Uganda loses EU Shs70b railway line repair grant

Uganda has lost funding to a tune of €18m (about Shs70.3b), part of a €21.5m (Shs84b) grant that the European Union (EU) had made available to facilitate rehabilitation of the 375km metre-gauge Tororo– Gulu railway.

The development followed the decision by Sogea Satom Construction Company Limited to terminate the contract it had been handed for work on the €34.6m (Shs135b) project.

READ: Queries abound over Shs1.5 trillion rail revamp

Under the terms of a December 16, 2019 grant agreement signed by the EU and the government, the EU was to provide €21.5m and Uganda €13.1m (Shs51b).

Work commenced in March 2020 and was expected to have been completed later this year, but Sogea Satom pulled out of the project last June citing delayed payments and failure by the government to meet its obligations under the terms of the financing agreement.

Failing back on payments
It was not possible to establish how much the EU remitted to Sogea Sotam, but Mr Jan Sadek, the EU ambassador to Uganda, told Saturday Monitor that the EU had fully met its obligations under the terms of the co-financing agreement.

“The EU had initially allocated an amount of €21.5m towards the rehabilitation of the Tororo-Gulu railway line and its supervision. The EU fulfilled its obligations in terms of paying its share against implementation of the works, up until the point of cancellation,” Mr Sadek said in an email to Saturday Monitor.

The same cannot be said of what Uganda did in order to fulfill its obligations.

ALSO READ: Uganda’s new Shs48b trains useless – URC

Details of certificates of paid and unpaid obligations indicate that whereas government initially met its obligations and paid €300,000 (about Shs1.2b) out of the initial invoice of €400,000 (about Shs1.6b), it subsequently fell back on payments.

Details from the Auditor General’s report reveal that whereas Sogea Satom was meant to have been paid €1.1m (Shs4.3b) on July 12, 2021, it was not until December 2, 2021 that government paid its share of €800,000 (Shs3.1b).

The report further reveals that Uganda only paid €200,000 (approximately Shs782 million) out of the €300,000 (approximately Shs1.17 billion) that it was meant to have contributed towards the clearance of an €400,000 (about Shs1.56 billion) invoice that should have been paid by September 23, 2021. It was not until December 2, 2021 that it paid.

The report further reveals that government did not fully fulfill an obligation to pay €600,000 (Shs2.3b) out of a €900,000 (Shs3.5b) bill that it was meant to have cleared by May 2022. At least €100,000 (about Shs390m) remained outstanding.

ALSO READ: Tanzania signs $2.2bln railway deal with China

Government, according to the Auditor General, had also not fulfilled an obligation to contribute €500,000 (about Shs2b) out of a €700,000 (about Shs2.7b) bill that should have been cleared by June 2022.
“The contractor indicates that by the time of contract termination, the outstanding unpaid amount was totalling €700,000 in respect to the government portion,” the Auditor General’s report further reads.

EU stand
The immediate consequence of Sogea Satom’s decision to terminate the railway’s contract had been that the government would be required to pay the firm penalties amounting to €3.93 (about Shs15.3b) for failure to honour its obligations under a co-financing agreement.

However, if what Mr Sadek, the EU ambassador, has to say is anything to go by, Uganda has now lost the rest of the grant that had been made available to rehabilitate the line that had been expected to reduce the cost of transport and improve freight services between Uganda and South Sudan and parts of the Democratic Republic of Congo.

“The EU is not in a position to redirect or allocate the remaining funding under the project, taking into account the legal and contractual provisions of the Financing Agreement for the rehabilitation of the Tororo-Gulu railway,” Mr Sadek wrote.

Mr Sadek, however, left the door open for further cooperation between the EU and the Government of Uganda.
“I believe we can find [other] opportunities to engage on ways to improve efficiency of project implementation under future projects, jointly identified between the EU and the Government of Uganda,” Mr Sadek wrote.

Project in jeopardy
Speaking to Saturday Monitor in an interview last week, Mr Steven Wakasenze, the acting managing director of Uganda Railways Corporation (URC), said:  “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.”

ALSO READ: Govt seeks to overhaul railway system with AfDB loan

Ambassador Sadek’s comments now suggest that government will not only be looking for a contractor to complete the slightly more than 84 percent of work that has to be done on the line, but also find another funder. The situation leaves the project in jeopardy.

It was not possible to engage any Mr Wakasenze or any member of the Board of Directors of URC over the funding dilemma that has cropped up. Members of the Board were reportedly locked up in a meeting all day on Thursday. It was not possible to establish whether the issue of finding a new funder had been part of the agenda.

Shs34.7b unrecovered 

In a related development, it has emerged that €8.85m (about Shs34.5b), which had been advanced to Sogea Satom, has never been recovered from the firm.

According to the Auditor General, at the time of commencement of the project, government advanced to Sogea Satom €11.8m (Shs46b), which represented 30 percent of the contract sum, but only €2.95m (about Shs11.5b) had been recovered by the time the contractor terminated the contract.

However, Mr Godfrey Obara, the chief civil engineer at URC, told Saturday Monitor that the money is set to be recovered subject to the completion of the reconciliation exercise to be conducted by the Ministry of Finance, the EU and the contractor.

“After that (reconciliation), whichever money that will be demanded by any party will come from the encashment of the guarantees because advance payments, whichever money they have, they got as advance, is secured with guarantees and those guarantees are with the EU,” Mr Obara said.

Missing Shs12b rail materials

In yet another related development, it has emerged that an assortment of 136,416 different railways materials worth €3.08m (about Shs12b) have since gone missing.

“I noted that after the termination of the contract by the contractor, the contractor never handed over the demolished materials that were supposed to be used for reconstruction of the railway line. Besides, evidence from supervising consultant indicated that 136,416 railway items equivalent to €3.08m had been stolen,” the Auditor General wrote.

Mr Godfrey Obara, the chief civil engineer at Uganda Railways Corporation, said the materials that were reportedly stolen will be accounted for during the reconciliation process.

“That (recovery of stolen materials) will be in the reconciliation because at closure, there was a joint inspection, which took inventory of the materials that had been handed over and those that were received at termination,” Mr Obara said.