Chinese firm Sinohydro is yet to attain financial closure for the $1.7 billion Karuma hydropower dam in Uganda, a year after being awarded the tender in controversial circumstances.

The firm has now asked the Ugandan government to pay its 15 per cent contribution up front to kick-start the 600MW project, which is several years behind schedule. Sinohydro has asked Uganda to pay $253,173,296 by June 30, on condition that the Chinese firm provides an advance payment guarantee equivalent to the amount from the China Exim Bank, according to documents seen by The EastAfrican.

Energy Minister Irene Muloni said the government had no objection to advancing the money if it would speed up the project. “Work is already ongoing at the site and they are digging the canals so we need to give them this money so that the project does not delay any further,” she said in a telephone interview. “We cannot afford any delays.”

Officials close to the project said that the financial closure has been delayed by on-going due-diligence of the project by China Exim Bank, which has promised to contribute 85 per cent of the financing.

Li Ruogo, China Exim Bank’s president, visited Kampala last month to familiarise himself with the project and while Energy Ministry officials say he reaffirmed his commitment to the financing agreement, there is, as yet, no formal commitment.

In a letter asking for the advance, Sinohydro’s chief representative in Kampala left the door open to new negotiations over financing incase the China Exim Bank arrangement failed.

“In the unlikely event that the current financing process with China Exim Bank were to be unsuccessful and financial closure with China Exim Bank is not confirmed, Sinohydro confirms that they will proceed with the Karuma project on a public-private partnership basis with the government of Uganda on terms that deliver an affordable tariff,” he wrote.

If that were to happen, Uganda will provide financing for a project whose final cost could then rise significantly depending on the new financing terms. This would not be unprecedented but carries the risk of the final project cost rising significantly if, for instance, the financiers add a risk premium to the loan.
These revelations about Karuma will raise fresh questions about the manner in which Sinohydro was awarded the project.

Bidding for the project was mired in litigation amid allegations of financial impropriety, spying and other forms of malfeasance with senior government officials and technocrats backing the rival bids of Sinohydro and China Water and Electric International Corporation (CWE).

In an interview with the Independent magazine in Kampala last October, the Permanent Secretary in the Energy Ministry, Frederick Kabagambe-Kaliisa, denied that the project launch had been done before the relevant contracts had been signed. “What the contracts committee and the company were still negotiating was the engineering, procurement, construction and financing,” he said.

Close to a year later, however, it is now clear that the promised financing from Beijing — which was a key incentive in bending procurement rules to give the project to the Chinese firm — is yet to materialise.

Mr Kabagambe-Kaliisa was not available for comment, neither were representatives from the firm. The government official had, before the signing of the contract with Sinohydro, promised that the Chinese firm would provide bridge financing for the project while the bilateral lending between the two governments was finalised.

What is not also clear is why the counterpart funding from the Uganda government, which normally would be mostly spent in-country on, for instance compensations and land acquisitions, will be wired to the Chinese firm.