Parliament Asks UNRA to Renegotiate Masaka-Mutukula Road Contract

The Uganda National Roads Authority (UNRA) is set to renegotiate its contract with Chongqing International Construction Corporation (CICO) for the reconstruction of the Masaka-Mutukula Road and the rehabilitation of various roads in Masaka District, following guidance from Parliament.

Parliamentarians have recommended that the China Export & Credit Insurance Corporation (Sinosure) insurance component, valued at Shs38.86 billion and included in an addendum for pre-financing the project, be reduced by 40 percent.

This recommendation was part of a report presented by John Bosco Ikojo, Chairperson of the Committee on National Economy, during the plenary session on Thursday, August 8. The report evaluated the viability of the insurance component.

CICO explained that the Sinosure insurance fee is a mandatory requirement for all equity and debt investments made by Chinese enterprises in foreign projects. The insurance is designed to provide funds to the contractor in the event that the Ugandan government encounters payment difficulties, ensuring that work on the project continues without interruption.

The original loan of Shs691.68 billion to finance the road construction was approved by Parliament in December 2023. However, the insurance component was not initially covered.

Henry Musasizi, State Minister for Finance (General Duties), noted that the insurance cost was valued at Shs64.77 billion, equivalent to 100 percent of the project cost.

Hon. Ikojo, who also represents Bukedea County, mentioned that a meeting between the committee and the finance minister resulted in an assurance that the government will prioritise payments to the contractor after a two-year grace period.

"This means that 40 per cent of the project cost will be financed on time, avoiding delays in implementation, as debt servicing is given priority within the available resource envelope. The insurance will therefore only apply to the remaining 60 per cent that the contractor will borrow," Ikojo explained.

A minority report, presented by Hassan Kirumira (NUP, Katikamu County South), suggested that Parliament postpone the request until the minister could clarify the terms and implications of the Sinosure insurance to remove any uncertainties.

Goreth Namugga (NUP, Mawogola County South) urged the minister to outline a strategy for reducing the borrowing of loans that have not been effectively utilised.

"Honourable colleagues, we are paying commitment fees amounting to nearly Shs434 billion on top of the money we borrow. So far, we have paid Shs5.5 billion in penalties for cancelled loans. The minister must convince us of their readiness to provide counterpart funding for these roads," Namugga stated.

Parliament also endorsed a committee recommendation to reassess the terms of a government proposal to borrow up to USD 136.95 million from Citibank to finance the design and construction of Package 4: Lusalira-Kasambya-Nkonge-Lumegere-Ssembabule Road Upgrading Project (97km).

"The committee observed that the loan is non-concessional, with a high interest rate and an elevated unit cost per kilometre. Therefore, the committee recommends that the Ministry of Finance renegotiate the loan for better terms," said Hon. Robert Migadde, the committee’s deputy chairperson.

Another minority report, also presented by Kirumira, raised concerns about whether the loan request had been approved by the President before its presentation to the committee on 2 August 2024, noting that the President had initially approved it in August 2022.

"The National Planning Authority highlighted several concerns regarding the President’s letter, as it lacks clarity. We believe it would be prudent for Parliament to scrutinise the responses of UNRA and the Ministry on NPA’s concerns," Kirumira argued.

Deputy Speaker Thomas Tayebwa, however, defended the loan proposal, asserting that it represents a favourable deal for Uganda, particularly because it concerns the construction of an oil road.

"The loan under Package 4 is more cost-effective than the loans we have previously approved for oil roads. Oil roads are built to carry heavy equipment, requiring double layers and designs intended to last around 20 years," Tayebwa explained.

"If you delay the road construction now, despite having completed the other oil roads and nearing the finalisation of the EACOP [East African Crude Oil Pipeline Project], what will happen to the oil storage facilities we plan to establish at this site?" he added.