Chinese bank holds back Karuma funds

What you need to know:

  • Tasked. The Export-Import Bank of China has written to Uganda’s Ministry of Finance, asking the Secretary to the Treasury, Mr Keith Muhakanizi to explain the power projects are now a subject of litigation in court.


The major funder of Karuma and Isimba dams has withheld money for the country’s two biggest hydro-power projects until the legal disputes in Ugandan courts about the two ventures are resolved.

The Export-Import Bank of China has written to Uganda’s Ministry of Finance, asking the Secretary to the Treasury, Mr Keith Muhakanizi, to explain why the ministry submitted to them documents of due diligence on the two dams and confirming the tendering process had been properly concluded yet the power projects are now a subject of litigation in court.

The bank’s deputy regional director for Africa, Mr Wang YuMeng, wrote to Mr Muhakanizi on September 7 about the issue.

The petition
He made a reference to Mr Herry (sic) Kyarimpa, a procurement consultant, who filed a petition in court challenging the contracts awarded to Chinese companies Sinohydro Group and China Water and Electric (CWE) to build the two power dams.

“We regret to see that the bank is caught into the law suit,” Mr YuMeng said in his letter to Muhakanizi.

“If the litigation cannot be solved properly, it will have a negative effect on existing projects and future cooperation between your government and the bank,” he warned Muhakanizi.

About this particular suit of Kyarimpa, Mr YuMeng says the bank was also sued in the High Court of Uganda in Kampala as the fourth defendant by the petitioner, who wants court to cancel the Karuma and Isimba contracts and corresponding Preferential Buyer Credit Agreements under the disputed projects.
“Now that the legality of the tendering process becomes the subject of litigation, your ministry is expected to make satisfactory clarification and explanation on this issue,” Mr YuMeng’s told Muhakanizi

“…we sincerely expect that your ministry can effectively and properly coordinate with the relevant parties to resolve the dispute and litigation in order to minimise the negative impact on the projects,” YuMeng added.

Mr Muhakanizi was in State House yesterday for a meeting with President Museveni, but after consulting him, Ministry of finance spokesperson Jim Mugunga said: “It is true that the Export Import Bank of China like any other responsible party, expressed concern about the court case by a concerned Ugandan citizen which listed the bank among defendants. The Government of Uganda, through the Attorney General, secured a court order dismissing the case against the Exim Bank.

The bank, therefore, is no longer party to the suit and the PSST Mr Keith Muhakanizi this week communicated the same to the bank.”

No need to panic?
On the delayed payments to the contractors, Mr Mugunga said: “I am not privy to that information but if it is correct and that action was related to the court case, then the court decision as communicated will definitely alleviate the concerns of the bank.”

Mr Mugunga further said Uganda and China governments and Ministry of Finance and Exim Bank of China enjoy “a very cordial and historical relationship” and there is firm commitment to ensure the projects proceed uninterrupted.

“All projects where the Exim Bank is involved in the country remain on course and will therefore progress. There are not threats at all,” he said.

Sources in the Ministry of Finance told Daily Monitor that because the ministry has not responded to the queries raised by Exim Bank of China, the bank has held back millions of dollars for the completed works on the Karuma and Isimba projects. Sources say this glitch could delay the projects and blow up costs.

With regard to Karuma dam project, although Ministry of finance submitted two certificates of payment (No.12 worth $14.8m and No.13 worth $19.6m) to the Chinese bank for payment on August 12 and October 7, respectively, the bank has not released the money.

Because of these delays to release the payments, the government of Uganda continues to incur a surcharge of about $100,000 (about Shs 333.7m) per day on the amount in each delayed certificate of payments.

After the consultant has confirmed the certificate of payment to the contractor, the government is given 14 days to conclude the formalities for final payment. Upon lapse of the 14 days, a surcharge is slapped on the government for every day of the delay.

For Isimba dam, according to sources in Uganda Generation Company Limited and Ministry of Energy, Ministry of Finance submitted two certificates (No.4 worth $30.6m and No.5 worth $14.1m) for payment on July 11 and September 2, respectively.

However, none of these has been paid by the Export-Import bank of China. The contractor on October 5 wrote to Ministry of Energy notifying them that the company would claim the surcharge on delayed payments until payment is done.

Although Energy Minister Irene Muloni was not available to explain the situation, Information Minister Frank Tumwebaze yesterday allayed public fears on the fate of the two mega power projects. He blamed Ugandans for “peddling frivolous petitions” to sabotage the projects and confuse Exim Bank.
“The Bank has not cancelled funding..…… there are some Ugandans who have taken frivolous petitions to court to sabotage the projects but we hope they will be defeated and they already had been defeated from the East African Court,” Mr Tumwebaze said.

“Exim Bank only wants to know about those petitions in court and be sure that risks to the projects are mitigated. The Office of the Attorney General, working with Ministry of Energy, is ably working on those petitions and there should be no cause for alarm because everything is under control,” he added.

The worry
Mr YuMeng expressed concerns that the outcome of the case in question would affect the commercial contracts related to Karuma Hydropower Dam and Associated Transmission Lines Works and Sub Stations Project, the 183MW Isimba Hydropower Project and the Isimba-Bujagali Interconnection project under Preferential Buyer Credit facility.

About the projects

Karuma dam. Projected to produce 600MW, Karuma dam contract was awarded to Chinese firm Sinohydro in June 2013, starting construction in December the same year. The project is expected to be commissioned in December 2018. China committed to finance 85 per cent of the dam’s $1.6b (Shs5.6 trillion).

Uganda borrowed Shs1.435b (Shs4.8 trillion) from China’s Exim Bank and obtained the balance from the country’s Energy Fund.
Isimba dam. Isimba Hydropower Station is a 183 megawatt venture worth $570 million (Shs1.4trillion). It is being constructed by China International Water & Electric Corporation.

The project is financed by a loan from China’s Export-Import Bank after Parliament gave government a nod to borrow $482.5 million (about Shs1.4 trillion) from the bank at two per cent annual interest repayable over 20 years. Uganda will contribute the remaining $107 million.