China Eximbank provides $117.7 million buyer’s credit for Lot 3 of Oil Roads Upgrading Project (Linked to Record ID#59741, #59742)

Project narrative

On March 18, 2020, China Eximbank and the Government of Uganda signed a $117,715,100 buyer’s credit loan (BCL) agreement (Contract ID#1420113022020210695) for Lot 3 of the Oil Roads Upgrading Project (also known as the 93 km Bulamagi-Igayaza-Kakumiro 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 ($7588,575.51), 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 was expected to use the BCL proceeds to finance 85% of the cost of a $138,488,356 commercial (EPC) contract (No. UNRA/WORKS/2016-17/00110/03) between the Uganda National Roads Authority (the ‘project owner’) and China Wu Yi Co. Ltd, which was signed on February 2, 2018. The borrower and/or the project owner are responsible for paying 15% of the commercial contract amount ($20,773,256) with their own funds. According to the Government of Uganda’s Aid Management Platform (AMP), the loan (as of May 2023) had achieved a 73% disbursement rate, with China Eximbank making 7 loan disbursements (worth $85,755,969.1 ) between 2020 and 2023: a $18,023,819.3 disbursement on September 30, 2020, a $4,027,127.75 disbursement on December 16, 2020, a $11,254,243.55 disbursement on May 27, 2021, a $9,314,875.67 disbursement on October 18, 2021, a $19,937,037.30 disbursement on February 23, 2022, a $17,636,037.15 disbursement as of July 29, 2022, and a $5,562,828.40 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 $42,620,066.31 and the loan’s amount outstanding (including arrears) was $42,620,066.31. The purpose of the project is to upgrade the 51 km Buhimba-Nalweyo-Bulamagi road and the 42 km Bulamagi-Igayaza-Kakumiro road to Class II (bituminous) standard with a 7-meter wide carriageway and 2.0-meter wide shoulders on both sides of the carriageway. The existing Buhimba-Nalweyo-Bulamagi road starts at Buhimba, approximately 11 km (7 mi), south of the city of Hoima, the capital of the sub-region. The road runs in a general southern direction, crosses River Kafu to Nalweyo, in Kakumiro District. From Nalweyo, the road runs in a general southwesterly direction, through Kakindu to end at Bulamagi, a total distance of about 52 km (32 mi). The geographical coordinates of this road, immediately west of Nalweyo are: 01°07'24.0"N , 31°15'06.0"E (Latitude:1.123333; Longitude:31.251667). The 42 km Bulamagi-Igayaza-Kakumiro road starts at Bulamagi, and continues in a general southeasterly direction, through Igayaza, to end at Kakumiro in the oil-rich Albertine Graben, a distance of approximately 42 km (26 mi). The geographical coordinates of this road in the neighborhood of Igayaza, Kakumiro District are: 0°57'19.0"N, 31°09'05.0"E (Latitude:0.955278; Longitude:31.151389). The Buhimba-Nalweyo-Bulamagi and Bulamagi-Igayaza-Kakumiro roads have an average existing carriage way width of 4.5 meters with a drain to drain width of 7.5 meters. China Wu Yi Co. Ltd is the general EPC contractor responsible for implementation. Project implementation commenced on April 13, 2018. However, in August 2018, the Government of Uganda's Public Procurement and Disposal of Public Assets Authority (PPDA) halted the procurement of an engineering consultant for the 51 km Buhimba-Nalweyo-Bulamagi road and the 42 km Bulamagi-Igayaza-Kakumiro road, citing irregularities in the process. The procurement had to be re-advertised from the start. The project was originally expected to reach completion on April 16, 2021. However, the project has encountered various implementation delays. As of December 31, 2020, the project had achieved a 48.7% physical progress rate (against a target of 89%). As of November 1, 2021, the project had achieved a 89.6% 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; (v) poor planning and coordination by the general contractor and subcontractors; (vi) right of way obstructions; and (vii) low production by local subcontractor. Moreover, 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.