncertainty will result in dampened interest from the market.

During the function, Muleme stressed that the expressway is a large construction project and bidders are likely to share the Engineering, Procurement, Construction (EPC) risk to avoid significant exposure for a country’s first road PPP.

Consortiums are expected to feature two contractors in a Joint Venture.

Muleme said potential risks include limiting the competition as contractors that fail to associate in Joint Ventures may opt not to bid.

Government in developing a $1b PPP project would require a long term committed partner with the right level of Equity.

At 20 percent, the equity requirement is $200m.

Another challenge for the expressway is that lenders (though aware that $500m VGF is available) would also require substantial equity commitment to ensure comfort that the operator is sufficiently motivated to deliver long term value thus protecting lender interests.

Considering the potential market of equity investors, said Muleme, $200m is unlikely to be bankable

Notably, the project faces interest and foreign exchange rate risk which government will assume risk prior to financial close.

“The longer financial close takes to occur, the higher the risk of negative variability as the country approaches an election cycle,” said Muleme.

UNRA is expected to issue Request for Prequalification (RFQ) in Dec, 2017 and hope to announce preferred bidder in 2019.

This implies if all goes according to plan, the Kampala-Jinja Expressway would be ready by 2023.

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