The Parliamentary Budget Office has cautioned Members of Parliament against approving the €126,440,160.68 (Shs508.44 billion) loan request by the government for the construction of the 97-kilometer Lusalira-Nkonge-Ssembabule road.
The proposed funding terms by Citi Bank would result in Ugandan taxpayers paying an additional Shs300 billion in interest.
The warning rose after scrutinizing the documents submitted by the Ministry of Finance, revealing that if approved, the highly commercial loan would burden Ugandan taxpayers with a total of Shs808.3 billion. Additionally, the government would need to pay Shs141.47 billion in Value Added Tax on behalf of the lender.
“The total borrowing is highly commercial with a grant element of negative (-20.3%). Uganda’s Debt Management Strategy guides that Government shall borrow for social services development under highly concessional terms with a minimum grant element of 35%. The Minister provided no evidence to show this was the cheapest financing option for this project, and its effective interest rate exceeds the recommended benchmark for external borrowing for projects on non-concessional terms,” noted the Parliamentary Budget Office in documents submitted to Parliament’s National Economy Committee.
The loan request followed a commercial contract signed between the Uganda National Roads Authority (UNRA) and M/S Technovia S.A, in joint venture with Technovia Angola, on September 12, 2022. The commencement of civil works is pending financial clearance by the government.
Ahead of the planned scrutiny of the loan, the Parliamentary Budget Office, which provides technical advice to Parliamentary Committees, raised several red flags on the loan proposal. They recommended that the government rectify these issues before the loan is considered or renegotiate the entire deal due to its high cost.
“Uganda’s debt remains sustainable at moderate risk of debt distress. However, given the increased rate of debt accumulation, the increased share of debt service obligations, and less than proportionate growth in domestic revenue collection over the past five years, it is necessary that the Minister of Finance renegotiate the terms offered by Citi Bank or consider alternative and cheaper financing options to ease the pressure on the struggling fiscal space in the country,” the Budget Office advised.
In addition to paying Shs300 billion in interest, the government will bear the burden of paying all the taxes arising under this loan, tentatively marked at Shs141.47 billion. The project cost is Shs534.9 billion exclusive of Value Added Tax, with Shs479.8 billion funded by Citi Bank and Shs55.11 billion (10.3%) by the Government of Uganda.
Concerns Over Financial Commitments and Legalities
The National Economy Committee has requested the Ministry of Finance to clarify whether signing the contract in September 2022 amounts to entering a financial commitment. Parliament also faulted the government for not submitting the contract signed by Uganda National Roads Authority (UNRA).
“There is a need for clarity on whether the Solicitor General had cleared it. There is a need for legal guidance on whether signing the contract amounts to entering a financial commitment contrary to Section 23 of the Public Finance Management Act 2015, or whether the clearance by the Government makes it pending approval of Parliament,” highlighted the documents.
The Budget Office also questioned the discrepancies in the rates submitted by the Ministry of Finance. The draft financing agreement indicates that the commitment fees shall be computed at a rate of 25% of the margins, resulting in a commitment fee of 1.25%. However, the Ministry of Finance’s brief to Parliament placed this rate at 1.75%, prompting the National Economy Committee to demand clarification.
John Bosco Ikojo, Chairperson of the Committee of National Economy, revealed that although the Committee was called from recess to handle the loan due to its urgency, the meeting flopped because top officials from the Ministry of Works, UNRA, and the Ministry of Finance failed to present the loan.
“Unfortunately, this morning, we received a call from the Ministry of Finance, expressing their inability to appear before the Committee to officially present this loan. However, this does not stop our business as a Committee. We shall continue understanding the loan so that when we later interact with the Executive, members are well-informed about the loan and its components,” said Ikojo.
Maurice Kibalya (Bugabula South) pointed out several loopholes in the loan, remarking, “One of the things we have realized with this loan is that it is very expensive. Government isn’t supposed to get commercial loans. Most loans to the government have a grant component and a longer grace period, which isn’t present in this loan. Additionally, this loan is managed by multiple agencies, each wanting to make money. So, the whole loan is suspicious.”
Kibalya also questioned why the latest loan bore the approval letter from the Prime Minister, Robina Nabbanja, despite the President’s directive requiring all loans to be approved by him. This prompted the Committee to seek clarification if the President rescinded his earlier directive.
Robert Migadde (Buvuma County) questioned the urgency behind recalling the Committee from recess under the pretext that the loan request would be top of the agenda when Parliament resumes next week, only for the Executive to snub the meeting.
“This makes us question who we should listen to because we were informed the loan is urgent. Now the people requesting the loan are acting like it isn’t urgent. We wasted our fuel driving from the constituencies during recess when we are supposed to be in our constituencies,” remarked Migadde.
However, this is not the first loan to raise suspicion, in May 2023, Parliament witnessed drama when the government sought clearance to borrow €500 million (Shs2 trillion) from Amarog Capital Ltd Sovereign Infrastructure Group, later discovered to be a private money lender in Kenya, prompting the government to withdraw the loan request.
The government, in documents submitted to Parliament, defended the loan request, arguing that the existing gravel road is in fair condition with surface corrugation, potholes, inadequate drainage, and poor alignment, necessitating fresh works.
“The current gravel state of this road does not meet the expected level of service, leading to high vehicle operating costs, poor connectivity, and low economic activities in the project area,” read the documents.
In the same turn of events, recently UNRA suspended the road construction works on Mityana-Mubende road over financial constraints. The Sh395 billion project which began in April 2021, was scheduled to be completed two months ago but is currently 50 percent complete.The work was carried out by Energoprojekt Niskogradnja, a Serbian civil engineering and construction company.
