KAMPALA, Uganda
Top Ugandan officials have been boxed
into a corner of bother after lenders in China rejected their request to
re-negotiate ‘toxic clauses’ in the $200m (Shs713b) loan picked six years ago
to expand Entebbe International Airport.Entebbe International Airport
Some of the unfavourable provisions in the loan
agreement that Uganda signed with the Export-Import (Exim) Bank of China on
March 31, 2015, if not amended, expose Uganda’s sovereign assets to attachments
and take-over upon arbitration awards in Beijing.
Our investigations found out that any
proceedings against Uganda Civil Aviation Authority (UCAA) assets by the lender
would not be protected by sovereign immunity since Uganda government, in the
2015 deal, waived the immunity on airport assets.
Highly-placed sources said the risk presented
by the Financing Agreement on March 7, 2019, prompted Uganda to send an
11-member delegation to Beijing to plead with Exim Bank to renegotiate the
clauses now impugned by Kampala.
The joint team from the Works, Foreign Affairs,
and Finance ministries, as well as UCAA and Attorney General’s Chambers, was
led by Dr Chrispus Kiyonga, Uganda’s Ambassador to China.
In the meeting, the four Exim Bank executives
reportedly rejected any amendments to clauses of the signed Financing
Agreement, and made it clear to the Ugandan executives that any attempts to
make alterations would set a bad precedent. In addition, the Chinese told their
guests that they saw no cause to warrant the amendment.
The lenders advised Dr Kiyonga and his team to
accept “friendly consultations” from time to time, to ensure smooth
implementation of the airport expansion project. They also agreed to keep the
details of the meeting confidential.
Our investigations over several months show
that Uganda dispatched a delegation to Beijing after Exim Bank suspended
funding, citing violation of the loan agreement after UCAA failed to implement
some of the clauses, which were not favourable to Uganda.
The loan agreement requires UCAA to set up an
escrow account to hold all of the Authority’s revenues.
An escrow is a contractual arrangement in which
a third party receives and disburses money or property for the primary
transacting parties, with the disbursement dependent on conditions agreed to by
the transacting parties, according to Wikipedia.
The agreement provides that UCAA cannot use any
of the accrued money for whatever expenditure without approval from Beijing.
Realising that some of the loan agreement
clauses were not being implemented, Exim Bank froze cash flow to the
contractor, a Chinese company.
For instance, the construction firm’s payment
certificate No.11 up to 23, amounting to $24.5m (Shs87b) for work done from
December 2017 to February 2019, were not paid.
Lack of finances affected the contractor and
work slowed down almost to a standstill. By the time the Chinese accepted to
resume funding, the project had lost 361 days and the country was under
lockdown.
“These conditions were not palatable for an
international airport of a sovereign State whose operations are dynamic and
sometimes unpredictable,” UCAA noted in its latest response to queries by
Parliament.
The Chinese agreed to resume bankrolling the
project, but refused to amend the problematic clauses that they signed with the
government of Uganda.
They instead proposed a clarification of the
contentious clauses, which UCAA now considers insufficient.
While the initial agenda of the meeting in
Beijing was to cause a re-negotiation of specific clauses in the original
Financing Agreement, Finance Minister Matia Kasaija, in his response to the
aviation and Works ministry officials, noted:
“The Exim Bank officials made it clear from the
onset that re-negotiation and amendment of the loan agreement were not
agreeable to them.”
In two letters with similar content, but dated
differently; September 5, 2019 and January 14, 2020, Mr Kasaija told former
Works minister Monica Azuba Ntege, that the meeting in Beijing endorsed a
mutually-agreed ‘minute of resolutions’ reached as an output rather than
amendment of the loan agreements clauses that have left Ugandan officials
restless.
“It was the understanding of all parties that
to achieve a win-win situation, the contentious clauses would be interpreted
with a view of having a balanced effect that would enable resumption of
disbursements without necessarily amending the agreement,” Mr Kasaija’s January
14, 2020 letter reads in part.
In the corridors of Works and UCAA, Mr
Kasaija’s response on the matter according to sources, was treated with disdain
for allegedly blind-spotting a deal that presents real risks to Uganda’s
sovereign assets.
The technocrats accused the minister of risking
Entebbe International Airport, and other national assets, and Works ministry
specifically demanded a speedy resolution of the problematic clauses.
On September 8, the then UCAA acting director
general, Mr Fred Bamwesigye, now the substantive office holder, wrote to Works
Minister Gen Edward Katumba Wamala, reminding him about the need to renegotiate
the loan Financing Agreement.
