Now Uganda demands answers over aborted Canadian aircraft funding deal
Tuesday October 23 2018
Uganda is reportedly seeking an explanation from Export Development Canada (EDC) for its decision to pull out of the funding deal for the acquisition of four Bombardier jets for its national carrier.
Sources close to the Uganda Airlines project say the search for an explanation is likely an effort to avoid audit queries in the future, since the procurement will now be financed using more expensive sources.
“The project team has been evaluating alternative proposals, which included some ridiculously cheap money. On further scrutiny, these offers have been turned down in favour of more expensive but credible money. That is something that could raise questions in the future, hence the need for a record that EDC finance was not available,” a source explained.
Kampala is warming up for an April 2019 relaunch of its flag carrier but the procurement of the first four aircraft — Bombardier CRJ 900 series — was rocked by financing setbacks after the withdrawal of Canadian export credit support.
The withdrawal of the Canadians, whom Kampala had initially banked on, has sparked a swirl of rumours, with some commentators linking it to recent political events in Uganda that have seen a violent crackdown on opposition supporters.
Keith Muhakanizi, the Permanent Secretary in the Ministry of Finance denied knowledge of a letter to the Canadians, but did not dispute the reports.
“Treasury is not an individual but an office. I have been away for 10 days, so I would need to first find out if any assigned officer wrote such a letter during my absence. What is not in doubt, though, is that we shall finance this project,” he said.
Responding to a request for information by this newspaper, Jessica Draker from EDC’s department of external communications, confirmed that the Canadian financier was not participating in the Ugandan project.
“EDC did not commit financing support for this transaction. EDC was approached for financing support, but is not participating in the transaction,” she said.
Ms Draker also confirmed that human-rights and corruption were among risks they considered before engaging in business with clients.
“Human-rights and responsible business conduct are top priorities for EDC. At the same time, we believe in continuous progress. We regularly update our policies and practices so that they reflect international best practices, meet Canadians’ expectations of responsible business conduct, and respect the government of Canada’s commitments in these important areas,” she said.
Gupta brothers
The EDC had agreed to lend Uganda $108 million for the purchase at an annual interest rate of 3.5 per cent.
Observers believe that the Ugandan deal could be a victim of circumstances, after the EDC started an internal review of its processes and practices, after it lost track of an aircraft it financed 80 per cent for the South Africa Gupta brothers in 2015.
That aircraft, a Global 6000, vanished off the radar after the borrowers moved it to a jurisdiction that is not a signatory to the Cape Town Convention.
Ratified in 2004, the treaty compels signatories to facilitate the recovery of mobile equipment such as aircraft engines by financiers or lessors in event of default.
The Gupta brothers (of the renowned wealthy Indian-born South African family) are believed to have removed the aircraft from the South African register, effectively making it grey.
Ugandan officials say besides exposing the project to higher finance costs, they do not expect the Canadian withdrawal to affect the timelines of the project.
Delivery of the first aircraft is still expected towards the end of January 2019, in time for the airline, which secured an Air Services Licence in September, to embark on proving trials for an Air Operators Certificate. Commencement of commercial operations is still set for April.
Sources say a couple of alternative finance bids tied to individuals were rejected because they were way below market averages and due diligence later revealed that funders were more interested in acquiring Uganda sovereign guarantees that they could then put on the market.
A parallel track procurement for two long haul Airbus A330’s is proceeding smoothly with the government working towards the conclusion of a $80 million line of credit from local banks to make the pre-order deposit payments.