Museveni Shs2.2t pet fertiliser project stalls

The touted multi-billion China-Uganda free zone industrial complex at Osukuru, Tororo, in eastern Uganda, which President Museveni had banked on to propel Uganda’s industrialisation prospects is on a brink of collapse. This comes after the operations of Chinese company Guangzhou Dongsong came to a halt thanks largely to financial woes, protracted court battles and infighting among its directors.  

 Several sources say the project has turned into a big disappointment because LV Weidong, the majority shareholder in Dongsong, who doubles as the president of the company, exaggerated the size of investment to get President Museveni’s backing. 

Touting how it has a bigger financial muscle to pay off the landowners, Dongsong was given the rights over the mines at the expense of Nilefos, a mining company owned by the Madhvani family.

 Nilefos’ weak spot was that it preferred the government to compensate the project-affected residents.

That State contribution, Nilefos suggested could be converted into government shares in the project, but when Dongsong, which was being backed by then Prime Minister Amama Mbabazi came along with the promise of being able to pay off the residents, Nilefos was dumped.

 Since 2014, when government signed the agreement with Dongsong for  the  $620m (Shs2.2 trillion) industrial carbonite complex project , the Chinese company was expected to put in place a phosphate fertiliser plant with a production capacity of at least 300,000 tonnes per annum, and a steel mill with a capacity to roll out not less than 300,000 tonnes per year.

Similarly, a power plant of 12 megawatts was to be set up and a sulphuric acid plant, with a capacity of 400,000 tonnes per year, but to date, nothing has been realised.

For the project to run without any encumbrances, Dongsong had direct electricity line, a free zone that would ensure its raw materials and goods that land, are handled, manufactured or reconfigured without being subjected to taxes.

The National Agricultural Research Organisation (Naro) gave up its land in Tororo town where Dongsong constructed its offices, and to top it all, the government put in place an inter-ministerial committee (Energy and Mineral Development, Finance, and Security)  to ensure the company gets whatever it needed.

But sources say a couple of years ago, when government valuers visited the Dongsong project they found that it wasn’t even worth $70 million (Shs249b) yet they had indicated that their investment was worth $260 million (about Shs887b). “They had secured a loan at first, and that’s what they used to set up a phosphate plant,” a source familiar with Dongsong operations said.

“But they wanted another loan to put up a steel plant, cement and glass factories. They wanted to set up around 14 factories in the free-trade zone but had no money.”

  In securing the Osukuru mines, Dongsong got a 21-year lease, extendable for 15 years to develop the Uganda-China Free Zone at Osukuru Hills into an Industrial complex on one-square kilometre of land.

Retention licence

 In 2016, the company had also secured a retention licence on 25-square kilometres where they were expected to extract base metals and industrial minerals, which include phosphates, and rare earth elements.

But official records show that the critical retention licence expires on July 17, 2021, and questions will be raised whether it can be extended or not.

Ms Agnes Alaba, the commissioner in the Department of Geological Survey and Mines, downplayed the expiration of retention licence, insisting that what matters most is the mining lease, which has a long way to go.

“They can renew the retention licence. That can’t be a problem. It will be renewed.”

However, the idea that Dongsong got a mining lease on a limited area and then a retention licence on a wider area has left many within the sector speculating.

“It seems they just wanted a mining lease which they can use to get loans from banks but they weren’t serious about this,” a lawyer who has been following the Osukuru phosphates saga unravel but preferred anonymity, said.

Although Ms Alaba says Dongsong can renew its retention licence, the Mining Act seems not to support this case. 

Section 38(1) of the Act stipulates: “Where the commissioner remains satisfied that commercial development of a mineral deposit is or has not been possible at the expiry of a retention licence, that licence may, on the application of the holder, be renewed for a single period not exceeding two years.”  

Government and Dongsong officials interviewed for this story have insist that project hasn’t taken off  because of multiple court cases that have left  the company in a state of vagueness.

One of the most cited cases is when the Commercial Division of the High Court ordered Dongsong to pay Chinese businesswoman Fang Min some $8 million (about Shs28b) with interest of 8 per cent per year.

The case sheds light on the double-dealing and outright corruption in Uganda’s mining sector.

In the case, Ms Min argued that together with Mr Weidong, they formed a company called Uganda Hui Neng Mining Ltd, which went on to get the Osukuru mining licence.

Before falling out with Mr Weidong, Ms Min said she injected a sum of $5m (about Shs17.8b) as share capital to enable the company kick-start. 

On December 12, 2013, Dongsong Company Ltd was registered and the following day Exploration Licence No. 1178 was transferred from Dongsong to Ms Min.

Armed with the Exploration Licence, Dongsong Company Ltd applied for and was granted a Mining Lease No. 1393.

On December 22, 2014, Dongsong Company Ltd and Dongsong Uganda Ltd entered into a mineral development agreement with the government, paving way for exploration and development of extraction. 

Dongsong, thereafter, transferred the Exploration Licence and Mining Lease to Dongsong Uganda Ltd. 

