Artistic impression of Kampala-Jinja Expressway at Kinawataka, Kampala. A cross-section of donors that committed to bankroll construction of the Kampala-Jinja expressway have raised deep concerns over “excessive delays” in lifting the project off the ground, including clearance of a Partial Risk Guarantee (PRG) facility. Photo | File
A cross-section of donors that committed to bankroll construction of the Kampala-Jinja expressway have raised deep concerns over “excessive delays” in lifting the project off the ground, including clearance of a Partial Risk Guarantee (PRG) facility.
PRG is a credit instrument that clothes a lender against government default on loan repayment.
The donors’ concerns shared with Daily Monitor have been reinforced by allegations that some tenderpreneurs with political connections are attempting to scuttle the development of the project as a Public Private Partnership (PPP).
PPP is a financing model to bring on board either capital or technical know-how, or both, for large-scale infrastructure projects. The procurement for a lead private developer/construction company has been ongoing for nearly seven years.
The tenderpreneurs, according to sources, want the government to turn to China to borrow $1.2b (Shs4.5 trillion) to construct the Kampala-Jinja expressway, a key artery of the Northern Corridor linking landlocked Uganda, South Sudan, Rwanda, and eastern Democratic Republic of Congo to the sea via Mombasa port in Kenya.
On the public component in the PPP arrangement, the government is to mobilise $400m (Shs1.5 trillion) for which it has received loan commitments; $225.5m (Shs853b) from the African Development Bank (AfDB) and €90m (Shs371b) from Agence Française de Développement (AFD), the French overseas development agency.
These “viability gap funding” arrangements are to make the PPP arrangement lucrative. The European Union reportedly offered a €90m (Shs371b) grant to the Kampala-Jinja expressway project.
The EU grant was signed in 2018 and the AFD loan in December 2018, but the Credit Financing Agreement and the Grant Agreement are yet to be signed, pending Uganda’s fulfillment of preconditions, among them, completion of the Resettlement Action Plan (RAP).
RAP relates to compensation and relocation of landowners along the project corridor in conformity with international best practices.
With a planning cost of $1.2b, the preferred private developer, under the PPP model, is required to raise $800m (Shs3trillion) through a mix of equity and debt recoverable during a 25-year span of operation and maintenance.
On March 21, Finance minister Matia Kasaija wrote to President Museveni requesting “for a no objection for” the use of a Partial Risk Guarantee (PRG) in the KJE procurement of a private developer who is supposed to Shs3 trillion from the international market.
“The PRG represents that last crucial step in achieving the project’s bankability, ensuring its financial viability and attractiveness to potential investors. Your authorisation of this initiative will pave the way for the realisation of this critical infrastructure project, holding immense potential to reshape our country’s transportation landscape and accelerate our economic growth trajectory,” the letter reads in part.
The letter is copied to Vice President Jessica Alupo, Prime Minister Robinah Nabbanja, Works and Transport Minister Gen Katumba Wamala, Attorney General Kiryowa Kiwanuka, Secretary to Treasury Ramathan Ggoobi and Uganda National Roads Authority (Unra) Executive Director Allen Kagina.
Minister Kasaija detailed that Attorney General Kiwanuka had “raised no objection to the utilisation of the PRG by the AfDB for the government’s benefit, and has advised that, according to Article 159(7) of the Constitution, the PRG, upon issuance, shall constitute a loan from the AfDB to the government. Therefore, authorisation from the Parliament will be sought as per clause (5) of Article 159”.
Article 159(5) of the Constitution stipulates that Parliament may, by resolution, authorise the government to enter into an agreement for the giving of a loan or a grant out of any public fund or public account.
Accordingly, Mr Masaija detailed that: “The amount of the PRG required and any applicable costs to the government for maintaining the PRG, including applicable interest costs in the unlikely event the PRG is called and becomes a loan, shall be ascertained after selection of the developer for the project. These details shall be submitted to you for approval before seeking approval of the same from parliament.”
Asked at the weekend about the donors’ concerns and whether President Museveni had greenlit the proposal, Mr Kasaija said: “Go away, why would I discuss my secrets with the President with you? But you Monitor people!”
He added: “On the donors, why are they talking to you? They should be writing to me, then we can harmonise our position. Honestly, I don’t have a response for you on this.”
Sources in the Treasury, however, told this newspaper the President is yet to respond.
The 97-kilometre greenfield toll-road project was conceptualised as a PPP, the first of a kind in the country, under a Design, Build, Finance, Operate, Maintain and Transfer arrangement.
Knowledgeable sources close to the project told this newspaper of the protracted negotiations centering on, among others, the Liquidity Support Instrument – demonstrating government’s commitment signed off by the Attorney General.
The credit assurance proves the government’s capacity and willingness to pay back the loan in the event less revenue is raised through road toll than is required to service the contracted loan.
Insiders said this means the government will commit to opening an escrow account and provide PRG.
Following careful consideration, minister Kasaija wrote that a PRG has been identified as the “most suitable and economical option to signify the government’s commitment and provide the necessary assurance for the private developers and their financers”.
The necessity for a Liquidity Support Instrument, sources revealed, is informed by the consideration for the Ugandan government to make timely payments to the private developer during the 25-year span of operation and maintenance of the expressway once completed.
These concerns, senior officials briefed on the matter said, have been illuminated by the latest downgrade of Uganda’s credit rating by, among others, Moody’s from B2 to B3, which raises the risk of Uganda defaulting on loan obligations.
Moody’s said its decision last week was based on diminished debt affordability and increasingly constrained financial options for Uganda, which prompted commercial banks to buy hard currency, hence weakening the Uganda shilling.
There are other evils jinxing the expressway project. For example, traffic studies and financial model, piloted by the International Finance Corporation (IFC), are incomplete as is the RAP.
Unra’s media relations manager, Mr Allan Ssempebwa, said on the weekend that the RAP process is ongoing.
Once completed it 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 77-kilometre Kampala-Jinja stretch that will include eight lanes for the first 3 kilometres through Nakawa, six lanes for the next 17 kilometres and four lanes for the remaining 57 kilometres. In Jinja, the Shs4.5trillion thoroughfare will connect to the cable bridge.
The second component is a 20-kilometres Kampala Southern Bypass that is planned to have four lanes for the first 2 kilometres connecting the Northern Bypass at Namboole National Stadium to the Kampala-Entebbe Expressway at Munyonyo, and two lanes for the remaining 18 kilometres via Kinawataka, Bugolobi and Ggaba-Kansanga- Bunga.
Procurement
Four bidders/consortium reached the last stage of procurement. These are China Communications Construction Company Ltd and China First Highway Engineering Company Ltd, France-Portugal’s KJ Connect, and Austria-Germany-Poland-Turkey-France’s AIIM/ICTAS/NMJV/STOA/EGIS (previously Strabag/Ictas/Egis/AIF3/STOA).
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 has eight companies, STRABAG AG as the consortium lead, IC İçtaş İnşaat Sanayi Ve Ticaret A.Ş, Egis Projects S, Africa Infrastructure Fund 3 Gp Proprietary Ltd, STOA S.A, Strabag SP. Z O.O, Strabag Infrastruktura Poludnie SP. Z O.O, and Strabag Grossprojekte GMBH.
