Chinese firm petitions MPs over Kilembe Mines contract

THMCL claimed that while it performed its obligation, the government failed to fulfil its contractual obligation by declining to hand over Kilembe Mines to them nine months from the date of entering the agreement. It was also argued that the government irregularly reduced the concession period from 25 years to 15 years without any explanation. 

“The government failed to provide the necessary permits and licenses. [It] stripped assets and equipment belonging to the petitioner and unlawfully, without any regard to contractual terms, terminated the concession agreement,” the petition reads.

“Following the early termination of the concessional agreement, your petitioner has suffered a substantial financial loss amounting to $980m (Shs3.7 trillion) as a direct loss. The government of Uganda has lost $10m (Shs37b) annually due to failure by the government to fulfil its contractual obligations under the concession,” it adds.

The company also claimed that it was deliberately frustrated in performing its obligations under the contract due to technical bureaucracies and inadequate coordination without due process under the law by various ministries, departments, and agencies.

History

Established in the 1950s, the Mubuku Hydro-Power Station served as the primary source of electricity to support copper mining activities in Kilembe during the 1960s and 1970s. During this period, the maintenance of the power trail, from the water sourcing point in Nyakalengijyo to the flume line stretching to Ibanda, was overseen by the mining company, Kilembe Mines Limited (KML).

The power station currently generates five megawatts. The water to run the turbines is drawn from River Mubuku at Nyakalengijyo Trading Centre, passing through a flume line via Nyakabugha, Kiharara, and eventually down the hill at basecamp in Ibanda.

In 2013, through an international bidding protocol, the company won a competitive bid to manage, rehabilitate, and operate the Kilembe Mines for 25 years, from 2013 to 2038. On September 6, 2013, the petitioner executed a concession agreement with the government, where the petitioner was reportedly asked to make an upfront payment to the government of $4.03m (Shs15b), submit a written undertaking from the consortium partners, and pay an annual fee of $1m (3.7b) on each anniversary of the concession agreement.

The company was to extract a minimum of 4.5 million tonnes of iron ore in phase one of the project within the first three years, undertake exploration studies, develop the Mobuku Hydropower Project, introduce modern mining technology, and foster economic growth. The company implemented the concession agreement between June 2014 and January 2017, where it is said to have paid Shs4.2b to the Ugandan government while directly employing 823 Ugandans.

According to documents attached to the petition, the company purchased machinery worth $22m (Shs82b), acquired mineral processing equipment, and committed $183m (Shs683b) to future investments in the resumption of copper ore production at the Kilembe Mines.

While reading the petition on behalf of the petitioners, Mr Solomon Silwany, the Bukooli County Central lawmaker, said the petitioners also undertook several activities in preparation for the mining and processing of minerals from Kilembe Mines.

“The activities included upgrading existing operation facilities, undertaking underground mine-dewatering supply, designing underground materials, and doing procurement and construction, including all the underground structures,” he revealed.

Meanwhile, the parliamentary Committee on Environment and Natural Resources is expected to report to the House in early June, the findings about the claims of the petitioner after Speaker Anita Among referred to the matter.

Termination

In March 2021, the Commercial Division of the High Court ruled that the concession award to THMCL was illegal. This, the court added, was because the government did not involve or consult the complainants, who are shareholders while making decisions.

In the case, Tooro princes Gilbert Mujogya and Franklin Jocelyn Kato Rukidi sued the Attorney General, Kilembe Mines Ltd, and THMCL for alienating their late father’s 380 shares in Kilembe Mines without their knowledge, consent, and participation.

Whereas it cancelled the concession of Kilembe Mines Ltd assets to THMCL, it also issued a permanent injunction restraining the defendants and any persons from further concessioning Kilembe Mines’ assets without the consent and participation of the plaintiffs as shareholders.

Earlier in June 2017, President Museveni stopped THMCL from running the plant following allegations that top government officials, including a former minister, received a $1 million bribe to influence the deal.

While cancelling the deal, the President reportedly reasoned that he had received information that the deal was fraudulently awarded to “motorcycle assembling experts” and that the Chinese investors who won the venture bribed senior officials in the ministries of Finance, Energy, and the Attorney General’s chambers.

It was also alleged that before the contract was awarded to a company with questionable technical capacity in June 2013, the Chinese ambassador to Uganda had “strongly” warned that THMCL was not competent for the task, but he was ignored.

The bidders, who submitted detailed technical and financial proposals, were Sino-Steel (China), Tibet-Hima Group (China), Konkola Copper Mines PLC (Zambia), Shree Minerals (Australia), and Gingko Energy Investments Co. (China). Tibet Hima Mining Company won the disputed deal.

A separate report of the Winding-Up Commission set up by the government to investigate the conduct of THMCL, later in October 2017, recommended that the concession agreement on Kilembe Copper Mines be terminated.

With less than three weeks left to submit their findings before Parliament, the House Committee on Environment and Natural Resources is yet to embark on their assignment.

Mr Nathan Igeme Nabeta, the vice chairman of the committee, said it has not yet made any strides in inquiring into the petition due to insufficient information at its disposal.

“We have not yet made any strides because we are yet to seek some interpretations around the contract from the Office of the Attorney General,” Mr Igeme said.

Meanwhile, on Monday, the Attorney General, Mr Kiryowa Kiwanuka, who told Sunday Monitor that he was out of the country and not privy to the content of the petition, tersely said that THMCL’s contract was terminated long ago. Mr Kiwanuka also wondered the basis of their claims years later.

“I don’t know what they are doing now and I don’t know what their issue is, their contract was terminated a long time ago, more than four years ago. I haven’t seen the petition, so I don’t know what they have done because I am out of the country,” Mr Kiwanuka said.

This newspaper contacted Ms Agnes Alaba, the commissioner for minerals at the Energy ministry, to ascertain the credibility of THMCL’s claims and what it means to the ministry. She, however, declined to comment on the matter because Parliament has already been tasked by Speaker Among to investigate the matter.

“That matter is already before Parliament and unless my Permanent Secretary authorises me to have further discussions on that subject, I may not be in position to give that information because Parliament is already investigating the issue. Let them finish their investigation and they will tell us what they have found out,” Ms Alaba said.

Looming disaster

Last month, this publication reported that residents of Ibanda-Kyanya Town Council in Kasese District, which neighbours the Kilembe Mines Ltd, now live in fear over mudslides after several reported incidents of flume pipe leakages. The leakage is part of Mubuku I Hydro Power Station, which has weakened the soil and caused small cracks.

A flume pipe is used to carry or transport water under a driveway, road, or other obstacles. 

Residents from the villages of Nyakabugha and Nyakalengijyo say they are living in fear and have requested the power station to shut down operations until the leakages are stopped. According to the aforesaid report, the maintenance of the flume line, which runs on the ground, according to locals, has been neglected by the government, resulting in leaks that allow water to enter the ground and weaken the soil.

On March 17, a mudslide devastated Nyakabugha Village, destroying acres of crops, including cassava, bananas, beans, and coffee. Residents attributed the disaster to the continuous leakage from the flume lines.