What you need to know:
- The junior transport minister says the bidders in the race were starting to develop cold feet over “bankability issues” of the project.
Other factors—particularly the merger of agencies and departments—kept constant, the Uganda National Roads Authority (Unra) plans to resume tendering for the proposed Kampala-Jinja Expressway (KJE) next month and sign off the contract later in December.
Unra is one of the agencies listed for merger; to be folded under its parent Ministry of Works and Transport, where it was curved out in 2006 from a department and elevated into a statutory body.
With procurement wheeler-dealing as the jet fuel of the clientele patronage system, it is the endless fight over lucrative road construction tenders between the Unra leadership and political brokers with unfettered powers that influenced the merger of the roads authority, which many observers, including Members of Parliament (MPs), fear will derail the gains made by the country in infrastructure development during the last 16 years.
Following the ruling National Resistance Movement (NRM) caucus on February 2 at State House, Entebbe during which President Museveni urged MPs to support the merger, christened rationalisation of agencies and public expenditure, the acting Unra executive director, Mr Sam Muhoozi, moved to allay staff fears in an email last week indicating operations will resume normally until guided otherwise.
Since plans to merge Unra were announced, morale deteriorated followed by budget constipation which has affected both new projects and the rehabilitation of several roads across the country.
For the $1.2b (Shs4.6 trillion) KJE project, the new timeline, six years since procurement of a contractor started, follows a pattern familiar to many large infrastructure projects; from investigations by the Inspectorate of Government into alleged influence peddling, to attempted hijacking by commission agents.
In 2022, a Chinese company, China Railway 17th Bureau Group Company (CR17th), whose two subsidiaries China Civil Engineering Construction Corporation (CCECC) and China Railway Construction Investment Group (CRCIG) were disqualified during the early stages of procurement managed to secure a meeting at State House where they floated the idea of “alternative financing” .
Fast forward to today, Mr Fred Byamukama, the junior Transport minister on Tuesday last week told Parliament that the bidders in the race were starting to develop cold feet over “bankability issues” of the project which had bearing on raising private financing.
This, Mr Byamukama intimated, also included the bidders requesting for a Partial Risk Guarantee (PRG) covering annual payments that will be made to the developer.
“During operation and maintenance, the developer will be fully reliant on government to make timely payments for it to meet its debt and other payment obligations. Without the guarantee, private finance cannot be secured at competitive rates,” he said.
Discussions on the PRG, the minister added, were referred to the cash-strapped Treasury/Ministry of Finance—which is contending with a host of issues, from an anemic economy, spiraling debt which stands at Shs80 trillion, poor revenue mobilisation, and a bloated cost of public administration—and once it has been approved, the procurement will proceed with issuance of the final bidding documents to the pre-qualified bidders in March and process concluded likely in July, according to working timelines seen by Monitor.
A PRG is an instrument that covers, among others, political risks and breaches including instances of default in scheduled debt service payments of either the principal or interest.
Four bidders/consortium reached the last stage, China’s China Communications Construction Company Ltd and China First Highway Engineering Company Ltd, France-Portugal’s KJ Connect, Austria-Germany-Poland-Turkey-France’s AIIM/ICTAS/NMJV/STOA/EGIS (previously Strabag/Ictas/Egis/AIF3/STOA), and China-South Korea’s CCKS.
CCKS withdrew from the procurement race on March 14, 2022., sources familiar with the procurement told this publication.
KJ Connect is a consortium of seven companies, VINCI Concessions S.A.S as the lead, VINCI Highways, S.A.S, Meridiam Infrastructure Africa Fund, Mota-Engil Engenharia E Construção África, S.A, Mota-Engil Engenharia E Construção, S.A, Sogea Satom, and VINCI Construction Terrassement.
The Strabag/ Ictas/ Egis/ AIF3/ STOA boasts of eight companies, STRABAG AG as the consortium lead, IC İçtaş İnşaat Sanayi Ve Ticaret A.Ş, Egis Projects S, Africa Infrastructure Fund 3 Gp Propietary Ltd, STOA S.A, Strabag SP. Z O.O, Strabag Infrastruktura Poludnie SP. Z O.O, and Strabag Grossprojekte GMBH.
A PPP gamble
Following concerns by the bidders over the “bankability” of the project, sources indicated that several discussions were held among Unra, the World Bank’s International Finance Corporation (IFC) and the Ministry of Finance which culminated in draft letters of support to the bidders.
IFC has been pushing the Public Private Partnership (PPP) as a financing model to bring on board either capital or technical know how, or both for large-scale infrastructure projects and its overseer unit in the Ministry of Finance.
The revised letter[s] of support, including views of the three bidders and their lenders is pending signing off by the Attorney General’s office, sources revealed.
The greenfield toll road project was conceptualised as a PPP under a Design, Build, Finance, Operate and Maintain and Transfer arrangement.
With a planning cost of $1.2b (Shs4.6 trillion), the preferred private developer will be required to raise $800m (Shs3 trillion) through a mix of equity and debt, which according to the PPP arrangement, will be recoverable during a 25-year span of operation and maintenance.
During the same period, sources revealed that the developer will be fully reliant on the government to make timely payments for it to meet its debt and other payment obligations hence the bidders’ insistence for both the PRG and Liquidity Support Instrument.
The necessity for a Liquidity Support Instrument—a guarantee instrument of sorts—is a result of, among other factors, that the Ugandan government will be required to make timely payments to the private developer during the 25-year span of operation and maintenance but the country’s credit rating is below investment grade—rated high risk by all the major international credit rating agencies, Fitch, Moody’s, and S&P Global Ratings, respectively.