He also requested him to remind Minister
Kasaija to notify Exim Bank of the need to amend the agreement to make it
consistent with Uganda’s and international law.
“Whereas some of the provisions referred to
were alluded to in the Minutes of the Negotiations, the unfair clauses remain
embedded in the agreements, while in some cases, they were not dealt with at
all… There is, therefore, an urgent need to start the review and renegotiation
of the Government Concession Loan Agreement…in order to reduce the intentions
of the parties into a legally-binding agreement,” Mr Bamwesigye wrote. He
attached a list of unfair clauses in the agreement.
Ms Susan Kataike, the Ministry of Works
spokesperson, and her Finance counterpart Jim Mugunga, declined to comment on
the impugned loan agreement clauses that have turned into a legal and
diplomatic conundrum for Uganda.
They referred this newspaper for explanation to
Attorney General Kiryowa Kiwanuka, who is just five months on the job yet
government picked the loan six years ago.
Mr Kiryowa was in Parliament and unable to
speak when we contacted him yesterday.
Solicitor General Francis Atoke, the top
technocrat in the Attorney General’s office, said he was not aware of the
problematic clauses in the agreement and, therefore, unable to comment.
We were unable to reach Exim Bank officials in
China by press time.
Back in Uganda, UCAA officials, have flagged up
to 13 clauses in the agreement as “unfair and erode the sovereignty of Uganda”.
The agreements authorises Exim Bank to approve
UCAA withdrawals yet there is a statutory board mandated to do so.
“It’s clear that [U]CAA will lose its rights of
use and control over its revenues…. as a self-financing institution with
limited funding. Such provisions would expose the organisation to risk of
failure in service delivery and bankruptcy,” a source said.
Among the controversial provisions is a
surrendering under the airport loan agreement of the approval of UCAA budget,
master and strategic plans, which ordinarily are the mandates of the aviation
regulator’s board, to Exim Bank in Beijing.
“This also exposes UCAA to risk of failure to
deliver its mandate, and infringes on State’s effective control over UCAA,”
Prof David Kakuba, then the UCAA director general, who retired in June last
year, wrote. He added: “There is, therefore, urgent need to start the review
and renegotiation of the Government Concessional Loan Agreement on the
upgrading and expansion of Entebbe International Airport Phase I project,
together with [other] agreements…in order to reduce the intentions of the
parties into a legally binding agreement.”
The Government Concessional Loan Agreement
provides conditions for signing three other agreements: On-lending agreement
between Uganda and UCAA; Repayment Mechanism Agreement between Exim Bank and
Uganda and [U]CAA and then, Escrow Account Agreement between Uganda, UCAA and
Exim Bank.
Under Section 3 of the Repayment Mechanism
Agreement and Section 3.1 (a) of the Escrow Account Agreement, it’s required
that Annual Operating Budgets for UCAA will be prepared and submitted for
approval to both government and Exim Bank. Under subsection (b), Exim
Bank has the right to reject or approve the budgets.
Similarly, monthly operating budgets are to be
approved to the escrow account in a form acceptable to Exim Bank. The bank is
also authorised to inspect both UCAA and government Books of Accounts, which
erodes the sovereignty of the State.
Whereas Section 14.1 of Repayment Mechanism
Agreement provides that the governing laws shall be the laws of Uganda, Section
14.2 provides that all disputes shall, where mutual discussions fail, be
resolved by the China International Economic and Trade Arbitration Commission
(CIETAC) in Beijing. This, according to UCAA brief to Kasaija, “directly
undermines the legal regime to which the entire agreement is subject to.”
Section 11.1 (f) of the Escrow Account
Agreement put emphasis on the fact that the arbitration in Beijing court is
legal, valid, binding and enforceable to the extent that any award obtained in
CIETAC will, if introduced, be received and accepted for enforcement in any
proceedings against the borrower, end-user and the Exim Bank and their
respective assets in Uganda.
On December 11, 2019, Prof Kakuba warned Mr
Kasaija that Exim Bank can legally enforce any clauses of the loan agreement
notwithstanding its omission to do so earlier.
“Any seeming delay or any form of understanding
that is not reduced into an amended agreement of the signed ones, would
maintain the enforceability by Exim Bank of the disputed agreement,” he wrote.
Section 10.3 of the Repayment Mechanism
Agreement provides for waiver of immunity, and states as follows:
“Each obligor hereby irrevocably waives any
immunity on grounds of sovereign or other immunity for itself or any of its
property in connection with any arbitration proceeding or with enforcement of
any arbitral awards any court judgement.’
Such a provision, if not amended, argued Prof
Kakuba, “exposes government assets to attachments and take-over upon
arbitration awards in China”.
