20 November 2017

East Africa: Behind Magufuli, Museveni Deals

Photo: The Independent
President John Magufuli and President Yoweri Museveni at Masaka State Lodge.

Kampala — How US$7bn deals are reshaping relations in the region

If President Yoweri Museveni has a best buddy amongst his East African counterparts, it might as well be Tanzania's John Pombe Magufuli.

When they are not sharing a hearty laugh at an African Union meeting in Addis Ababa, they are holding hands while walking as was the case during Magufuli's recently concluded 3-day visit to Uganda.

This wasn't all. Quite uncharacteristic of him, Museveni hailed Magufuli for fighting corruption. Magufuli on the other hand has equated Museveni to Tanzania's former iconic president, Julius Nyerere. And some of his ministers are echoing the same.

Magufuli was in Uganda for the first time this year exactly three months after Museveni was in Tanzania. President Museveni has been in Tanzania three times -- in February, May and August - this year.

Apart from the closeness the two presidents have exhibited publicly, they are also closing mega deals that are upsetting old alliances in the region.

The US$3.55 Oil Pipeline

Specifically, the Magufuli-Museveni alliance appears to have caused two big deals; the US$3.25 billion loop of the Standard Gauge Railway through Tanzania and the US$3.55 Uganda Oil Pipeline, to be prioritized and switched from Kenya. Throw in the US$12 million One-Stop Border Post at the Mutukula Tanzania-Uganda border and the Magufuli-Magufuli dalliance will have notched the US$7 billion mark. It also appears to be shaking up what has, until now, been a close-knit alliance of Museveni, Kenya's Uhuru Kenyatta and Rwanda's Paul Kagame.

Popular press had had dubbed their alliance "the coalition of the willing" and trio was looking to implement major infrastructure projects together including the oil pipeline, refinery and Standard Gauge Railway (SGR) together.

When the ground breaking ceremony for the SGR was held at the Commonwealth Resort Munyonyo in Kampala in 2014, for example, then Tanzanian President Jakaya Kikwete was conspicuously absent. The willing trio attended plus South Sudan's Salva Kiir.

At the time, the trio spoke openly about leaving Tanzania behind because Kikwete, was not enthusiastic about regional projects and did not get along well with Museveni and Kagame. But then in November 2015, Magufuli replaced Kikwete. Since then, the so-called "coalition of the willing" appears to have become a "coalition of the dwindling".

In just under two years, Magufuli has got Museveni to pick the Southern route that goes to the Tanga port for the $3.55 billion oil pipeline much to the chagrin of Kenya who had considered it money in the pocket. Interestingly, Uhuru had paid Museveni several visits and had been in negotiations to get the pipeline routed through Kenya even before Magufuli became president.

But when Magufuli came in, he easily connected with Museveni, and caused priorities to shift from Kenya. Even when the deal hit some turbulence, Magufuli easily lived up to his nickname of "the bulldozer" that gets things done. He told his fumbling officials that no one would reverse the deal he had reached with President Museveni because their "friendship was built on blood".

This was when the deal, in which Magufuli hooked Uganda with a package of six incentives for the pipeline deal, was threatened by some Tanzanian officials who became "stubborn" and withdrew the incentives with his tacit approval.

Magufuli whom the deal rested on had grown suspicious of, especially, the oil companies involved. He had fired key officials who had been part of the negotiations and the new members to the negotiation table came with a different attitude.

But when Uganda tried to re-engage the Kenyans, Magufuli smelled his cheese, changed his attitude and invited the Ugandan team to close the deal. This deal was the first master stroke for Magufuli.

People at the centre of the negotiations at the trying moment have told The Independent that "the deal revealed a lot about the relationship between Museveni and Magufuli". Magufuli, on Nov.09, launched the $ 3.55 billion pipeline project at Ruzinga in Kyotera District.

The US$12 million border post

Magufuli and Museveni took their cooperation a notch even higher. The two presidents talked big about improving trade between the two countries as they launched the Mutukula One Stop Border Post (OSBP), aimed at easing doing of business along the Uganda and Tanzania common borders.

