China Eximbank provides $186 million buyer’s credit for Lot 1 of Oil Roads Upgrading Project (Linked to Record ID#59742 and #59743)

Project narrative

On March 18, 2020, China Eximbank and the Government of Uganda signed a $186,055,240.64 buyer’s credit loan (BCL) agreement (Contract ID#1420113022019212753) for Lot 1 of the Oil Roads Upgrading Project (also known as the 159 km Masindi (Kisanja)-Park Junction and Tangi Junction-Paraa Buliisa Roads Upgrading Project). The BCL carries the following borrowing terms: a 15-year maturity, 5-year grace period, an annual interest rate of 6-month LIBOR plus 300 basis points (a 3% margin), a default (penalty) interest rate of 1%, a 0.5% management fee ($930,276,20), and a 0.5% commitment fee. The BCL is also supported by a Sinosure credit insurance policy. Then, on June 12, 2020. China Eximbank’s Sovereign Business Department issued a letter to the Government of Uganda’s Ministry of Finance, Planning, and Economic Development, notifying it that ‘all the conditions as set out in Article 16 of the [BCL] agreement have been satisfied’ and the ‘[BCL] agreement becomes effective on and from the date June 12, 2020.’ The borrower is to use the BCL proceeds to finance 85% of the cost of a $218,888,518.40 commercial (EPC) contract (No. UNRA/WORKS/2016-17/00110/01) between the Uganda National Roads Authority (the ‘project owner’) and China Communications Construction Company Ltd (CCCC), which was signed on February 5, 2018. The borrower and/or the project owner are responsible for paying 15% of the commercial contract amount ($32,833,277.76) with their own funds. According to the Government of Uganda’s Aid Management Platform (AMP), this loan achieved a 82% disbursement rate, with China Eximbank making 11 loan disbursements (worth $120,561,059.11) between 2020 and 2021: a $67,601,832.48 disbursement on September 1, 2020, a $4,406,425.91 disbursement on December 15, 2020, a $10,033,074.11 disbursement on March 29, 2021, a $12,624,887.24 disbursement on June 21, 2021, a $15,300,396.18 disbursement on August 6, 2021, a $6,331,933.13 disbursement on September 10, 2021, a $4,262,510.06 disbursement on November 26, 2021, a $8,021,437.41 disbursement on March 11, 2022, a $9,572,188.89 disbursement as of May 30, 2022, a $6,379,051.13 disbursement as of November 4, 2022, and a $7,499,972.20 disbursement as of February 14, 2023. According to the Uganda Ministry of Finance, Planning, and Economic Development's Report on Public Debt, Grants, Guarantees and Other Financial Liabilities for Financial Year 2021/2022, as of December 31, 2021, total loan disbursements amounted to $120,561,059.11 and the loan’s amount outstanding (including arrears) was $120,561,059.11. The purpose of the project is to improve the road infrastructure within the mineral and oil exploration zones in Hoima, Buliisa and Nwoya districts. It involves the design and construction of Masindi (Kisanja)-Park Junction and Tangi Junction-Paraa-Buliisa Roads (measuring 159 km in length). The project consists of four lots; Masindi – Kisanja (72 km); Sambiya – Murchison Falls (12 km); Tangi Junction – Paraa – Buliisa (52 km); and Wanseko – Bugungu (23 km). The project will upgrade existing roads from gravel to paved (Bituminous Standad Class II), with 6-meter wide carriageways and 1.5 meter wide shoulders on both sides of the carriageways. CCCC is the EPC contractor responsible for implementation. Abuljebain Engineering Consulting Office (AECO) and Technology Consult Ltd are the project supervision consultants. Project implementation commenced on April 23, 2018 and the project was originally expected to reach completion on April 26, 2021. However, the project has encountered various implementation delays. As of December 31, 2020, the project had achieved a 68.3% physical progress rate (against an expected rate of 70.24%). As of November 1, 2021, the project had achieved a 91.2% physical progress rate. Project implementation obstacles have included (i) a delay in the signing of the loan agreement, which led to delayed contractor payments between July 2019 and July 2020; (ii) rising water levels in Lake Albert and River Nile, which resulted in flooding of the northern bank and other implementation problems; (iii) the COVID-19 pandemic, which slowed the pace of construction; (iv) inadequate funds and management of land acquisition problems; and (v) poor planning and coordination by the general contractor and subcontractors. In addition to implementation challenges, the project has raised environmental concerns due to construction taking place within nationally protected areas and potential critical habitats of Uganda.