The construction of the Masaka-Mutukula Road is set to experience a significant cost increase, with an additional Shs64 billion on top of the Shs751.186Bn already budgeted for the project, after the contractor China Chingqing International Construction Corporation (CICO), asked the Government to pay the 8 per cent insurance fees for the money they borrowed from China. This cost was never disclosed during the negotiations of the pre-financing agreement.
The Masaka-Kyotera to Mutukula, project was launched this year in March to make navigation on this road easy since it serves as the major trade route linking Uganda and Tanzania and it has been in a sorry state owing to huge potholes that make it unmotorable, which frustrates trade and movement of services between the two countries.
The government entered into a 2-year pre-financing agreement with a Chinese firm; Chongqing International Construction Corporation-CICCO, which has commenced the project works, whose completion will take four years.
However, on Friday during the consideration of the appendix to the pre-financing agreement by Parliament’s Committee of National Economy, where officials from the Ministry of Finance & Uganda National Roads Authority (UNRA) were summoned to clarify the new changes in the contract, the Buliisa County lawmaker Allan Atugonza revealed to the committee on the additional Shs64billion.
“In the first bid documents, the contractor made it clear that he had no intention of charging insurance, and now, when they brought addendum after they had changed the scope to include another road, then the contractor as an afterthought, tried to sneak in Shs54Bn as part of insurance on the previous Masaka-Mutukula Road, then Shs10Bn on the scope of the new road. So we are finding it hard to approve the Shs64Bn as insurance without any proof to show that this money is going to be paid to an insurance company in China,” Atugonza explained.
He asked the Minister of Finance and officials from UNRA; “We are being told to pay 100% on the pre-financing of 60% which looks odd, if we are okay with the insurance, we would think the Government would suffer from the Shs60% of the insurance, not 100% because we will cater for the 40% cost. Why do we have to pay insurance of 110% of the total contract cost?”
This shocked the committee members prompting them to raise many questions; Jane Pacuto the Pakwach District Woman Member of Parliament asked how such a mistake could be made.
“Initially, insurance was NIL but again, CICO came back and told the Ministry of Finance that when I went to the source for financing, I must comply with this back home, so we are saying, that is okay, if that was an error at the point of negotiation they didn’t see that, then give us evidence, that document from China that ties their company, who is borrowing in order to use the credit outside China. That was very contentious and still remains contentious,” said Jane Pacuto.
Nevertheless, Juvenile Muhumuza, Commissioner of Development Assistance & Regional Cooperation, at the Ministry of Finance, defended the 8 per cent insurance fee demanded by the Chinese contractor, saying this is on a lower end compared to what the other insurance firms ask for commercial loans of such nature.
“This fee that is being charged 8 per cent isn’t high and I want you to go and cross-check with the amount that is being charged for Kitgum-Kidepo Road, it was a little bit higher than this amount. This is much lower and therefore I think, and historically, insurance fees charged by Sinosure are moderate, they aren’t high,” said Muhumuza.
He added; “ Definitely when you go to the commercial market, these commercial banks charge standard insurance fees. So they aren’t charging it because Uganda is a risk, but it is a practice and all countries worldwide when they go to borrow, they pay this money.”
It’s recalled that in December 2023, Parliament approved the request by the Government to enter into a pre-financing agreement with China Chingqing International Construction Corporation (CICO), to construct; Masaka-Mutukula Road (89.5Km), rehabilitation of Nyendo-Villa Maria Road (11Km), upgrading of 3.5Km access road to Uganda People’s Defence Forces barracks in Masaka and additional scope of 28.5Km for Kikagati-Kafunzo Road.
As per the Pre-financing agreement, the Contractor would source for funding & undertake the construction works and Gov’t is expected to repay the contractor within two years after the completion of the works.
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