The facility, experts say, will significantly reduce the hours spent crossing into Tanzania and from Tanzania to Uganda. Museveni was excited about the facility because it fits into his plan of reducing the reliance on Kenya as the major trading route for Uganda. 90 percent of Uganda's imports and 80 percent of exports go through Mombasa.

The $ 12.7 million dollar facility, which will be managed by the Uganda Revenue Authority (URA) and the Tanzania Revenue Authority (TRA), was funded by UK's Department for Foreign Aid (DFID) and Global Affairs Canada through Trademark East Africa (TMEA).

The US$1.9 billion deal

It is not only Uhuru who has lost a deal because of Magufuli's new closeness with Museveni. Before Magufuli into the picture, Uganda's priority was to build a Standard Gauge Railway with Kenya and Rwanda stretching from Mombasa-Nairobi-Malaba-Kampala to Kigali.

But Magufuli negotiated Museveni into shunting the Kigali loop. The Malaba loop still gets mentioned a lot but there is new enthusiasm about Tanzania's SGR, which will run 205kms from Dar es Salaam to Morogoro by 2019, and finally Port Mwanza on Lake Victoria with a ferry to link Uganda. Museveni's switch was a major disappointment to Rwanda, insiders say.

With the two deals in the pocket and Museveni's full trust, The Independent has been told of how Magufuli has even forayed into deals where Tanzania has nothing to gain. In one case, Magufuli almost got Museveni to cancel the $ 1.9 billion deal awarded to China Harbour Engineering Company Ltd (CHEC) to develop its Eastern Route 261Km SGR and the 476km Northern route with a 117km spur to Packwach.

The details had remained scanty until recently.

Insiders have revealed that matters came to a head when Museveni earlier signaled he might cancel the CHEC deal.

It turns out, the companies that won the contract to construct the Tanzania SGR routes came to Museveni tried to sway him to award the deal to them instead.

The firms that have won railway construction deals in Tanzania are Turkey's Yapi Merkezi Insaat VE Sanayi As and Portugal's Mota-Engil Engenharia.

The company agents and their local commission agents, who include cabinet officials, President Museveni's assistants and in-laws, said that China's CHEC deal was a rip-off.

The companies said they had offered Tanzania better terms and were ready to do the same for Uganda.

In fact, to award the contract, Magufuli had completely cut any Chinese out of the deal and blacklisted them. He told Museveni that according to the deal he had entered with Yapi and Mota-Engil, Tanzania would spend $ 5 million per kilometre of railway.

Kenya, on the other hand was to spend $7.3m per km and Uganda the same. This appeared to confirm that Uganda was being fleeced.

Armed with Magufuli's intelligence, Museveni signaled his intent in a cabinet meeting.

"You go slow on that one (railway), there are some issues," he told his ministers. They were stunned. What was at stake extended beyond the deal reached by government with Chinese company, CHEC, and the progress made by SGR; the company founded to fast track the $ 1.9 billion railway.

This was going to be the second time President Museveni would be changing his mind on the contractor for the SGR deal.

Previously, government had entered an MOU for SGR with another Chinese company called China Civil Engineering Construction (CCECC). The deal was for CCECC to upgrade the existing railway to SGR. CCECC had already secured the deal.

However, former U.S. Assistant US Trade Representative for Africa, Rosa Whitaker met Museveni in Washington and convinced the president to award the deal to CHEC. Whitaker got so involved to the extent that she travelled to Uganda and would sit in meetings with government officials as they procured the contractor. In the end, President Museveni directed then Works Minister, John Byabagambi and officials at SGR to deal with CHEC.

In retaliation, CCECC sued government and Justice Lydia Mugambe ruled against government and ordering that a new contract to build the SGR is entered.

But in a July 23, 2014 at his country home in Rwakitura, President Museveni ordered for the cancellation of the CCECC contract and also directed that a contract is entered with CHEC through direct procurement.

In January 2015, CCECC officials went with the president's brother, Michael Nuwagira aka Toyota, and they apologised for taking government to court. Museveni then directed that government enters an MOU with them for the western route and the Light Rail Mass Transit System for Kampala.