During the October 28 interface with Cosase,
members tasked Mr Kasaija and his technical team to explain the airport loan
agreement. He told them they did due diligence, but he could not explain how
Uganda ended up surrendering its sovereignty to the Chinese for cash.
Mr Juvenal Muhumuza, an assistant commissioner
at the Finance ministry, and Ms Molly Apio, a legal adviser at the same
ministry, told the parliamentary committee that they reviewed the agreement,
especially on the waiver of immunity and that some conditions could not be
negotiated.
Ms Apio, however, didn’t tell the committee
that the Chinese creditors had outrightly rejected any requests for
renegotiation and asked Uganda to respect the loan agreement.
The failure to renegotiate the toxic clauses
has exposed Entebbe International Airport and other government assets staked
for the $200m loan to seizure.
Cosase members asked Mr Kasaija to furnish them
with the checklist used to evaluate the feasibility of the loan agreement for
Uganda.
The revelation that Uganda government signed an
agreement and, among others, waived immunity for its sovereign assets has
raised questions about the level of scrutiny and due diligence that bureaucrats
conduct before committing the country internationally.
Appearing before Parliament’s Committee on
Commissions, Statutory Authorities and State Enterprise (Cosase) chaired by
Nakawa West Member of Parliament Joel Ssenyonyi on October 28, Finance Minister
Matia Kasaija apologised over the less-than-satisfactory scrutiny of the
Entebbe International Airport upgrade Financing Agreement.
“In the unlikely event that UCAA were to fail
to generate sufficient revenue to service the loan [from Exim Bank), then the
central government will step in,” he told journalists after appearing before
Cosase.
Mr Kasaija told MPs that they at the time in
2015 considered the China loan offer as the “best possible alternative and
jumped on it”, an admission that illuminates how countries walk into what
academics and critics brand as Beijing’s ‘debt trap’.
A number of countries, some in Africa, have had
to forfeit national assets for direct control by China after failing to repay
commercial loans signed with haste or without proper scrutiny, such as the
Financing Agreement to bankroll new terminal, cargo and fuel centre works.
For instance, in December 2017, Sri Lanka lost
its Hambantota Port to China for a 99-year lease after failing to show
commitment in the payment of billions of dollars in loans.
The transfer, according to New York Times, gave
China full control of the territory just a few hundred miles off the shores of
rival India.
In September 2018, Zambia also lost Kenneth
Kaunda International Airport to China over debt gone-wrong. The Chinese lenders
were already in control of the country’s state broadcasting company, ZNBC.
Although MPs on Cosase queried Minister Kasaija
and his technical team over failure to remove toxic clauses before signing the
loan agreement, sources in Finance ministry and UCAA, have accused the
lawmakers of approving the loan request yet they contained glaring gaps.
Our investigations have also confirmed that the
loan in question was scrutinised by Parliament’s National Economy Committee and
approved by the whole House.
According to document retrieved from Parliament
Library, the National Economy Committee scrutinised this particular loan
request, but it didn’t detect the problems in the loan agreement.
On March 24, 2015, the Finance minister
presented a formal motion in Parliament, seeking to borrow $325 million (Shs1.1
trillion) from Exim Bank.
However, after scrutiny, the Committee chaired
by former MP Xavier Kyooma discovered that $125m (Shs444b) lacked documents.
During the consideration of the National
Economy Committee report, presiding Speaker Jacob Oulanyah asked former
Planning Minister David Bahati to amend the motion.
After the minister amended the motion,
Parliament authorised government to borrow $200m from Exim Bank at two percent
upon disbursement, with a maturity period of 20 years, including a seven-year
grace period.
Authorities at UCAA learnt of the ambiguities
in the Entebbe International Airport loan agreement during implementation and
notified former Works minister Azuba, who also requested her Finance
counterpart Kasaija to notify Exim Bank of the need to amend the loan
agreement.
Available documents show that the government
borrowed $325m from Exim Bank to finance and upgrade the expansion of Entebbe
International Airport.
Exim Bank agreed and released $200m for the
first phase of the upgrade and was later to provide additional $125m for the
second phase.
The design-and-build contract for Entebbe
International Airport project is being implemented by UCAA at a contract price
of $200m and supervised by Dar Al-Handasah (Shair & Partners) supervising
consultants at a supervision price of $1.18m, including Value Added Tax.
This is not the first project financed by
China’s Exim Bank. The bank has funded about 85 percent of two major Ugandan
power projects — Karuma and Isimba dams. The Chinese Bank also financed and
built Kampala’s $476 million (Shs1.7 trillion) Entebbe Express Highway to
Entebbe.
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