Growing up in suburban Ohio, Rajakumari Jandhyala never imagined she would end up in the oil business, much less on the front line of America’s global competition with China. She spent two decades as a policy adviser on Africa, most recently as an aid official in the Obama administration.
But in 2016, she heard about a call for proposals to build an oil refinery in Uganda that could be the largest in East Africa, and she put together a bid. She landed an investor in Kenya. She recruited oil and gas executives from General Electric. An Italian contractor joined the group of companies that formed a consortium, too.
The main problem was the big advantages enjoyed by the competition: two Chinese energy companies, one of them a state oil giant with Beijing’s support.
China is aggressively seeking investments and contracts around the world, and perhaps nowhere is this more visible than Africa, where Chinese companies have won contracts to build dams, roads, stadiums, airports and railways. In country after country, governments have borrowed heavily from China to pay for these projects.
China’s investments in Africa are central to President Xi Jinping’s signature Belt and Road Initiative, a trillion-dollar program to build infrastructure and extend Beijing’s influence around the globe.
The Trump administration has accused China of engaging in predatory lending aimed at trapping countries in debt, acquiring strategic assets like ports, and spreading corruption and authoritarian values. In response, the United States has announced an effort to help American businesses compete.
“We’re streamlining international development and finance programs, giving foreign nations a just and transparent alternative to China’s debt-trap diplomacy,” Vice President Mike Pence said in a speech in October. The White House has also unveiled an Africa strategy aimed at China.
The idea is to challenge China’s infrastructure program while also pushing back against its trade practices, cybertheft and expanding military facilities and presence in the Pacific and Indian Oceans. But the threat posed by the Belt and Road Initiative to American interests is debatable, and it is unclear how far the United States should — or can — go to compete. The funds set aside by the Trump administration amount to just a fraction of Beijing’s commitment.
Ms. Jandhyala’s bid for the $4 billion refinery project was a case study in the long odds the United States faces as it tries to go head-to-head against China in infrastructure development — and in the conditions under which American companies could prevail.
The competition came to a head early last year, when Ms. Jandhyala and other consortium executives faced off in a conference room above Lake Victoria against Ugandan officials backing the Chinese companies. Uganda’s strongman president for the past 33 years, Yoweri Museveni, had called the meeting in his compound to try to resolve the bitter dispute.
In a sign of the intense infighting, Uganda’s domestic intelligence agency investigated three officials believed to favor the American consortium and questioned its ability to finance the project, according to a copy of the agency’s report reviewed by The New York Times.
In an April speech, Mr. Museveni praised Western companies for finally “waking up” to Africa. But he also noted that “the Chinese have already woken up — they are really, really, really very active and fast.”
“So why not take advantage of both?” he asked.
Scramble for a Prize
The African Great Lakes have long tempted outsiders seeking riches, including the European nations that began plundering the continent in the 19th century. But in 2006, four decades after the end of British rule in Uganda, a prize untapped by the colonialists was discovered: oil deposits by Lake Albert that are among the largest in East Africa, enough to transform parts of impoverished Uganda.
Mr. Museveni’s government negotiated for years with foreign companies before agreeing to a plan for extraction and the construction of a pipeline southeast to the Tanzanian coast, where the oil could be shipped around the world.
But Mr. Museveni also insisted on building a refinery in Uganda to ease the region’s dependence on imported fuel. The contract went to Russians at first, but they withdrew.
In Africa, American businesses have been largely absent while Chinese companies have put down roots, nurturing powerful allies through both legitimate and illegal means. Some target individual African officials and their family members with cash bribes or deals for services, like legal representation or insurance.
Ms. Jandhyala, 53, heard about the plans on a scouting trip to Uganda in 2016, her first visit since working for the Ugandan prime minister’s office a decade earlier as an adviser on a peace process to end an insurgency.
From a shared work space in Washington, she recruited partners for what she hoped would be the first project for Yaatra Ventures, which she founded in 2015 to invest in African infrastructure.
“With G.E., here was an American company that could bring capabilities,” she said.
She was not alone in sensing the opportunity. Uganda received more than 40 proposals to build the refinery.
Leading one bid was Dongsong, a private hydropower and mining company in the southern Chinese city of Guangzhou. A proposal made outside formal channels came from the China National Offshore Oil Corporation, or CNOOC, the country’s third-largest state oil company.
Both companies had offices in Kampala, the capital of Uganda, and had worked closely for years with the Ministry of Energy and Mineral Development. Dongsong was building a $620 million phosphate mine and fertilizer factory in eastern Uganda. CNOOC was one of three foreign companies that had struck deals to extract oil.
