Botched railway project to cost taxpayer Shs16b

The Ugandan government is set to pay Sogea Satom Construction Company Limited €3,933,775 (approximately Shs16 billion) after failing to honour its obligations under a co-financing agreement it entered into with the European Union (EU) to fund rehabilitation work on the 375km Tororo-Gulu metre gauge railway (MGR) line.

The project was commissioned in March 2020. Under the agreement that paved the way for the commencement of work on the €34.6 million (approximately Shs138 billion) project, the EU agreed to provide €21.5 million (approximately Shs86 billion) under the 11th European Development Fund.

The rest of the €13.1 million (approximately Shs52 billion) for the rehabilitation of the century-old MGR, which is expected to reduce the cost of transport and improve freight services between Uganda and South Sudan and parts of the Democratic Republic of Congo, was meant to be provided by Uganda.

The Auditor General’s report for the Financial Year ended June 30, 2022, however, indicates that the government failed to meet its obligations under the agreement. This resulted in a decision by the contractor to terminate the contract.

It wasn’t me!
As a result, the government is now set to pay Sogea Satom damages amounting to 10 percent of the project sum.
“Article 65.3 states that in the event of such termination, the contracting authority shall pay the contractor for any loss or damage the contractor may have suffered,” the Auditor General’s report reads in part, adding, “The maximum amount shall be 10 percent of the contract price.”

Mr Bageya Waiswa, the Permanent Secretary in the Works and Transport ministry, declined to comment on the matter.

“The people who are best suited to answer you are at the Ministry of Finance. They are the ones who processed that tender together with the European Union,” he revealed. “For us we were brought on board just to form a supervisory team and that was all.”

Mr Jim Mugunga, the Finance ministry spokesperson, referred the matter to the management and Board of Uganda Railways Corporation (URC).

Mr Hannington Karuhanga, the chairman of the URC board, was not readily available for a comment. Mr Robert Kafeero Ssekitoleko, a board member, however told Sunday Monitor that it was not true that the government had failed to meet its obligations under the agreement.
“Of course that is not true that we failed to provide co-financing. What actually happened is that the contractor took off after having been paid 30 percent of the amount as advance payment,” Mr Ssekitoleko said.

In an interview with this publication, Mr Muhammad Muwanga Kivumbi—the shadow Finance minister—said that the development goes a long way to show what “have been getting it wrong with most donor funded projects.”

He added: “For most financial institutions, the loan starts running immediately. They do not say that you do not pay interest on the loans because you have not yet got your share for co-financing the project or because you are yet to secure the site. You begin to pay amortisation and interest immediately.”

Controversy
However, there are contrasting reports around the circumstances under which Sogea Satom terminated the contract. Mr Ssekitoleko accused the firm of greed, alleging—without providing proof—that it abandoned the project after taking a hefty pay cheque.

Whereas Mr Ssekitoleko did not say how much Sogea Satom had been paid, some members on the House committee on Government Assurances, who interfaced with the management of Sogea Satom in December last year, claimed that the firm had been paid Shs57.4 billion. We couldn’t independently verify the figure. It was also not possible to engage the management of Sogea Satom about how much the firm was paid or the circumstances under which the firm pulled out of the project. None of the company’s listed officials could be reached by phone.

While facing the parliamentary committee last December, a section of the firms’ management committee told legislators that Sogea Satom was forced to quit because of, among other things, delays by URC to provide it with project designs.

Debt on contract
According to the Auditor General’s report, by the time Sogea Satom terminated the contract, the government owed €3,112,726 (approximately Shs12.6 billion). It was not possible to establish whether the said sum has since been paid.

The report, however, indicates that the firm had at the time covered slightly under 15 percent of the expected scope of work, which was meant to include the replacement of railway sleepers and linking the line to an inland cargo depot—Gulu Logistics Hub.

It was not possible to establish the distance the contractor had covered, but the railway line between Tororo and Mbale had by October last year been uprooted. Works, which were launched in March 2020, had however been expected to be completed later this year.

Search for new contractor
This state of stasis forced the government to sanction the search for a new contractor to complete work on the Shs116 billion project. Mr Ssekitoleko told Sunday Monitor last week that the decision to hire a new contractor was arrived at during high level meetings involving the board and officials from the Works and Finance ministries.

Mr Steven Wakasenze, the acting managing director of URC, confirmed that the search for a new contractor has begun in earnest.

“There were efforts to engage the contractor to come back on board, but they were reluctant to change their position on the matter. A decision was therefore made to hire another contractor. That process has commenced and it is waiting for approval at the Solicitor General’s office,” Mr Wakasenze said.

Auditor general 

The Auditor General’s report for the Financial Year ended June 30, 2022, however, indicates that the government failed to meet its obligations under the agreement. This resulted in a decision by the contractor to terminate the contract.

As a result, the government is now set to pay Sogea Satom damages amounting to 10 percent of the project sum.