Ms Min, who owns a chain of restaurants in Kampala known as Fang- Fang, contends that the transfer of licence from the Dongsong Company Ltd to Dongsong Uganda Ltd without her consent occasioned loss to her as a minority shareholder.

“It is clear from these proceedings that one of the contentions of the plaintiff is that the meetings that passed the resolution that led to the transfer of the Exploration Licence were done without notifying her. As we have seen in this judgment, there were only two people qualified to call meetings, meet and pass resolutions. These were the plaintiff and the 3rd defendant. It follows that any meetings that would be conducted without notice to either party would be void, rendering the resolutions a nullity,” Justice David Wangutusi ruled in 2020. 

“Transferring the Exploration Licence from the nominal defendant [Uganda Hui Neng Mining] meant to enable the second defendant (Dongsong Energy Group Company Ltd) to acquire the Mining License with all the profit, which profits would be in control of the third defendant (LV Weidong) being the controller of that company, this profit would be at the expense of the nominal defendant (Uganda Hui Neng Mining Ltd) and the minority shareholder and the advantage of second and third defendants.” 

During last year’s annual judge’s conference, President Museveni said he called then Chief Justice Bart Katureebe after hearing the judgment.

“These Chinese are bringing money, but then I hear that a judge has cancelled a mining licence. The judges can interfere if there is a compensation issue but you can’t cancel a mining licence,” the President said.   

Although Dongsong insists the judgment that imperiled the project, court records show that the company’s lawyers asked Justice Wangutusi to review his order.   

Dongsong lawyers  argued that before Ms Min could challenge how the licence was transferred from Hui Neng, she ought to have made her case before the Minister of Energy and Mineral Development.

“The Court having decided that a wrong procedure had been adopted by the respondent [ Ms Min] challenging the issue of the licence by the commissioner, Section 33 of the Judicature Act could not be a fallback relief,” Justice Wangutusi ruled. 

“In my view, the error arose because although the pleading on cancellation had been struck out, the parties proceeded throughout the proceedings to contest the illegality of the resolutions and thus the transfers. In that way, the court came up with a finding of illegality, which it felt could not stand.”

Even after Justice Wangutusi set aside his order cancelling the licence, work in Osukuru hasn’t resumed and Ms Jane Guo, the Chief Executive of Dongsong, has since retreated to China.

The company is said to have even sold off the machinery they had mobilized to construct the factories.

Matters weren’t helped when Dongsong reportedly had a fallout with Operation Wealth Creation (OWC) patron Salim Saleh, the brother of President Museveni. One source claims that Salim Saleh, whose real name is Caleb Akandwanaho, suggested a deal to Ms Guo in which OWC would have a monopoly over the fertilizers at Shs8 billion. Though Ms Guo had entered an MoU with Saleh, Mr Weidong reversed the deal. 

Other claims

The other source claims that Salim Saleh dispatched a team from OWC led by the director of operations, Ms Sylvia Owori, to find out how Dongsong was fairing.  The report they made to Salim Saleh wasn’t palatable.

When asked about the progress of Osukuru project, Ms Alaba defended Dongsong saying the company had earlier started producing fertilisers but with the court cases and the Covid-19 pandemic, everything had come to a halt.  

“You have to check your facts, they produced some fertilizers; you can’t say there is nothing,” Ms Alaba said.

Similarly, Ms Evelyn Anite, the minister in charge of Investments, first attributed the delay by Dongsong to fully execute the project as promised to the court case.

“You know there is a court case, and as government, we have to let the court processes play out. We can’t intervene, “Ms Anite said.  

But when pressed that no court has put an injunction halting Dongsong’s activities in Osukuru, Ms Anite admitted the company was going through fiscal hardships.

 “We know they have had financial challenges since partners in the project are fighting [in court], but they have told us they are willing to work with other partners if they come on board. So my role as the minister for Investments is to support them because as government, we have given them everything they had asked for.”

Ms Anite added: “The minerals are still there in Osukuru and they belong to Uganda. If we see that nothing is going on [In Osukuru], we shall make a decision and communicate it.”

Besides phosphates, the Osukuru valleys which have been subject for exploration since colonial times are rich in rare earth minerals used in manufacturing smart phones.

Mr Denis Kusasira, the lawyer who has been representing Dongsong and also acted as the company secretary, did not answer our repeated calls, neither did he respond to our text messages.

Background

Dongsong’s interests in Uganda had gone beyond phosphates to building Uganda’s refinery before it was edged out by the Albertine Graben Refinery Consortium – which comprises Americans and Italians. 

Unlike in Osukuru where Dongsong claimed it had the money, for the refinery, the Guangzhou- based company, sought a sovereign loan guarantee, making Kampala accountable for the project’s debt if it failed.

While commissioning the project in 2014, President Museveni welcomed support from China, saying in 2013 Uganda had spent $59 m (about Shs210b) importing fertilizers.

 The President then said with the Dongson investments, this importation would stop.