18 May 2017

Uganda: Discontent Over Chinese Contractors' Domination Rocks Uganda's Roads Sector

Photo: Cissy Makumbi/Daily Monitor
President Museveni flags off the Olwiyo-Gulu-Kitgum-Musingo road works at Anaka (file photo).

The management of the Uganda National Roads Authority (UNRA) is on the spot over allegations of opaque multibillion-dollar procurement processes in the roads sector.

UNRA team took over in April 2015 after an overhaul of the authority following the multimillion-dollar Katosi Road scandal in which, on the urging of then minister for works Abraham Byandala, a fake US firm, EUTAW, was awarded a contract without due diligence, got paid in record time, and subcontracted a Chinese company contrary to the law.

The minister was arrested and later redeployed, the entire management of UNRA fired and a representative of the US firm arrested and charged.

The latest allegations of opaque procurement at UNRA were brought to light by a whistleblowers' petition to the President's Office, the Inspectorate of Government, Public Procurement and Disposal of Public Assets Authority (PPDA), intelligence agencies and a host of other government entities, detailing questionable dealings involving Chinese companies and the UNRA management.

The EastAfrican has seen documents contained in the petition, and at the heart of the matter, outside the barrage of allegations of corrupt dealings, is the place of Chinese contractors in the country's lucrative roads sector.

Ugandan and other foreign companies are questioning the preferential treatment accorded Chinese firms.

Legal protection

Only a few weeks ago, Trade Minister Amelia Kyambadde was forced to issue a press statement to calm tensions in downtown Kampala, where small-scale businesspeople were protesting encroachment on their territory by Asian traders. The unwritten rule, they argued, "is that small businesses be left to Ugandans." Ms Kyambadde said there was no such provision in law.

It is this lack of legal protection for the Ugandan business community that comes out in the whistleblower's petition demanding scrutiny of UNRA's dealings with Chinese firms.

Specifically, the whistleblower -- who going by the detailed report presented appears to be an insider at UNRA -- points out the inflation of costs, unscrupulous dealings with Chinese companies recommended for blacklisting by parliament, ring fencing contracts to the Chinese, misappropriation of funds by contractors under the watch of UNRA and preferential treatment of Chinese companies in the procurement process.

According to the Auditor General's 2014/15 report, Chinese companies is appropriated Ush47.7 billion ($13 million) in connivance with UNRA officials. The money was meant to compensate individuals and communities affected by the infrastructure projects, but was paid out and received by six Chinese companies, who put it in fixed deposit accounts to earn interest.

"The money hadn't been accounted for by December 2016. Neither the old and new UNRA management acted as this fraud was being committed, an indication that they were part of the scam," the whistle blower says in his petition.

The six companies are China 18th Group (Ush12.9 billion [$3.5m]), China Railway No. 3 Engineering Group Ltd (Ush12.9 billion[$3.5]), Zhongmei Engineering Group Ltd (Ush6.5 billion [$1.8m]), Chong Qing Inter Construction Co. (CICO) (Ush7 billion [$1.9m]), China Railway No. 5 Engineering Group Ltd (Ush8.4 billion [$2.3m]) and China Railway No. 3 Engineering Group Uganda Ltd.

Compensation

The funds were advanced to five Chinese companies to reduce delays in payments but the firms used them for profit as they awaited a validation report from the government chief valuer.

The special accounts where the funds were to be deposited were opened after some time or not opened at all. Ush32 billion would later be returned to the UNRA account after pressure from parliament.

The parliamentary committee's findings were adopted by parliament on December 21, 2016. According to the Hansard, "This House do adopt the report of the committee on commissions, statutory authorities and state enterprises in the Auditor General's report for the selected entities for FY 2013/14, 2014/15."

Despite the committee recommending blacklisting of the companies cited in the Auditor General's report, UNRA has defiantly gone on to carry out business with them.

"Why is the same UNRA that was directed to blacklist now purporting to award a tender to one of the affected companies for the Rukungiri-Kihihi-Ishaha/Kanungu road projects as the best evaluated bidder out of the nine bidders?" the whistleblower asks, adding, "Unless officials have been bribed, what other reasons can they tell Ugandans as to why they cannot halt new dealings with such a sham company?"

UNRA posted on its notice board on March 1, 2017 that Zhongmei Engineering Group Ltd was their best evaluated bidder (BEB) for the Rukungiri-Kihihi-Ishaha/Kanungu road project funded by the Africa Development Bank.

The BEB notice R4(3)(b) under procurement reference number UNRA/WORKS/2016-17/00035 -- for civil works for the upgrading of the said road to bituminous standard under open international bidding for the contract price Ush220,105,788,039.31 ($60.7m) -- was displayed on March 1, 2017 for two weeks.

Intervention

The unsuccessful bidders were M/S Al Mayehu Ketema General Contractors and Dott Services Ltd whose evaluated price was higher than that of the best evaluated bid price, according to reasons advanced by UNRA for selecting the blacklisted Chinese company.

Last week, President Museveni wrote to UNRA, Attorney General William Byaruhanga, the Ministry of Finance and PPDA ordering a freeze on government of Uganda doing business with Dott Services which he accused of manipulating the court system to evade investigation after he received credible information pointing to unscrupulous dealings by the company.

Dott Services had been recommended for blacklisting by a commission of inquiry report into the mismanagement at the roads agency but got a High Court order quashing the committee's findings.

In another development, civil works for upgrading the 69km Kigumba-Bulima road from gravel to paved bituminous funded by the Africa Development Bank was first advertised and cancelled in 2014 and in December 2015. Twelve bidders participated in bid submission.

Later, the tender was awarded to China Railway No.5 Engineering Group Ltd, one of the five companies that parliament recommended to be blacklisted over the Ush47.7 billion ($13m) compensation scandal.

The petition asserts, "UNRA evaluated China Railway No.5 Engineering Group Ltd in spite of the fact that it ranked third in prices and was Ush6 billion, above the lowest bidder, who was Dott Services Ltd. Dott challenged this at the PPDA tribunal, which ruled in their favour. UNRA disqualified Dott for not meeting turnover of $45 million."

Suspected cost inflation

UNRA challenged the ruling in the High Court on July 22, 2016 before withdrawing it. On August 23, 2016 China Railway No.5 Engineering Group Ltd was declared best evaluated bidder, this time disqualifying Dott for misrepresenting its key personnel.

"The matter was taken to PPDA tribunal which ruled against UNRA for using selective criteria but the entity said it had no money for due diligence," reads the whistleblower's petition.

The petition also brings to the fore the oft-raised concerns about UNRA's suspected inflation of road construction costs.

"It caused financial loss to the government by inflating the cost and quantities of hardcore/rock fill on Gulu-Acholi Bur road from 500 tonnes to 74,293 tonnes and inflated the cost from Ush30,000 ($8.3) to Ush458,313 ($126) per tonne hence an inflated cost of Ush824,963 ($227) per cubic metre. The cost of hard core rose from Ush229 million ($63,175) to Ush34 billion ($9,380)," the petition says.

For the upgrading of Hoima-Butiaba-Wanseko road to paved bituminous standard (55 kilometres), the bids were opened on January 22, 2016 and UNRA posted the BEB notice on January 16, 2017, indicating China Communications Construction Company (CCCC) was their best evaluated bidder, "albeit with the highest price of $2 million per kilometre.

Ironically UNRA cost estimates are $960,000 per kilometre. When it got to the media, it was withdrawn because it was too high.

The other red flag raised in the petition is the restriction of oil roads pre-qualification to Chinese companies because the roads are to be funded by China Exim Bank.

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