Chinese firm goes to court over Uganda’s railway project

Uganda’s plans for a standard gauge railway (SGR) are in disarray as the government must now choose between playing fair and surrendering to lobbyists’ interests.

At the heart of the dispute are several Uganda government departments and two Chinese companies — state-owned China Civil Engineering Construction Corporation (CCECC) and China Harbour Engineering Company Ltd (CHEC).

But The EastAfrican has learnt that American lobbyists are behind CHEC and pushing Uganda government executives in the fight for $8 billion worth of contracts to build, upgrade and expand Uganda’s railway network to standard gauge.

The SGR is one of the components of the Northern Corridor infrastructure projects that the East African Community partner states started planning as early as 2004, but in June 2013, the presidents of Kenya, Uganda, and Rwanda agreed to fast track it, with a March 2018 deadline.

READ: CoW now sets SGR contract signing deadline

In 1998, CCECC interested Uganda’s then Ministry of Works, Housing and Communication in a trolley bus transportation system in Kampala city, but the ministry and President Yoweri Museveni instead interested the same company in it the rehabilitation and development of Uganda’s railway infrastructure.

By 2004, the project was taking a regional outlook, and Museveni met CCECC executives in Kampala and later in 2006, in Beijing, to discuss the issue.

In 2010, Museveni asked CCECC to work with the Uganda Peoples’ Defence Forces to enable the army to develop capacity in rail construction. These engagements crystallised into three memoranda of understanding (MoUs) with the Chinese company, the first of which was signed on December 22, 2011 for the construction of a new port at Bukasa in Uganda.

The other two MoUs were signed on January 13, 2012, one for the rehabilitation and upgrade of the existing railway line from Malaba to Kampala and the other for the line from Tororo-Pakwach-Gulu and expansion to Nimule, then Juba in South Sudan.

CCECC went ahead to conduct feasibility studies for the two rail routes, and submitted them to the Ministry of Works and Transport in April 2013.

However, even as CCECC was doing the feasibility studies, a rival firm in CHEC appeared on the scene in August 2012.

Documents obtained by The EastAfrican indicate that President Museveni issued a presidential directive in September 2012 to his Minister of Works Abraham Byandala to accommodate CHEC, which was fronted by former US assistant trade representative for Africa Rosa Whitaker, in the railway and port projects, citing the group’s goodwill in Beijing to source funds for construction of the railway.

“Rosa Whitaker ... brought to us a Chinese group known as China Harbour Engineering Company that wanted to help source Chinese government soft loans to build the railways in Uganda as well as a port on Lake Victoria,” Museveni’s letter reads.

The weight of the powerful Whitaker Group forced Museveni to revise the earlier MoUs with CCECC.

On March 14, CCECC was invited to a meeting with the State Minister for Works John Byabagambi to discuss the next steps towards the final deals, only to be told that its contract to build the SGR for Tororo-Pakwach-Gulu and expansion to Nimule would be handed to another company, which had signed a new MoU with the government.

READ: Museveni set to clear talks with Chinese firms on SGR

Instead, CCECC would be given the contract to build the western route of the railway from Kampala to Kasese, which was not part of the MoUs.

Besides this shabby treatment, the company claims that it had invested Ush50 billion ($19.3 million) on feasibility studies for the routes covered under its MoUs with the Uganda government, fully sanctioned by the Attorney General, Peter Nyombi, who also advised against termination of CCECC’s MoUs, according to official documents obtained.

However, on April 8 this year, Mr Byabagambi terminated CCECC’s MoU for the Tororo-Pakwach-Gulu line, saying that it was not binding. CCECC lawyers argue that once the Chinese firm undertook to do feasibility studies, which the government received as a sign of commitment to undertake the projects, Kampala committed itself the argument that the MoUs were not binding was then invalid.

READ: Railway project hits fresh barrier in Uganda as Kenya lays foundation

More significantly, the president becomes a key player now as Mr Byabagambi says in a June 15 sworn affidavit that he terminated the agreements with CCECC under a presidential directive.

“In further response thereto, I have not acted on this process unilaterally as H.E the President of the Republic of Uganda and the summit members have been giving direction as clearly shown in annexure B,” he says.

Although the said annexure — a July 2, 2013 letter by President Museveni to Prime Minister Amama Mbabazi on railway infrastructure — does not direct Mr Byabagambi to terminate CCECC’s MoUs, it raises further questions of corruption in the projects and the multiplicity of agreements between the government and Chinese firms for the same railway projects.

But the significant question President Museveni’s letter raises is that of financing, and is loaded with undertones of frustration as to why Uganda’s SGR remains on paper, while Kenya has already covered a lot of ground on projects agreed on the same dates, with a similar completion deadline.

President Museveni’s letter was triggered by Transport Minister Stephen Chebrot, who wrote to the president seeking a way out of the impasse.

“Before we go for a win-win solution suggested by Dr Chebrot, Hon Byandala should answer the question: If some companies fulfilled their obligations under the MoU and on time, why had the project not progressed by the time I came in with the Engineering Brigade of the UPDF and, later on, with the CHEC people? After that answer, then we shall see the way forward,” reads President Museveni’s letter.

China’s ambassador to Uganda Zhao Yali also cited financing hurdles when The EastAfrican sought comment last Thursday on the bickering Chinese companies that were costing Uganda a lot of time, projects running behind schedule and how this would be resolved.

“The financing for the projects is important; you have to know where you can get the money. I am not ready to give comment right now because the Uganda government is in consultation with the Chinese companies that are contracting the railway project. But the financing is important,” he said.

In the meantime, as the blame game goes on within government departments, namely the Ministry of Works, Attorney General’s Chambers, the Office of the President, Uganda People’s Defence Forces, all pointing fingers at each other for flouting fair play rules, lawyers are watching the developments, and taxpayers will soon or later pick the bill for the litigation that will arise out of this mess.

CCECC has already won round one after getting an injunction on July 14 against the Attorney-General preventing him from terminating its MoU for the lucrative Tororo-Pakwach-Gulu railway line, which will eventually link up with South Sudan’s line from Juba.