By daily monitor

Kampala.The Ugandan government has denied reports that Entebbe International Airport was not handed over to China, or any lender, in exchange for cash.

In a statement, Information Minister Dr Chris Baryomunsi, who is the government spokesman, said: “[the] Government of Uganda would like to make it clear that the allegation that Entebbe International Airport was donated for money is false ”.

“[The] the government cannot give up a national asset like an airport. It did not happen and it will not happen, ”he noted.
The assurances, which followed a separate rebuttal by the Chinese embassy in Kampala, follow the newspaper’s lead story last Friday, one of two headlines of which said Uganda cedes the airport to Chinese money.

The presentation explored the growing unease among Ugandan technocrats over Beijing’s refusal to modify certain clauses of the $ 200 million (US $ 713 billion) deal to build a new terminal and expand runways and new hubs. freight and fuel at Entebbe, Uganda’s only international airport.

The project is funded by the China Export-Import (EXIM) Bank and the loan, according to government spokesman Baryomunsi, “is guaranteed by the sovereign credit of Uganda as government debt charged to the consolidated account in accordance with Article 160 of the Ugandan Constitution ”.

“The terms of the loan provide for a grace period of seven years and the period ends in December 2022. The loan repayment is to be made in 20 years at an interest rate of two percent; these conditions are favorable and should not cause any concern, “he noted in a statement released on Monday, adding:” The allegation that the airport has been mortgaged to the Chinese government is not only malicious, but a packet of lies aimed at provoking disaffection among Ugandans. “


The content of the Daily monitor The story has not been disputed, but the government, China and the aviation regulator, the Uganda Civil Aviation Authority (UCAA), have separately argued that the title is misleading and likely to generate disaffection.

In a statement released last Friday, an anonymous spokesperson for the Chinese embassy in Kampala called the controversy over some of the clauses disputed by Ugandan officials as “factually baseless and ill-intentioned.”

In a four-page response to an article first published last Thursday and republished around the world under various headlines, the Chinese Embassy in Kampala noted that the preferential loan granted by EXIM Bank was “secured by sovereign credit. from Uganda, nothing else “.

Entebbe’s 2015 expansion loan agreement, like others before and after it, was signed between the two countries “voluntarily … with no hidden or political conditions attached” following dialogue and negotiations on an equal footing.

“Conditions of the loan agreement for Entebbe [International] Airport expansion [are] in full compliance with the conventions and practices in force on the international market. The malicious claim that Uganda is ceding key assets for cash to China has no factual basis and is aimed at distorting the good relations China enjoys with developing countries, including Uganda ” , wrote the manager.

Last Thursday, Daily Monitor explained how Ugandan officials in the Ministries of Public Works and Finance and the Attorney General’s Office remain nervous about some unfavorable provisions in the loan agreement Uganda signed with Exim Bank on the 31st. March 2015, which, if not amended, argued that the government exposed to foreclosures and repossession in the event of default.

Nothing in the article suggested that Uganda had defaulted, or was about to default, and the story explored how key Ugandan bureaucrats had become agitated over the terms of the loan agreement of the Entebbe International Airport under which Uganda waived sovereign immunity and property immunity. .

Part 10.3 of the Loan Agreement reads, inter alia: “Each debtor (legal person assuming an obligation under the agreement) irrevocably waives any immunity by reason of sovereign or other immunity for itself or for one of his property … “

In addition, the loan agreement required the Uganda Civil Aviation Authority, the aviation regulator, to set up an escrow account to keep all of its income.

An escrow is a contractual arrangement in which a third party receives and pays money or goods for the primary parties to the transaction, with disbursement dependent on terms agreed to by the parties to the transaction, according to Wikipedia.

The agreement provides that the UCAA cannot use any of the accumulated sums for any expense without Beijing’s approval.

Realizing that some of the terms of the loan agreement were not being implemented, Exim Bank froze the cash flow of the Chinese company that was undertaking the modernization work at the airport.

For example, the construction company’s payment certificate No.11 through 23, in the amount of $ 24.5 million (US $ 88.2 billion) for work carried out from December 2017 to February 2019, has not been paid.

The lack of financial means affected the contractor and the work was almost stopped. By the time the Chinese agreed to resume funding, the project had lost 361 days and the country was in lockdown.

“These conditions were not acceptable for an international airport of a sovereign state whose operations are dynamic and sometimes unpredictable”, noted the UCAA in its last answer to questions from Parliament.

Deputies had questioned the text and spirit of the airport loan agreement, which prompted Finance Minister Matia Kasaija to apologize to the House on October 28, 2021.

“In the unlikely event that the UCAA fails to generate sufficient income to service the loan [from Exim Bank), then the central government will step in,” he told journalists after appearing before Parliament’s committee on Commissions, Statutory Enterprises and State Enterprises (Cosase).

Mr Kasaija told the lawmakers that they at the time in 2015 considered the China loan offer as the “best possible alternative and jumped on it”, but admitted that they have since changed their mind about some of the terms of the credit facility, which they have unsuccessfully lobbied Beijing to change.

UCAA in last week’s statement noted that no national assets, whether the airport or others, has not been surrendered, and will not be surrendered, for a loan.

The regulator, however, admitted that an escrow account was opened for depositing its collections in line with the loan agreement, but that it retains spending liberty.

“The arrangement is only similar to what happens when one gets a salary loan or any other loan for that matter, and the bank requests that the salary is channelled through their bank. It does not mean that the lending bank takes over the borrower’s salary.”

