Uganda mortgages oil to China to get Standard Gauge Railway

Published by Théophile Niyitegeka
On 6 February 2017 saa 12:37
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After denying countless times that they cannot borrow against future oil revenues, the government at long last has admitted staking the country’s oil as a “guarantee” for receiving the first batch of loan from China’s EXIM Bank for the much hyped Standard Gauge Railway (SGR) project.

Details available to Sunday Monitor indicate that Attorney General William Byaruhanga gave a no objection to ministry of Finance, the principal signatory to the loans, arguing that “nothing prohibits the government from using oil revenues directly as guarantee for the payment of loan for the SGR project.”

Mr Byaruhanga, in a correspondence dated September 29, 2016, to the Finance ministry and also copied to President Museveni and Solicitor General Francis Atoke, further indicated that “accordingly, it shall be prudent to ensure that under the loan agreement the commencement of the payment period is explicitly tied to the commencement of production –in order to mitigate the risk of the government being found in default in the event that production does not start within the projected period.”

No objection response
The no-objection legal opinion was in response to a correspondence dated September 5 from Finance minister Matia Kasaija seeking advice on how to proceed on getting money from EXIM Bank to jump-start construction of the first phase of the SGR project running from Malaba to Kampala (273km) pegged to a cost of $2.8b (Shs8 trillion).

The Attorney General, citing legal provisions that authorise government to raise loans from any source, however reiterated, as advised earlier by the former ministry of Energy Permanent Secretary Kabagambe Kaliisa in a correspondence dated September 26, that availability of oil revenues shall be dependent on the commencement of oil production.

Commencement of oil production, Mr Kaliisa in his correspondence also advised, shall be dependent on the completion of the crude oil export pipeline and the Greenfield oil refinery.

“The completion schedule for the pipeline and refinery projects is/shall be largely outside the control of government (and in the hands of the international oil companies and other private players.”

The entire SGR project is estimated to cost $12.8b (Shs45 trillion), according to a report released this week by Parliament’s Committee on Physical Infrastructure. The multi-billion dollar railway line was agreed to in 2011 by regional leaders dubbed as a Coalition of the Willing, who included President Museveni, Kenya’s Uhuru Kenyatta, Rwanda’s Paul Kagame and South Sudan’s Salva Kiir.

Although conceived under the East African Community, but with Tanzania excluded at the time, the plan was to have the railway run from Mombasa port to Kigali via Kampala with a connecting line to Juba.

Preparations for construction of the first (eastern) route running from Malaba to Kampala, whose tender for construction was awarded to China Harbour Engineering Corporation (CHEC) in 2014 after a questionable protracted procurement, is ongoing with acquiring the proposed right of way.

Plans and studies, are ongoing as well on the western route from Kampala to Ntungamo District at the border with Rwanda and the northern route from Tororo to Packwach en route to South Sudan.

The SGR coordinator, Mr Kasingye Kyamugambi, however, told this newspaper yesterday that it is premature to reach conclusion that the entire project will cost $12.8b as the parliamentary committee put it.

“That was a planning figure that we had to give to government so that various preparations can be made,” Mr Kyamugambi argued. “But before feasibility and engineering studies on both the western and northern routes are completed and their reports assessed, one cannot come out and rush with figures like that; the cost could be actually much lower.”

The SGR is just one of the ambitious infrastructural projects the government is pursuing with “cheap” or “soft” funding (loans) from EXIM Bank so far to a tune of Shs7.5 trillion, according to Finance ministry records.

According to the Public Finance Management Act, money in the fund will be invested in accordance with the petroleum revenue investment policy issued by the Finance minister after consultation with the Secretary to the Treasury, and on the advice of the Investment Advisory Committee. The members of the Investment Advisory Committee shall be appointed by the minister after approved by Parliament.

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Presidents L-R; Salva Kiir, Paul Kagame and Yoweri Museveni launch the construction of the Standard Gauge Railway in 2014.

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