Go slow on borrowing to invest in oil sector

By Christopher Emazi

Ever since government took the decision to exploit the country’s oil deposits, it has earned itself new friends notably the Chinese. Seldom do you find the world’s second largest economy desirous to be friends with Uganda, one of the “poorest countries in the world” but let us first take a look at China’s Foreign Direct Investment (FDI) strategy for Africa.

China's FDI in Africa is supported by two state owned banks including China EXIM bank instituted in 1994 to support both the Chinese export and import in Africa with focus on roads, power plants, pipelines and telecoms then also China development bank which launched the China Africa development Fund. This paints a picture on how china has been deliberate on its influence in Africa but what it has done so far.

According to Reuters in Conakry Guinea, China agreed to loan Guinea $20 billion over almost 20 years in exchange for concessions on bauxite, an ore of aluminium which the west African country has in abundance. However, the three projects to extract the resource have been mottled with allegations of water and air pollution.

The construction of railways linking hinterland regions to the costal ports.

These include the Addis Ababa –Djibouti railway and the East African Standard Gauge Railway (SGR) which are all part of the East African Masterplan. The SGR which is meant to connect Uganda to Kenya and Kigali Rwanda had the Nairobi-Mombasa route completed at a cost of 3.6bn USD making it the most expensive infrastructure project in Kenya.

In Tanzania, the Bagamoyo port being constructed on loan by China Merchant Port Holdings seats on 800 hectares and is said to end up as East Africa’s largest sea port on completion. However, it was shocking when President John Pombe Magufuli said this was a bad loan and was calling for renegotiation with the contractor. Questions revolved around the high interest rate, return on investment and commitment from other countries in East Africa to use it as the main port.

In the case of Uganda, 80% if not more, of the major infrastructure developments in the country have been or are being done by Chinese companies. It shouldn’t be by surprise that China Communications Construction Company (CCCC) is behind major projects like the the New 200m USD Cargo Center at Entebbe International Airport expected to be completed in 2021, the 10km Buhuka-kingfisher oil road, the 107km Mubende - Kakumiro – Kagadi road and the 51.4km Exim bank loan Entebbe express high way which is said to be the most expensive road in the world costing $9.2 million per kilometre over and above the average $2 million per kilometre. Also Critical Oil roads like the 97km Hoima- Buliisa Road ($600m) have been taken up by China Railway Service Group (CRSG). The above are just a handful but for more information please refer to the Uganda National Roads Authority (UNRA) project status report 2018.

The implication, what does this all have to do with Oil and gas in Uganda and what Lies ahead?

The cost of awarding these contracts is erroneous and full of corruption characterised by non-competitive bidding, resulting from the funding parties. In a 2015 Value for Money audit, the Auditor General, Mr John Muwanga, concluded that the project costs for the Entebbe express way could have been much lower if UNRA had procured the contractor through competitive bidding. Chinese loan projects in Uganda will always be taken by Chinese Companies regardless of their capacity to deliver good works. This kills procurement processes and discourages other competent companies including our own local firms from bidding for such Jobs.

This will result in bad loans as the price quotes will be outrageous as result of no competitive bidding hence no value for money. Bad loans have huge effects on the tax payer and create big dents on the economy which cripples other planned development works.

China's development approach is not on Humanitarian basis. If any, China has very few grants or donations to African countries. Its relationship with these countries is purely business with heavy interests and limited local content because China loans are followed up for its national construction companies to implement. This Kind of development is not matched with the needs of the citizens for example road tolls that citizens can’t afford. The loan approach fails to create some kind of background check to see if countries can afford to pay back the loans, Countries like Zambia and Zimbabwe have had conflict with China over loan payment.

What is in for Oil?

Uganda’s National Development plan III considers oil as the major financier of infrastructure development. It is clear that most of the loans we are taking from the Chinese government will be paid back using the oil proceeds. It is sort of a mortgage and if these projects are to make economic sense they have to be relevant, timely and free of corruption. The danger is that if we keep consuming these loans before oil is extracted, we may end up in what is known as economic colonisation.

The writer is the Director of Programmes at Global Rights Alert

As published by New Vision