Prime
Auditor General queries airport loan deal inaction
Travellers arrive at Entebbe International Airport on June 19, 2021. PHOTO/RACHEL MABALA
What you need to know:
Ugandan officials did not append their signatures to an addendum that would have led to changes to the terms of a $200m loan.
The Auditor General’s latest report has spared no criticism for a government delegation whose inactions meant that renegotiations to put paid to a 2015 controversial deal never materialised.
The report for the period ended June 30, 2021 lends credence to narratives that more talks had been held, but Ugandan officials did not append their signatures to an addendum that would have led to changes to the terms of a $200m loan secured from the Export-Import (Exim) Bank of China to refurbish Entebbe International Airport.
“The renegotiated terms were to be formalised into an addendum agreement. However, the addendum to the contract terms had not been made by the time of this audit,” Mr John Muwanga, the Auditor General, wrote.
In 2015, the government made a concessional loan agreement that paved the way for signing of three agreements. These included the on-lending agreement between Uganda and Uganda Civil Aviation Authority (UCAA); Repayment Mechanism Agreement between Exim Bank, Uganda and UCAA as well as the Escrow Account Agreement between Uganda, UCAA and Exim Bank.
Several rounds of talks have since been held between Ugandan and Chinese officials following demands by UCAA that the terms of the agreements be renegotiated with a view of scrapping some of the provisions.
Vexing clauses
For example whereas Section 14.1 of Repayment Mechanism Agreement provides that the governing laws shall be the laws of Uganda, Section 14.2 places the mandate to arbitrate in disputes between the two parties in the hands of the China International Economic and Trade Arbitration Commission (CIETAC) in Beijing.
Section 11.1 (f) of the Escrow Account Agreement emphasised that the outcome of any such arbitration in Beijing would be “legal, valid, binding and enforceable to the extent that any award obtained in CIETAC” will be “accepted for enforcement in any proceedings against the borrower, end-user and the Exim Bank and their respective assets in Uganda.
ALSO READ: Chinese loans: Focus on ‘patriots’
UCAA argued that this particular provision meant that several national assets—stripped of sovereign immunity—were left exposed to possible takeover by China.
On December 11, 2019, the former Director General of CAA, Mr David Mpango Kakuba, wrote to Finance minister Matia Kasaija urging expeditious renegotiations.
“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,” Mr Kakuba wrote.
Section 10.3 of the Repayment Mechanism Agreement, which provides for a waiver of immunity was particularly vexing. The section provides that: “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 judgment.”
Mr Kakuba argued that provision in its original form left government assets exposed to attachment and take over upon arbitration.
Rejected
Information indicates that Exim Bank officials had turned down a request by a team led by Uganda’s former Ambassador to China, Dr Chrispus Kiyonga, to renegotiate some of the contentions clauses.
That position was reiterated in a September 5, 2019 letter that Mr Kasaija wrote to the former Works and Transport minister, Ms Monica Azuba Ntege.
This elicited a June 2020 letter in which Mr Kakuba made a fresh case for renegotiation of the agreement.
“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,” Mr Kakuba wrote.
Some of the provisions that UCAA wanted scrapped included one that requires it to bank all its revenue in an escrow account that was opened in Stanbic Bank.
An escrow is a contractual arrangement in which a third party receives and disburses money or property for the primary transacting parties. The disbursements are dependent on conditions agreed upon by the transacting parties.
Under the agreement, UCAA can only access funds from the escrow account with the approval of the Chinese.
Section 3 of the Repayment Mechanism Agreement and Section 3.1 (a) of the Escrow Account Agreement, provide that UCAA’s annual operating budgets be submitted to both government and Exim Bank for approval.
The sections also handed Exim Bank the right to reject or approve such budgets.
“This also exposes UCAA to risk of failure to deliver its mandate, and infringes on State’s effective control over UCAA,” Mr Kakuba wrote.
It would now appear that, that demand coupled with another made by Mr Kakuba’s successor—Fred Bamwesigye—led to a change of heart on the part of the Chinese. A meeting was reportedly held at the backend of 2020 where changes to the initial agreement were agreed.
Who did not sign?
The Auditor General did not name the Ugandan officials who did not sign the addendum, but Saturday Monitor has established that the team that Dr Kiyonga led to the 2019 round of negotiations included officials from UCAA, the Works and Transport, Finance as well as Foreign Affairs ministries.
“That matter was handled by Ministry of Finance and [U]CAA. They are the best placed to comment about it,” Bageya Waiswa, the Permanent Secretary in the Works and Transport ministry, told Saturday Monitor.
Mr Jim Mugunga, the Finance ministry spokesperson, referred the matter to UCAA on account of them being “the contracting authority.”
When contacted, Mr Vianney Luggya—the manager for public affairs at UCAA—seemed to suggest that the decision not to sign the addendum was informed by earlier advice given by the Attorney General (AG).
“This matter has since been clarified several times; first by UCAA, then the [ICT] minister issued a comprehensive statement and the Attorney General gave his firm opinion on the matter on the floor of Parliament clearly indicating that there was no need for renegotiation of the loan terms since all the obligations in the contract were capable of performance,” Mr Luggya said.
Mr Luggya added that the AG also made it clear to UCAA that the contentious provisions in the loan terms were “typical financing agreements for projects of this nature, which is a customary practice in project financing.”
Issue
Information indicates that Exim Bank officials had turned down a request by a team led by Uganda’s former Ambassador to China, Dr Chrispus Kiyonga, to renegotiate some of the contentions clauses.