Last September, Fitch ratings affirmed Uganda’s long-term foreign currency Issuer Default Rating (IDR) at ‘B+’ with a negative outlook on account of its weak external liquidity position and challenges to its access to external concessional financing and grants related to concerns about democracy, human rights and corruption.
Later on December 1, S&P Global Ratings affirmed the “B-” Foreign Currency LT credit rating of Uganda with the outlook as stable.
Either way, the KJE is not isolated on this front. Closing project financing for the $3.55b (Shs13.6 trillion) for the proposed East African Crude Oil Pipeline (EACOP) has proved a tall order partly on account of the same.
The other factors necessitating the guarantees are that toll revenues will be set by the government—in this case, governed by the tolling framework pencilled in the Road Act enacted in 2019—and the long recovery period, of 25 years, which will undoubtedly stretch past several governments in the future which might want to amend the terms of the arrangement.
Besides, sources defended that liquidity support to “enable the project to be priced at similar interest rates to sovereign loans resulting in lower project costs, better value for money and ultimately a benefit to the government.”
On the public component—the government has to mobilise $400m (Shs1.5 trillion) for which it has received loan commitments, $225.5m (Shs865b) from the African Development Bank (AfDB) and €90m (Shs372b) from the French overseas development agency AFD as “viability gap funding” to make the PPP arrangement lucrative. The European Union also offered a €90m (Shs372b) grant to the project.
The European Union (EU) grant was signed in 2018; AfDB loan was signed in March 2021; while the AFD loan, sources revealed, contrary to claims, is under review and was “deliberately” delayed to avoid paying commitment fees.
Bureaucratic game changer
The viability gap funding, an economic instrument used in PPP projects, is a grant to support projects that are economically justified but may not be financially viable. The grant helps cover the private investor from likely losses over a period of time.
According to the project feasibility study, the road is economically viable between Kampala and Namagunga in Buikwe District; the viability gap funding was thus an incentive to the private player.
The 97km road, once completed, will be assigned to a private concessionaire over a 30-year period with a toll pass through to the government which shall set the toll gate fees, which upon collection will be wired to an escrow account.
It is expected, according to models, that the road will generate at least $1b (Shs3.8 trillion) during the 30-year concession period.
Specifically, the road has two components; the 77km Kampala-Jinja stretch that will include eight lanes for the first 3km through Nakawa, six lanes for the next 17km and four lanes for the remaining 57km. In Jinja, the Shs4.6 trillion thoroughfare will connect to the cable bridge.
The second component is the 20km Kampala Southern Bypass which is planned to have four lanes for the first 2km connecting the Northern Bypass at Namboole National Stadium to the Kampala-Entebbe Expressway at Munyonyo and two lanes for the remaining 18km via Kinawataka, Bugolobi and Ggaba/ Kansanga/ Bunga.
Procurement for a contractor commenced in May 2018 but was halted by Cabinet, which eventually guided that the project be developed as a PPP to cushion the government from turning to a hefty loan.
The then Speaker of Parliament, Ms Rebecca Kadaga, wondered why the Executive was “piloting” such a new financing model for multi-billion infrastructure on a project meant to benefit Busoga Sub-region and alleviate the traffic jam nightmare on the old road.
Cabinet cleared Unra to continue with the procurement, only for commission agents to hijack the process leading to the IGG probe. The IGG said in the report found no cogent evidence of corruption.
The first dialogue with the bidders took place in earnest in March 2022.
On Tuesday last week, the Deputy Speaker of Parliament Mr Thomas Tayebwa, expressed concern about the bureaucratic project procurement that he said will cost taxpayers more.
“Why should procurement take five years? You told us that you were starting the road when a bag of cement was still at Shs20,000 now it is at Shs35,000. Who is going to pay for this?” Mr Tayebwa mused.
To this, Mr Byamukama assured MPs: “The government is committed to ensuring that the project is implemented to improve the efficiency of Uganda’s transport infrastructure.”
Meanwhile, Unra’s acting communications manager, Mr Ahmed Ayub, told this newspaper at the weekend that some 4,322 Project-Affected Persons (PAPs) have been so far paid on a stretch of 45.4km.
“Shs479b has so far been paid out against the Shs715b that was approved by the Chief Government Valuer,” he said, with the progress of compensation hampered by the availability of funds from the cash-strapped Treasury.
The KJE forms part of the Northern Corridor Infrastructure, the once lofty dream of seamlessly connecting landlocked Uganda, Rwanda, Burundi, and South Sudan to the sea via Mombasa port in Kenya by road and railway.
A 2010 World Bank-funded assessment on the adoption of the botched Bus Rapid Transit (BRT) detailed that Jinja road currently has the highest demand for public transport with approximately 120,000 passengers daily. Demand was second highest on Entebbe road with at least 105,000 passengers.
“Forecast demand levels for the do-nothing scenario in the year 2013 reveal that passenger transport will be highest on Jinja road with 175,000 passengers per day representing 45 percent on (countrywide) demand levels,” the assessment by United Kingdom (UK) consultancy Integrated Transport Planning indicated.
The old Kampala-Jinja road is famous for its messy traffic, however anyone traveling to Jinja can opt to use the 95km Gayaza-Kalagi-Bukoloto-Njeru Road or brave the thick traffic to Mukono, and take the 74km Katosi -Kyetune –Nyenga road to Jinja.
At Shs4.6 trillion, Kampala-Jinja Expressway (KJE) will be the most expensive road in the country. By contrast, the 51.4km Kampala- Entebbe Expressway cost $479m (Shs1.8 trillion).
The Shs4.6 trillion will cover design, construction, operation and maintenance (incident management, intelligent Transportation System), tolling: toll collection and providing required tolling infrastructure, and hand back of facility after 30 years.
December 2025—expected date of commencement of works on the KJE.