Uganda: What Next After Review Cuts Uganda SGR Costs By U.S.$120 Million?

The review and signing of the addendum to the standard gauge railway contract by the Government of Uganda and the Chinese contractor has seen the project cost of the eastern route from Malaba to Kampala slashed by $120 million, but officials cannot say whether this development guarantees the country the financing to start construction.

The review was concluded early this year, and on March 15, the Permanent Secretary in the Ministry of Works and Transport Waiswa Bageya and the representative of China Harbour and Engineering Corporation (CHEC) - Uganda Li Jingjun signed addendum number two as a binding part of the revised SGR project contract.

PROJECT COST

From the initial estimates of $2.3 billion in the contract signed in March 2015, the 273km section of Uganda's SGR project will now cost $2.18 billion.

From inception, parliament deemed the project cost as inflated, and indeed, the Engineering Procurement and Construction contractor CHEC, had also advised that a number of aspects in the project were unnecessary.

For example, while the initial project design specified speeds of 120kph, the contractor advised that according to Uganda's cargo forecast analysis, it will not be possible or necessary to operate at this speed, and that the country would build structures to accommodate this speed yet it would not be using them. CHEC advised that these structures would raise costs by 20 per cent.

In November 2018, President Yoweri Museveni then appointed a team comprising the Attorney General, Ministry of Works and Transport officials, civil engineering and project management experts, to "re-look the entire contract," to determine the final cost and outlook of the project.

"From the review, two things happened. First, the overall project cost came down by $120 million," a well-placed source told The EastAfrican.

The second major outcome is that the contractor and the government agreed that short spur be built to connect with the major line around Mukono, without imposing additional costs on the parties. The spur would link with the proposed Bukasa Port on Lake Victoria, which is to become the major loading and offloading point for marine-conveyed cargo.

CHANGES

Citing confidentiality and without going into details, Mr Bageya confirmed the changes in the project contract, saying that in total, the government and the contractor "reviewed and agreed on 13 issues."

"There were gaps in the contract signed earlier, and clauses which were not in our favour," Mr Bageya said. "Whether this means we are closer to getting financing, you have to ask the Permanent Secretary and Secretary to the Treasury."

Efforts to reach the PS, Keith Muhakanizi, were futile as he did not receive or return our calls, but sources familiar with the project said that securing financing from China Exim Bank will depend on the institution's assessment of Uganda's SGR as a bankable project.

Apparently, Beijing was not convinced and tasked the SGR management team to write a more bankable project, which meant reviewing the project in its entirety. An internal team reviewed and concluded a bankable project within a year, and the report is to be forwarded this week to the Chinese for a decision on financing.

The failure to secure financing has seen SGR implementation crawl at best, with minimal activity involving mainly compensation of project affected persons along the route districts of Tororo, Mayuge, Butaleja, Namutumba, Iganga and Luuka.

Construction has been in limbo, after it became clear that the connection with Kenya's SGR would be long term as Nairobi could not guarantee financing for the Kisumu-Malaba line in order to give seamless connection of the two lines.

FINANCING

Uganda expected to get financing from the China Exim Bank, at the interest rate of two per cent, but pending the Chinese decision on the revised bankable project, progress on this front remains up in the air, although government officials are optimistic that the "project is still on course" and that the "financing and other project modalities are being arranged."

In a tweet sent out on March 15, shortly after Mr Bageya and Mr Li Jingjun signed the addendum confirming the revised EPC/turnkey for the development of the eastern route SGR contract, the government said: "This development is an important step in the life cycle of the project following a period of review and negotiations."

Analysts argue that President Museveni is desperate to have legacy projects, and sensing that Kenya was not keen on the western leg of its SGR project, and that the Chinese were wary that Kampala's debt exposure to Beijing was bordering on unsustainability hence the reluctance to finance the line, the Ugandan leader went for the revival of the national carrier.

Indeed, the national carrier project -- which costs much less than the SGR -- was brought forward, and is set to take to the skies on August 28, but President Museveni has not given up on the SGR either. In June, he travelled to Beijing on a four-day working visit, on the invitation of his Chinese counterpart president Xi Jinping. But missing on the agenda was SGR financing, and sources reveal that the president said there was no way he would travel to the Chinese capital without SGR financing being on the table.

Keen to get a decision, the Ugandan leader consulted his Kenyan counterpart Uhuru Kenyatta, who had no plans to travel to China, but agreed to send his Cabinet Secretary for Transport James Macharia, so that whatever would be discussed in Beijing on the linking of Uganda and Kenya's SGR projects, the latter would be represented.

As it turned out, Mr Macharia's trip gave a glimmer of hope for Uganda, as Kenya "secured the money in principle" for construction of its SGR to Kisumu, which still leaves the Kisumu-Malaba section to link with Uganda untouched.

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