ICBC provides $240 million loan for Sukulu Phosphate Comprehensive Industrial Development Project (Linked to Record ID#31123)

Project narrative

On August 1, 2013, the Government of Uganda granted an exploration license to Guangzhou Dongsong Energy Group (U) Co., Limited [廣州東送能源集團烏干達有限責任公司] to develop the phosphates and rare earth minerals at Sukulu. Then, on December 4, 2015, the Industrial and Commercial Bank of China (ICBC) signed a $240 million (RMB 1.5 billion) loan agreement (project financing facility agreement) with Guangzhou Dong Song Energy Group (U) Co., Limited for the Sukulu Phosphate Comprehensive Industrial Development Project. Sinosure provided credit insurance for the loan. The borrower was expected to use the proceeds of the loan to partially finance a commercial contract with the 23rd Metallurgical Construction Group Company Limited. The project involved the construction of a phosphate fertilizer production plant. It was part of a larger $620 million investment in the Osukuru industrial complex that was expected to include a steel manufacturing factory, a sulphuric acid manufacturing factory, (a rare earth minerals mining plant), the Osukuru Thermal Power Station (with capacity generation of 12 megawatts), and the largest organic fertilizer factory in East Africa (with capacity of 300,000 metric tonnes of organic fertilizer annually). The project site is located in Sukulu village in Eastern Uganda’s Tororo District. It is about 11 km outside Tororo town -- 5 km along the Busia-Tororo road -- near the Uganda-Kenya border. 23rd Metallurgical Construction Group Company Limited was the contractor responsible for project implementation. Project implementation commenced on October 16, 2015 and the phosphate fertilizer production plant was officially commissioned/completed on October 24, 2018. After the plant’s commissioning, it produced 50,000 tons of bio-organic fertilizer, which was distributed to tea, sugarcane and other commercial farms, for one planting season to test its effectiveness. The trial test was successful and commercial fertilizer production was expected to commence in January 2020. However, commercial fertilizer production was halted because of a legal dispute (due to alleged fraudulent acquisition and ownership of a multi-million dollar mineral deposit that led to the cancellation of Guangzhou Dong Song Energy Group (U) Co., Limited’s mining lease). Guangzhou Dong Song Energy Group (U) Co., Limited originally expected to commission a steel plant, sheet glass factory and slag cement plant in June 2019, but ICBC withheld loan disbursements because of legal challenges facing the company. ICBC also notified Guangzhou Dong Song Energy Group (U) Co., Limited in 2019 that it was withholding $60 million, at least part of which was the undisbursed balance of the $240 million loan, due to the introduction of a new policy that required ICBC to lower its overseas loan centralization ratio. The COVID-19 pandemic also affected project implementation, as many staff were either laid off or unable to return to the project site. The Sukulu Phosphate Comprehensive Industrial Development Project was also plagued by corruption. In April 2019, two former senior officials at Uganda’s Ministry of Finance who had previously been arrested for soliciting a bribe a Chinese investors were sentenced to two years in prison. The Anti-Corruption Court at Kololo also banned the two officers who were interdicted in 2017, from holding any public office for 10 years. Presiding Judge Lawrence Gidudu convicted former principal finance officer, John Ogol Charles Ogol and Geoffrey Turyamuhika alias Tumwine (senior economist) for receiving and accepting a $50,000 bribe from Hassan Sserunjogi on March 27, 2017. According to evidence in court, the convicted persons received the money in exchange for expediting documentation for financing the construction of a power substation and transmission line at the Sukulu Phosphate Comprehensive Industrial Development Project in Tororo. In addition to the jail punishment, Justice Gidudu ordered Ogol and Turyamuhika to pay a fine of Shs 4.8 million each. Then, in September 2022, President Museveni lamented the fact that Ugandan Ministry of Finance officials had cheated the project owner. He said ‘That Chinese man, they took bribes from him’ [and] ‘I have reached out to the President of China to get me another investor if the other one has problems. Or else I will get a solution. Tororo will give us phosphorus, associated gas, nitrogen and Lake Katie will give us potassium’. The Osukuru Industrial Complex in Tororo district, Uganda, led by Guangzhou Dongsong Energy Group, has sparked concerns over significant environmental risks. The project encompasses a phosphate and rare earth mine, a fertilizer factory, a steel mill, and a power plant. Critics have highlighted the lack of comprehensive measures to address environmental challenges, including chemical exposure and emissions from mining and industrial activities. The potential for water and soil contamination, along with harmful emissions, poses risks to local ecosystems and public health, emphasizing the need for stricter environmental oversight. Governmental risks have also been a focal point of criticism, with allegations of corruption and mismanagement in Uganda's mining sector. Licenses for mining exploration have reportedly been granted in protected areas, threatening biodiversity and violating conservation principles. Moreover, questions have arisen about the adequacy of regulatory frameworks and enforcement, as some investors are accused of failing to meet environmental and operational standards. These governance issues undermine public trust and complicate efforts to ensure sustainable development. On a social level, the project has displaced local communities, leading to significant disruptions in livelihoods. Villagers have reported being coerced into relinquishing land rights without clear terms or fair compensation, and promises of land titles remain unfulfilled for many. This has resulted in loss of farmland, reduced food security, and economic hardship, with families struggling to sustain their livelihoods or afford basic needs like education. These challenges highlight the urgent need for more transparent, equitable, and community-focused approaches to resource development in Uganda.