But their proposals included tough terms, according to interviews and an internal government assessment reviewed by The Times.
Dongsong wanted a sovereign loan guarantee — making the Ugandan government responsible for the project’s debt if it failed — and insisted that 60 percent of labor and materials come from China. CNOOC, meanwhile, wanted greater access to the oil fields themselves.
The American consortium tried to set itself apart, proposing that Uganda’s state oil company and other East African nations own up to 40 percent of a new private company that would build and run the refinery. The consortium would finance the project by selling shares to investors as well as by borrowing, but it was not asking for a sovereign guarantee.
The American proposal meant less debt risk for Uganda, but there were questions about the consortium’s ability to raise the money. The Chinese bids, by contrast, promised immediate financing from Chinese state banks. And at the energy ministry, officials were longtime proponents of Chinese companies.
“At the end of the day, we are developing a lot of capital-intensive projects,” said Robert Kasande, a top energy official. “We need the financing. The Chinese can do that.”
‘Remember My Name’
Ugandan soldiers with Kalashnikov rifles stand guard at Dongsong’s headquarters in Kampala, a hilltop villa with a swimming pool and sweeping views of the capital. Lü Weidong, the company’s founder, flies in several times a year.
“My biggest ambition is that when I walk into Ugandan villages, villagers line up and welcome me with applause,” he said at his China office, seated behind a rosewood tea table inlaid with carved dragons. “I hope to drive the industrial development of Uganda, and let the history of East Africa and Uganda remember my name.”
Slim, bald and vegetarian, Mr. Lü personifies Beijing’s “going out” strategy, which encourages Chinese businesses to establish footholds around the world. After focusing on domestic hydropower projects, Dongsong sought opportunities in mining overseas.
Mr. Lü, 50, a former bank manager who belongs to a political advisory body controlled by the Communist Party, said he ventured to Uganda after a chance meeting with the country’s consul general in Guangzhou. Soon, he got the mine deal. “Every decision is made by heaven,” he said.
But Dongsong’s presence in Uganda has been laced with controversy.
In 2016, the Ugandan inspector general’s office concluded that its mining license had been acquired through fraud and recommended it be revoked, according to the inspector general’s report. (Officials never did.)
Dongsong has also been accused of fraud in a lawsuit by one of Mr. Lü’s early partners in Uganda, and it is mired in property disputes around the mine. In 2017, two finance ministry officials were arrested on suspicion of demanding and accepting bribes from Dongsong.
The company has faced problems in China as well. A court in Hebei Province said last year that Mr. Lü had set up a shell company to pay bribes to two state bank officials who were convicted on corruption charges.
Mr. Lü denies any wrongdoing, and his legal problems do not appear to have bothered Ugandan officials. They put Dongsong’s refinery proposal on their short list and traveled to Guangzhou in 2017 to conduct due diligence interviews.
Mr. Lü impressed the team with slick presentations and punctual shuttle buses, an official on the trip said. The team noted that Dongsong’s consortium included a Chinese state company with experience building refineries in Africa.
Dongsong also secured a promise of financing from one of China’s largest state banks — as long as Uganda guaranteed the loan.
The model is common across Africa, where loans from Chinese state banks have financed a construction boom, largely by Chinese companies and workers. These loans generally have tougher termsthan World Bank aid packages. Though interest rates can be low, recipients must repay the loans much faster, according to AidData, a research center at William and Mary, a university in Williamsburg, Va.
That has left some nations at high risk of debt distress, analysts say. In Kenya, for example, a Chinese bank could take over a port if Nairobi defaults on a $3.2 billion loan for a railway project.
Uganda’s debt burden is manageable, analysts say, though the country has increased borrowing. From 2000 to 2014, it received at least $1.24 billion in Chinese loans, AidData said. In 2015, it agreed to borrow an additional $1.9 billion for two dams to be built by Chinese companies, and it now seeks a $2.2 billion loan for a railway.
Still, Mr. Museveni and other officials appear to be rethinking the nation’s reliance on China. While Western energy companies have also been implicated in Ugandan corruption cases, China took a hit in the most recent big scandal: In 2016, officials uncovered shoddy construction at the two dams, which remain unfinished.
And yet, Dongsong enjoyed unique advantages in the refinery competition.
Since 2013, it has retained Abmak Associates as legal counsel in Uganda, according to corporate filings.
The law firm’s chief executive is Henry A. Kaliisa, the son of Fred Kabagambe Kaliisa, who for more than two decades was Uganda’s most powerful energy official. He lost his job in the fallout from the dam scandal but still wields enormous influence.
