Govt seeks to pay road contractors after work

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Under proposed financial arrangement, no payments would be made by the Ugandan government during the period of construction and all the financial costs reflecting the time value of money, are amortised or paid off over a long period of up to 10 years, inclusive of the construction period.

The AFM requires the contractor to acquire, rather than arrange for financing (hence becoming the “borrower of record”) the project works, with the commitment that the government would meet payments due to the contractor at a future date.

In his December 24, 2021 letter, the Minister of Finance, Mr Matia Kasaija, wrote to President Museveni informing him of the new proposed financing model.

Mr Kasaija noted that the model had been unanimously endorsed by technocrats from the Ministry of Works and Transport and the Uganda National Roads Authority (Unra).

“…for example, we proposed different payment scenarios and in one of the (AFM), we sequenced projects’ start date and amortised the payments after project completion for a period of  10 years using current  annual government of Uganda budget for Unra. This demonstrated ease in the government’s cash flow in the outer years,” Mr Kasaija’s letter reads in part.

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The AFM modality, Mr Kasaija said, proposes issuance of bills of exchange to contractors for interim payment certificates for works completed, which can then be discounted with financing institutions.  

Mr Kasaija yesterday declined to give an update on the proposal saying the matter is still a “government secret”.  “I cannot start discussing the content of the letter, which I wrote to the President with the press, because that is still a secret,” he said.

Asked why he couldn’t offer more details about the proposed AFM, yet it is a matter of public interest, Mr Kasaija insisted that his letters to the President are always a secret and should be treated as such.

Loan obligation

In the AFM deal, the government does not take on the loan obligation that the contractor signs with its financier, but provides firm commitment (in form of financial instruments) to meet future payments comprising both the Engineering Procurement Contract (EPC) and financing costs.

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Mr Kasaija also told the President that the pre-financing model of payment for road construction would overwhelm the government, which is already cash- strapped. For instance, Mr Kasaija explained that if the pre-financing model is adopted, Unra’s budget would have to be increased from Shs3.3 trillion to Shs7.57 trillion (an annual increment of Shs4.27 trillion) to meet expected pre-financing and contractor facilitated obligations.

The proposed format, however, is silent on what interest government would pay to contractors.
Unra’s media relations manager Allan Ssempebwa Kyobe was non-committal when contacted. Mr Kyobe said Unra is just an implementing agency on behalf of the government.

“Ours [Unra] is to implement the government’s programme and we rely on releases from the Ministry of Finance to pay off contractors. We will wait for an update from them and implement as instructed,” he said.

The Minister of ICT and National Guidance, Dr Chris Baryomunsi, couldn’t be reached for a comment. We were also unable to reach out to the International Monetary Fund officials in Kampala.

Mr Julius Kapwepwe, the coordinator of the East African Budget Network, who is also the executive director of Uganda Debt Network, said: “The government proposal isn’t new globally and we are picking some of the global lessons into our context. If prudently managed through a competitive bidding transparent process, it is an opportunity for Uganda’s investment into key and strategic sectors for projects. 

“The bottom line is the transparent and competitive bidding process as opposed to kitchen-cooked kind of arrangement.’’

On whether local contractors would compete, he said: “I don’t think that financing modality could discount the contribution of the Ugandan private players because there are all these sub-contracting opportunities.”

According to the minister’s letter, at least eight contractors are agreeable to the AFM. However, six contractors were not agreeable to it while three contractors never responded.

The shadow Cabinet minister for Works and Transport, Mr Yusuf Nsibambi, said the proposal will only benefit foreign contractors who have a stronger financial muscle.

“They will only go through evaluation of the Ministry of Works and Unra where there is a lot of connivance because there is an assumption that the contractors will be offering their services at fair terms. Besides, it is also likely to cause problems in terms of planning and financing because after five or six years, those contractors will come and there will be no money to pay them,” he said.

He advised the government to consider constructing priority roads like those which reduce traffic jams in the city, and those that link to key agricultural and oil areas.

Position of some firms

According to the minister’s letter, at least eight contractors are agreeable to the AFM. However six contractors were not agreeable to it while three contractors never responded.
The contractors that are agreeable to the AFM include ROKO Construction Ltd, Power China International, AFCONs Infrastructure Ltd, Abubaker Technical Services and General and General Supplies Ltd and Technovia Angola. Others are; Zhongmei Engineering Group, Chongqing International Construction Corporation, and China Communications Construction Co Ltd (CCCC).
Contractors that aren’t agreeable to the AFM proposal include China CAMC Engineering Co Ltd, China Railway Seventh Group Co Ltd, AVIC International, Arab Contractors Ltd, China Railway 18th Bureau Group Company and Ashoka Buildcon Ltd.
Those that didn’t respond to the government are DOTT Services Ltd, MCA Uganda Ltd, and Yapi Merkezi.