Govt fails to utilise Shs1.3 trillion of borrowed funds

Twelve loans valued at Shs1.3 trillion expired before disbursement to respective ministries and government entities for use, according to the Auditor General. 
According to the Auditor General’s report for the year ended June 2020, the failure to utilise the borrowed money  was due to low levels of loan absorption, which is affecting government projects and service delivery.

“A review of the loan disbursements revealed that twelve (12) loans worth Shs1.3 trillion reached expiry before disbursing. The energy sector was the most affected due to recurring unresolved land compensation issues affecting project implementation,” Mr John Muwanga, the Auditor General, said in the report. 

The report also noted that the government had, as a consequence, incurred Shs9.5b in commitment fees for three undisbursed loans.
Commitment fees are costs payable by a borrower to the lender under a loan agreement. 

The Auditor General noted that such low levels of loan performance undermine attainment of planned development targets and render commitment charges paid in respect of undisbursed funds meaningless.
Thus, the Auditor General said, government must identify and resolve bottlenecks that hinder absorption of loans, especially in the energy sector.

The report indicated that low absorption was mostly noted in the energy sector, a concern, which was also highlighted by agencies in the sub-sector.   

In its 2020 annual report, Uganda Electricity Generation Company Limited (UEGCL) said low absorption of loans also affected revenue performance, noting that out of the budgeted Shs310.7b for the year 2019/20, only Shs200.7b was realised, which represented performance of 64.5 per cent.  

“The major funding gaps were noted under projects [such as] Nyagak, Muzizi and Karuma, which received only 56 per cent, 30 per cent and 71.5 per cent, respectively of anticipated revenue,” the UEGCL report reads in part.
 
Muzizi Hydro Power project, whose construction was hedged on a credit facility agreement with Agence Francaise De Development and KfW signed in 2016 is due for completion in 2023.

However, the Auditor General noted that construction of the project is yet to commence, four years after signing the credit facility, due to delays in procuring a contractor and supervision consultant, which has been held by a pending vote of no objection from Agence Francaise De Development.

There was also delayed approval of the resettlement action plan report by the lenders, which is among the conditions precedent to the first drawdown.
The delays, Mr Muwanga, said pose a risk of loss of funding if no extension is granted since the final drawdown dates (KfW - December 30, 2021 and AFD - September 30, 2022) of the facility are close.

Government, which had already incurred €798,750 by June 2020 as commitment fees due to undrawn loan amounts from the date of signing the financing agreement, Mr Muwanga warned, risked incurring even higher costs. 

In its explanation, UEGCL said that communication had been made to the financiers in regard to the delays in the procurement of the Owners Engineer and Engineering and Procurement and Construction Contractor to which KfW responded by providing guidance and a conditional no objection.  
The financier also reaffirmed its commitment to the project.

Most affected  
Uganda’s electricity transmission sector, which is mainly funded by loans, has been the most affected by land compensation challenges, which equally affects project implementation. 

For instance, Karuma dam transmission lines were also affected by land compensation challenges, which in addition to dam construction delays, partly affected commissioning of the dam.  
As of June 30, 2020 government had, as a result of delayed commissioning of Karuma dam, paid commitment fees of $11.9m.

Uganda’s public debt has risen by 23.5 per cent from Shs46 trillion in June 2019 to Shs56 trillion in June 2020, with a significant percentage invested in energy infrastructure projects such as Isimba and Karuma dams. 

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