22 November 2012

Uganda: UNRA Explores Other Options to Fund Roads

There is a significant disparity between the budget requirement and the actual monies allocated for road development and maintenance projects in Uganda. Only until 2008 did the Government start financing new road projects. Hitherto, the Government was only financing road maintenance.

With the traffic increase of over 5% per annum, the Uganda National Roads Authority (UNRA) is looking beyond the treasury to bridge the funding gap.

"The demand to build new roads is high. We have to find new ways of funding road projects," said UNRA spokesperson Dan Alinange.

Prominent among the new funding ways are public-private partnerships and contractor facilitated financing mechanism.

Public-private partnerships (PPPs)

UNRA says five major roads projects will be toll roads under PPP arrangement. The first road to be operated under this arrangement is the 51km Kampala-Entebbe Express Highway that was commissioned yesterday.

The other four are the Kampala-Jinja, Kampala-Bombo, Kampala-Mpigi and the Southern Bypass.

David Luyimbazi, the UNRA director of planning, explains how the toll roads arrangement, a form of PPP, works.

"The responsibility of constructing and maintaining the road is delegated to the private sector. We shall give the developers a concession, for example of 25 years. They then carry the risk of getting back a return on their investment," he explains.

UNRA further explains that green fields will be provided as alternative free routes for users who do not wish to pay for the new facilities.

The Chinese Exim Bank and the government of Uganda are jointly funding the Kampala-Entebbe Express Highway with $350m and $126m respectively.

Luyimbazi explains that the Government will seek to pay back the loan borrowed from the Chinese financier to construct the highway through the fee that will be paid by the road users.

"Basically, we shall lease it (the completed highway) to a private operator. If the operator gets $50m every year, in ten years, he will have realised $500m, which will have covered our loan obligation to the bank. The burden of paying this loan will not be on the tax payer," he explained.

Contrary to some fears among the public, UNRA says some of these road projects will not entirely be accessible through tolls.

The Entebbe Express Highway will have three toll gates; at Busega, Kajansi and Abayita Ababiri. The rest of the highway will be accessible for free.

Contractor facilitated financing

UNRA is also considering contractor facilitated funding to generate funds for road works. This mechanism has been earmarked for the development of over 1,900km of roads across the country.

About 20 roads countrywide, categorised in five groups, have been identified for upgrading from gravel to paved standard.

"Under this arrangement, the contractor comes with a financial institution. The one with the best offer stands a better chance of getting the deal. The advantage with this is that we borrow money competitively. About 46 companies have expressed interest in this arrangement," said Luyimbazi.

This mechanism of funding requires successful firms to organise their own funding for the construction works based on the agreed design and within the stipulated time for the respective projects.

The timeline for the projects ranges from six to 36 months.

Among the criteria for shortlisting will be the firms' demonstration of their strong financial situation and capacity to mobilise project financing.

The applying contractors will be expected to provide their strategy for supporting economic growth through various ways. They will be expected to show proposals for interaction with local contractors, the percentage of locals that will be employed by the project.

After bidding, UNRA says the Government will enter into a conditional commercial agreement contract with the winning tenderer conditioned on loan agreements signed between the Government and the winning contractor's financiers.

Luyimbazi, however, says the speed of this arrangement is not entirely in the control of UNRA. The proposals from the roads agency need to be verified by different bodies such as the Cabinet, Parliament and the Auditor General before the facility can be rolled out.

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