Museveni takes over Karuma power project, gets funding from China

Saturday March 30 2013


News from Durban, South Africa, where heads of state from the Brics bloc were meeting this week, offered a glimmer of hope for Uganda’s troubled Karuma hydropower project.

President Yoweri Museveni reportedly secured Chinese funding for the 600MW power station.

The project is running two years behind schedule, threatening to plunge the country back to power rationing and expensive thermal power generation, which has set the stage for high consumer tariffs.

Angered by the failure by Ministry of Energy officials to recruit an engineering, procurement and construction (EPC) contractor for the power station, President Museveni reportedly shunted aside officials at the centre of the unending saga and assumed control of the project, just before boarding his flight to Durban.

The president is said to have been unhappy with junior Energy Minister Simon D’ujanga, who had led a team to China that endorsed a contractor, China International Water and Electric Corporation (CWE), only for the Inspectorate of Government to denounce the firm.

In Durban, he met with heads of delegation from Brazil, Russia, India, China and South Africa, President Museveni hoped to get commitments for three critical projects.

These are the Isimba and Karuma hydropower stations and an in-country refinery for Uganda’s oil, which is subject of a tug-of-war between exploration companies and his government.

The developments followed a March 22 report by the Inspectorate of Government in which IGG Irene Mulyagonja discredited the procurement process for Karuma and recommended the banning of CWE from bidding for projects in Uganda.

According to sources close to the presidency who requested anonymity, just before he left for the Brics meeting, Mr Museveni expressed his frustration at the failure by ministry officials to implement the project. He told them to let him explore alternative ways of breaking the deadlock.

Those alternatives, according to minutes of a Cabinet meeting seen by The EastAfrican, include seeking financing for the project from China.

At that meeting, the junior ministers for EAC Affairs, Trade, Industry and Co-operatives were asked to compile a list of priority projects, including construction of an oil refinery in Uganda, for discussion with the Chinese and Russian presidents.

Credible contractor

It is also understood that, besides seeking funding, President Museveni had also wanted the Chinese government to help in sourcing a credible contractor to carry out the works.

“The President would hold bilateral talks with the President of China and these would include the prospect of the Chinese government funding the construction of Karuma Dam from funds it had set aside for Africa,” reads a part of a Cabinet memo.

According to sources, Mr Museveni’s discussions with Chinese President Xi JinPing took place in the afternoon on Thursday, March 28, and concluded with China committing to provide funding for Karuma. But Uganda was reportedly left to select a contractor.

Faced with severe funding shortfalls in the wake of withdrawal of aid by a number of Western donors, and the government having severe cash flow constraints, the President had directed that the $600 million ring-fenced for the Karuma project be made available in the recurrent budget.

Chinese commitment

The new reports of the Chinese government’s commitment corroborate earlier information that Exim Bank of China had agreed to fund the project.

But, it appears that, embarrassed by the fight for the Karuma contract by two Chinese contractors, Beijing’s embassy in Uganda is in the process of introducing a policy where it will in future vet Chinese contractors before allowing them to bid for projects in the country.

The embarrassment for China stems from revelations that in its bid to win the Karuma contract, CWE made false claims about its experience.

According to the IGG’s findings, CWE presented the 70MW Dayingjian second tier hydropower dam as having a capacity of 600MW, and the 20MW Qingshan as a 640MW power station.

“There was a deliberate effort on the part of CWE to conceal the fact that the Qingshan HPP and Dayingjian II HPP were cascade dams. This fact would have rendered the two projects different from the Karuma Hydropower Project and was therefore a material fact not disclosed in the bid,” the IGG said.

Ms Mulyagonja further stated that the irregularities were known to Ministry of Energy officials and the due diligence that was carried out had not been effective.

Although she found no evidence to support allegations of bribery in the bidding process, Ms Mulyagonja faulted the re-evaluation committee for finding CWE’s bid compliant in spite of material omissions. The re-evaluation was ordered by the court after multiple appeals by a whistleblower and aggrieved bidders.

In her recommendations, the IGG proposed restricted international bidding of reputable international EPC contractors who have carried out similar projects.

New contractor

While President Museveni’s efforts to seek funding and a new contractor for Karuma are in line with this recommendation, Ms Mulyagonja has prescribed punitive action against CWE in line with section 94 of the Public Procurement and Disposal of Assets Authority Act.

It states that “a provider who does not comply with this Act, regulations or guidelines made under this Act, shall be suspended by the Authority from engaging in any public procurement or disposal function for a period to be determined by the Authority on a case by case basis.”

“MEMD should therefore submit CWE to the Public Procurement and Disposal of Assets Authority for the authority to consider suitable action to be taken against it pursuant to Clause 3 of the Instructions of Bidders in the solicitation document and Section 945 of the PPDA Act,” Ms Mulyagonja said in her report.