The Ugandan government negotiated the loan for the airport upgrading and expansion in 2015 and construction started in 2016. According to UCAA, the loan agreement with Exim Bank provides for a seven-year repayment period, which is yet to lapse, meaning there is no present risk of a default.

In the statement on wide-ranging Uganda-China bilateral and financing agreements, the latter Kampala embassy said Beijing have never “confiscated” any property of Uganda or other African country, and instead negotiates loan repayment rescheduling, and that China is a lead supporter among G20 for easing African countries’ debt burden.

The issue of the pugnacious contractual clauses including among others waiver of sovereign immunity for asset take-over in cases of default and debt swap were first flagged by the Auditor General John Muwanga in a 2019 audit on public debt management.

The audit detailed that as at June 2018, Uganda government had incurred an additional Shs16b in interest to Stanbic Bank, and Standard Chartered Bank on account of debt swap arrangement for repayment of $1.4b (Shs5.1 trillion) loan from China’s EXIM Bank for construction of Karuma dam.

The $1.4b loan has an interest cost of LIBOR, the benchmark interest rate at which major global banks lend to one another in the international inter-bank market, plus a premium of 3.5 percent per annum for a period of 15 years.

The government, according to Mr Muwanga’s report, entered into the swap arrangement to minimise the exposure of the floating interest rate. Under this arrangement the government pays a fixed interest rate of 2.58 percent (0.79 plus a swap premium of 1.79) on its loan, allowing Stanbic and Stanchart to pay the floating interest which is dependent on the LIBOR.

“This means that government will only benefit from this arrangement when LIBOR plus the agreed premium is higher than 2.58 percent,” the audit noted

A review of the interest movements of the LIBOR, according to the audit, showed “a positive movement”, but the government is yet to benefit from the financial arrangement.  Since commencement, LIBOR has been lower than 2.58 percent and as a result the government had incurred additional costs.

Policy wonks in the Finance ministry explained that LIBOR is predicted to rise in the future and government will recover the money paid to the two banks as result of the debt swap, which AG Muwanga described as “speculative” because LIBOR has to go above four percent for at least four years for government to realise any benefits. “The government debt management policy on external debt does not give sufficient guidance on the use of instruments such as SWAPs in risk management.

One Finance ministry official charged with debt, speaking anonymously, likened the debt swap arrangement to hedging—an investment position intended to offset potential losses or gains that may be incurred by a companion investment—and said they are considering further experimenting on more commercial loans.

Despite the concerns, China remains Uganda leading bilateral infrastructure financer, with flagship projects including Entebbe airport expansion, Isimba and Karuma dams, National Infrastructure Backbone, and Kampala Entebbe Expressway.

China ranks as Uganda’s top bilateral lender with about 75 percent, followed by France, the United Kingdom which is financing construction of the Kabaale International Airport in Hoima, and Japan which financed the new Source of the Nile cable bridge in Jinja.

These borrowing have significantly increased Uganda’s debt portfolio, above the 50 percent Debt:Gross Domestic  Product ratio, which many economists dub as unhealthy while the government insists that both the internal and external debts are within a sustainable range.

According to the International Monetary Fund, Uganda remains at low risk of debt distress, even though debt metrics have deteriorated and one in five Ugandan shillings collected in revenue was in the 2019/20 Financial Year spent on interest payment.

In its statement last week, China’s embassy in Kampala noted that China-Uganda cooperation has always adhered to principles of openness, transparency, mitigation, and debt reduction through friendly negotiations.

“We are fully aware of Uganda’s expectation to benefit more from China-Uganda cooperation. This is also the goal we have always been striving for. We have been willing to listen to constructive suggestions as we continue our efforts to ensure China-Uganda cooperation to be inclusive and benefit more common people.”

China and Uganda established diplomatic relations in 1962, nine days after the latter’s independence, and the former became one of the first countries to open a foreign mission in Uganda.

A 2017 Bank of Uganda study titled, How can Uganda benefit from China’s economic rise? notes that Uganda’s growth trajectory has been strongly supported by increased economic engagement with China, particularly through commodity exports and infrastructure funding.

“China’s model of growth thus generated huge demand for energy and other natural resources (e.g. petroleum, iron, copper, and other metals) and resulted in upward pressure on global commodity prices,” the study reads in part.

“Uganda, similar to most sub-Saharan economies that are primarily commodity exporters, gained significantly from this windfall, which saw the percentage of raw material exports to China jump drastically from 17 percent in 2007 to well over 50 percent by 2015,”

China also reigns as the largest project contractor in Uganda with a long list of projects key, among others, the 51.4km Kampala-Entebbe expressway which cost Shs1.7 trillion, expansion of Entebbe airport costing  Shs720b , and Karuma and Isimba hydropower dams, which combined cost Shs6.7 trillion.

Uganda’s statement on the Entebbe airport agreement
[The] The Ugandan government is adamant that the allegation that Entebbe International Airport was donated for money is false.

[The] the government cannot give up a national asset like an airport. It did not happen and it will not happen.

The Entebbe International Airport Expansion and Modernization Project is a $ 200 million intervention (Shs713b) funded by the China EXIM Bank and is guaranteed by Uganda’s sovereign credit as imputed public debt into the consolidated account in accordance with Article 160 of the Ugandan Constitution.

The terms of the loan provide for a grace period of seven years and the period ends in December 2022. The repayment of the loan must be made in 20 years at an interest rate of 2%; these conditions are favorable and should not cause any concern.

The allegation that the airport was mortgaged to the Chinese government is not only malicious, but a bunch of lies aimed at provoking disaffection among Ugandans.

Dr Chris Baryomunsi, Minister of Information / government spokesperson