The financing of 600MW Karuma hydropower project is still shrouded in secrecy despite the China Exim Bank giving the much-awaited advance payment guarantee, whose value remains unclear.

Ministry of Energy officials are tight-lipped on the specifics of the guarantee that should pave the way for the implementation of Uganda’s biggest power project on the Nile River. The project is to be funded 85 per cent by a concessional loan from the China Exim Bank and 15 per cent by the government of Uganda.

But sources told The EastAfrican that the Chinese bank has committed to only 15 per cent, the same as Uganda government’s contribution to the project.

Energy Minister Irene Muloni would not confirm if her ministry had received guarantee for 85 per cent financing of the $1.7 billion project that includes a dam and a transmission line from Karuma to a point where power will be integrated into the national power grid.

READ: Chinese firm yet to get $1.7b funding for Karuma dam project

“With or without information of this guarantee, the process is on, and construction is progressing. This is a bilateral arrangement. Why are you asking about details?” said Ms Muloni.

The guarantee was expected to end a period of uncertainty that had lately seen government agencies, including parliament threaten to pull the plug on the project, citing failure by the contractor, Chinese firm Sinohydro Corporation, to obtain financial closure and guarantee.

A statement titled Advance Payment Guarantee No. BKD2014LG00120 issued on June 10 2014, addressed to the Ministry of Energy and signed by Zhang Dajin on behalf of Exim Bank shows that the bank has agreed to cover Sinohydro Corporation.

“We the undersigned the Export-Import Bank of China… as instructed by the Contractor, agree unconditionally and irrevocably to guarantee as primary obligator and not as surety merely, the payment to the employer on its first written demand without whatsoever right of obligation on our part and without its first claim to the Contractor,” reads the signed statement.

Works at the project site, and efforts to compensate landowners along the route of transmission lines are sluggish and running behind schedule due to lengthy haggling over the guarantee.

The EastAfrican reported on June 7, 2014, that construction of the dam at Karuma was hanging in the balance because Sinohydro was yet to get funding for the project.

Given that government had bent procurement rules to give the Chinese firm the contract, Sinohydro was under pressure to perform, and asked Uganda to pay upfront it 15 per cent contribution — equivalent to $253,173,296 — before end of June to keep construction works going.

But Parliament and officials in the Ministries of Finance and Energy argued that the contractor needed to show evidence of financial closure and guarantee from Exim Bank.

“This guarantee shall remain valid and in full effect from the date of the advance of payment under the contract until the employer receives full repayment of the same amount from the Contractor,” the statement says.

However, questions continue to emerge over how much Uganda is paying for the project. Finance Minister Maria Kiwanuka allocated over Ush1 trillion ($393.2 million) in the 2014/15 financial year to Karuma, which is more than the stipulated 15 per cent of Uganda’s contribution to the project.

Currency fluctuations

“In financing such projects, the allocations made are above the price indicated to take care of currency fluctuations, in this case the shilling against the dollar. But still, this figure is too high,” said Jacob Oboth, a member of the Natural Resources Committee of parliament.

Last month, chairman and president of China’s Exim Bank Li Ruogu visited Kampala and met with President Yoweri Museveni to confirm and present details of the project’s funding. Uganda is to repay the concessional loan over the next five years, according to the Finance Minister.

Sinohydro’s representative Deng Xiaoguan said in a recent report that construction of the dam is in full force, and the release of the necessary funding will go a long way in boosting progress.

But legislator Sam Otada, who represents Kibanda Country where Karuma is located, said that due to these uncertainties, construction has been sluggish, and lacks of transparency.

“What they have done at the project site so far is clearing the land, moving earth and putting up a few signs,” he said. 

Mr Otada is seeking the permission of the Speaker of Parliament to debate the issue of Karuma. The legislator said he will move a motion “in the next few days to force government to lift the veil of secrecy so we can get to the bottom of this project’s financing.”