Cancelling the CHEC deal would be a major setback for the SGR. Officials had tried to borrow money from other financiers but failed. It was only China, which was willing to give Uganda money but on condition that the deal went to a Chinese company. Uganda zeroed on CHEC and China's Exim Bank was at the time finalizing the financing details. Cancelling the deal would, therefore, have meant forgetting about the SGR until Uganda got oil revenues. Cancelling the deal also stood to affect Kenya SGR loop from Nairobi to Malaba. That line, experts say, only makes economic sense if it comes to Uganda and without that agreement EXIM Bank would not give Kenya money either.

Tanzania versus Uganda SGR

With all those high stakes, Museveni assigned his trusted engineering consultant, Badru Kiggundu; the engineer who previously headed the Electoral Commission, and later investigated the mess at Karuma and Isimba dams, to investigate the deal.

What President Museveni had not been told, however, is that the specifics of the Tanzanian railway were not exactly the same as Uganda's.

When officials from the SGR met him, they explained.

Apparently, they told the president that the old meter gauge rail system has a gradient of 2 percent.

The SGR is 1.2 percent. Ideally it should be 0 percent. But here the cost would be very high. In fact, the officials added, the Chinese had suggested 0.6 percent but this would increase the investment cost. The higher the gradient, the lower the speed and the higher the operation and maintenance costs and therefore the higher the tariff. Uganda needs a lower tariff to be competitive.

Uganda agreed with the Kenyans on the 1.2 percent gradient which increased the cost by 15 percent. Tanzania, on the other hand, is doing 2 percent gradient as directed by Magufuli.

The investment cost deals with the gradient and curve radius, officials explained to the president. The sharper the bend, the slower the speed and the higher the maintenance cost of the railways because in the corners there is a lot of friction which causes wear and tear.

This wasn't the only thing making Tanzania's railway cheaper.

Apparently, while Uganda has 24km of bridges Dar es Salam to Morogoro is semi-arid and has only two bridges and no swamps with a flat terrain. Uganda side has 53km of swamps with a hilly terrain.

While Uganda and Kenya are spending the same amount per kilometre, Uganda is cheaper. This is because the Uganda railway will use electricity while Kenya's will use diesel, which is more expensive.

Government had also done a study with Gauff Engineers, a German company, which had estimated that for diesel, government would spend $2 billion on the SGR and for the electric one, $2.4 billion--in both cases without locomotives and rolling stock.

However, when government negotiated with CHEC, they agreed to bring the cost down to $1.95b for the electrified system without rolling stock and locomotives, which was 15% lower. Officials say this offer was superior to what the German engineers had recommended and costed. It was, they say, superior in terms of durability, safety and comfort.

On safety, for instance, CHEC offered to construct a line that would limit accidents to one every 16.7 million kilometers.

This, officials noted, required that among others, there are no level crossing--the train does not meet any road at the same level or where the car rolls and falls over the train.

Apart from this, the CHEC design has automatic signaling which removes human error. The train is computerized with one control room which decides everything, with the role of drivers remaining just to handle emergencies.

Officials also showed that the parliamentary committee on infrastructure, which had written a negative report about the SGR, had mixed up several things and some of its members had an axe to grind with the Works Permanent Secretary, Alex Bwangamoi.

Officials fingered Dennis Sabiti, the chairman of infrastructure committee. They noted that Sabiti, who had been working as a commissioner in the Works Ministry and did the dual diligence of CHEC had since joining parliament and becoming the chairman of the infrastructure committee, fallen out with the ministry officials.

Apparently, he had asked the works ministry to sponsor a group of MPs for a two weeks trip to Ethiopia, Kenya and China. And when he didn't get this, he got angry. They argued that that is why the committee wrote a negative report about the SGR. The report is one of the tools the anti-CHEC lobbyist has been using to kick the company out of the deal.

In September, an Exim Bank team came to Uganda to carry out due diligence and met with officials at SGR and the Finance Ministry.

So when Museveni in October again called a meeting with Works Minister Monica Azuba, officials from the Standard Gauge Railway, and other officials, tensions were high again. Would he cancel or commit to CHEC.

In the end the President made clear his position on the SGR.

"No one is going to touch this contract," he said, "You should go ahead with the work." It appears, therefore, that Museveni's bromance with Magufuli might have been borne of blood, as the Tanzanian leader said, but for Museveni, it does not mean throwing out smart business sense.

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