Americans in the Arena
The Ugandan team put the American consortium on its short list as well and also flew to Washington. Ms. Jandhyala and a financing partner, Ronald Mincy, hosted them in a shared work space. One official asked them, “Do you have money?”
In an internal report afterward, the team gave Dongsong a higher rating but also recommended inviting the Americans and Chinese to Kampala for parallel negotiations. The government set a date in June 2017.
But Mr. Lü asked whether Dongsong was the preferred bidder and declined to attend or send anyone. The Ugandan officials decided to enter final talks with just the Americans after they appeared.
In a letter to the Ugandan energy minister reviewed by The Times, Mr. Lü responded by threatening to challenge the process.
Around that time, the other Chinese bidder, CNOOC, quietly emerged with a late push to build the refinery and take control of additional oil fields. (CNOOC did not respond to written questions on the project.)
Ms. Jandhyala sought help in Washington.
The Overseas Private Investment Corporation, the American government’s development finance agency, could not commit to the kind of billion-dollar financing offered by Chinese banks, but it provided a letter saying it would consider lending $250 million and providing loan insurance.
“That lent confidence to other people,” Ms. Jandhyala said.
The Commerce Department also determined the project was in the “national interest,” giving the United States Embassy in Uganda permission to lobby for it.
The United States ambassador, Deborah Malac, said she made the case for the American consortium with the energy minister, Irene Muloni, whom she described as resistant. She also spoke to Mr. Museveni a dozen times, she said. Commerce Secretary Wilbur Ross sent two letters and called.
“There were a lot of interested parties beholden to the Chinese who tried to derail the process,” Ms. Malac said.
Among the skeptics was Sam Kutesa, the foreign minister, she said.
Last December, a New York court convicted a representative of a Chinese energy company of paying bribes to African officials, including $500,000 to Mr. Kutesa. In an interview, Mr. Kutesa described the payment as a donation to his foundation and said he did not have a strong view on who should win the refinery project.
In Uganda, all major decisions end up before Mr. Museveni. Officials jockey for his ear, and the president is adept at playing them off one another.
That gave the Americans an opening. Despite naysaying by energy officials, Mr. Museveni liked the idea of balancing the Americans and Chinese in the oil industry, and he was intrigued by G.E.’s involvement, Ugandan officials said.
Last January, he called the meeting at Lake Victoria and forced energy officials to sit down with Ms. Jandhyala and her partners. He then got cabinet approval. The deal was signed in April.
“I think the big lesson is that we have to be aggressive,” Ms. Malac said. “We have to be willing, as the U.S. government, to find our opportunities to advocate on behalf of our companies.”
Abigail Grace, a researcher at the Center for a New American Societywho worked on the White House National Security Council, said American diplomats around the globe should be trained to deal with China issues.
“This example shows that despite the idea that China might prevail, we can win if we get our act together,” she said.
In October, President Trump signed a bill creating a new agency to replace the Overseas Private Investment Corporation and give out $60 billion in financing — double the previous amount, though still a fraction of what China has pledged to spend.
Meanwhile, G.E. has begun selling its stake in the oil field services company in Ms. Jandhyala’s consortium. Its exit could weaken Ugandan confidence in the deal, and there is still uncertainty about the group’s ability to secure financing.
The Chinese appear to have moved on. Mr. Lü said he planned to open a mine in Mozambique. And in September, CNOOC got what it really wanted: Uganda agreed to give it a new parcel to explore at Lake Albert.
At the Beijing signing, Mr. Museveni and Mr. Kutesa smiled as they shook hands with Chinese executives.
Lydia Namubiru contributed reporting from Kampala, and Keith Bradsher from Guangzhou, China. Research was contributed by Ailin Tang from Guangzhou and Shanghai, Luz Ding from Beijing, and Kitty Bennett from Washington.
In October, President Trump signed a bill creating a new agency to replace the Overseas Private Investment Corporation and give out $60 billion in financing — double the previous amount, though still a fraction of what China has pledged to spend.
Meanwhile, G.E. has begun selling its stake in the oil field services company in Ms. Jandhyala’s consortium. Its exit could weaken Ugandan confidence in the deal, and there is still uncertainty about the group’s ability to secure financing.
The Chinese appear to have moved on. Mr. Lü said he planned to open a mine in Mozambique. And in September, CNOOC got what it really wanted: Uganda agreed to give it a new parcel to explore at Lake Albert.
At the Beijing signing, Mr. Museveni and Mr. Kutesa smiled as they shook hands with Chinese executives.
Adopted from the New York Times
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