In an attempt to scale down fiscal deficit a requirement by EAMU, Uganda is to scrap Malaba-Kampala SGR project

[Geza Ulole]

Uganda sweats to meet fiscal deficit target ahead of monetary union
TUESDAY MAY 22 2018

A trader counts Uganda Shilling notes. Uganda has promised to exercise prudence in expenditure of oil money. FILE PHOTO | NATION

In Summary

• Uganda plans to reduce investment in infrastructure in an effort to reduce its fiscal deficit before joining EAC monetary union.
• One of the requirements for joining monetary union is that a partner state maintains a fiscal deficit of not more than 3 per cent.
• Data shows that the fiscal deficit has been high because Uganda was spending heavily on infrastructural development.

By DICTA ASIIMWE
More by this Author
Uganda plans to reduce investment in infrastructure in an effort to reduce its fiscal deficit in the run-up to joining the East African Monetary Union in 2024.

The decision was taken as it emerged that the government would have to choose between joining the Union and completing its major infrastructure projects.

Some government officials have said the alternative would be for Kampala would be to use oil money to finance infrastructure but experts warn of the risk of the Dutch Disease.

Dr Albert Musisi, the commissioner in charge of macroeconomic policy in the Ministry of Finance, said the government plans to reduce investment in infrastructure in a bid to meet the fiscal deficit target of 3 per cent.

Uganda also passed the Public Finance Management Act, which among other things, intended to control the temptation to sharply increase public expenditure using money from oil sales.

To avoid the Dutch Disease which afflicts irresponsible governments, Uganda has promised to exercise prudence in expenditure of oil money, to try and live by the image once painted by the World Bank and the IMF as the poster boy for financial discipline in Africa.

Oil money

But, faced with choosing between giving up construction of major infrastructure and being part of the monetary union, Uganda seems ready to splurge on the oil money.

One of the requirements for joining the EAC monetary union is that a partner state maintains a fiscal deficit of not more than 3 per cent.

Since a low fiscal deficit has to be maintained for at least three years prior to joining the monetary union, Uganda, has started preparing for 2024.

Information from the Ministry of Finance shows that the fiscal deficit [at 6.2 per cent] has been high because Uganda was spending heavily on infrastructural development.

But Dr Musisi said the government will stop constructing roads and in the medium-term, maintain the existing ones.

“The pending ones like the Jinja-Kampala Expressway will be constructed through public private partnerships,” he said.

This change in policy was confirmed by President Yoweri Museveni, when he announced during the February EAC summit that the meter gauge railway that was constructed more than a century ago will be repaired before the construction of the standard gauge railway.

Major dams

The promised scaledown in road construction also comes at a time when Uganda is completing two major dams and ready to reduce investment in the generation of electricity.

According to the Ministry of Finance, the two dams, Karuma and Isimba, will help government reduce its fiscal deficit.

The government’s plan is for the fiscal deficit to peak during the 2017/18 financial year, at 6.2 per cent. In the financial year that starts this July, the deficit will then reduce to 5.4 per cent, to allow Uganda embark on a gradual reduction in preparation for 2021.

Dr Musisi said it will gradually reduce to 3 per cent in the 2020/21 financial year in accordance with the convergence criteria set under the East African Monetary Union.

Uganda sweats to meet fiscal deficit target

MY TAKE

A visit by Uganda's minister of Works and Transport H.E. Monica Ntenge to Tanzania and the ensued behind the doors discussion with her counterpart Prof. Mbarawa.

Thereafter a visit to Dar port to see the progress of the expansion project current underway and also a visit at Tanzania Railways to witness SGR construction on the central corridor could IMHO be Uganda's roadmap to the future.

Reminds me of Minister Eng. Irene Muloni's shenanigans that at their apex a visit to Tanga port led to East African Crude Oil Pipeline being awarded to Tanzania. Could this be a repeat of the same? Fingers crossed...😀

 

[YoungD]

bila kutapatapa na kutoa povu, onyesha kwenye article ulio ipost ni wapi wamesema kuwa sgr-ug kafutiliwa mbali kama ulivyo dai kwa kichwa cha uzi wako.
pia ueleze unacho elewa kwa hii paragraph because I have a feeling that is what you will quote.

 

[Geza Ulole]

bila kutapatapa na kutoa povu, onyesha kwenye article ulio ipost ni wapi wamesema kuwa sgr-ug kafutiliwa mbali kama ulivyo dai kwa kichwa cha uzi wako.
pia ueleze unacho elewa kwa hii paragraph because I have a feeling that is what you will quote.

View attachment 798955

Repaired is the key and unfortunately he chose Mwanza-Portbell section first. U should ask unselfish how long will it take before Malaba-Kampala SGR section start. Meanwhile for Geita-Kagera-Mutukula SGR, feasibility study underway.

08/06/2018
Local
‘SGR Third Phase preps at advanced stage’
By NASONGELYA KILYINGA in Dodoma
7 days ago

PLANS to implement the Third Phase of the Standard Gauge Railway (SGR) line that stretches from Makutupora to Tabora are at an advanced stage, as the feasibility study is now complete, paving the way for construction to start soon - the National Assembly was told yesterday.

Deputy Minister for Works, Transport and Communication, Mr Atashasta Nditiye revealed this when responding to a supplementary question by Geita Urban legislator, Constantine Kanyasu (CCM), who demanded to know when the government will sign the contract for the third phase of the SGR projects, linking Dodoma with Mwanza region.

The MP also wanted to know when the government will connect Kagera and Geita regions with SGR. Mr Nditiye said the process was underway for the SGR project that links Makutupora in Dodoma Region and Tabora Region to start.

He said the feasibility study for the project has already been completed and the project will be launched soon. He further said that, plans are also afoot for the project to extend to Geita- Msanga to Uganda and this will connect Geita and Kagera regions to SGR services.

In his basic question, Mr Kanyasu said some of the reasons that were delaying the implementation of the Kabanga Nickel project include lack of electricity and reliable railway transport.

He demanded to know when the railway line project connecting Isaka—Keza to Burundi and Rwanda will be constructed. Responding, Mr Nditiye said the government was in its final stages in planning the construction of the SGR project from Isaka—Kabanga to Rusumo boarder up to Kigali.

He said contract for the detail design and tendering bids have been signed this month.

The second phase of the SGR project that links Morogoro with the capital city of Dodoma (336 kilometres) was launched in March, this year, by President John Magufuli.

When SGR project is complete, Tanzania will introduce fast and modern trains, with a passenger train cruising as the speed of 160kph, while the freight train will have a top speed of 120kph.

The first phase of the country’s standard-gauge railway project, which links Dar es Salaam and Morogoro region, was launched in April last year.

The SGR project is being undertaken by Yapi Merkez Insaat Ve Sanayi of Turkey and Mota-Engil, Engenharie and Construcao Africa, SA of Portugal.

Stretching 1,219km from Dar es Salaam to the shores of Lake Victoria, the SGR will be constructed on the same line with the Central Railway Line built by Germans in 1905 from Dar es Salaam to Kigoma, then by the British colonial government from Tabora to Mwanza.

‘SGR Third Phase preps at advanced stage’

 

[YoungD]

nimekwambia bila kutapatapa, now you are all over the place ukitafuta mwanya wa kupenyea! kichwa cha Uzi wako kinasema kuwa Malaga-Kampala sgr imefutiliwa mbali........naomba evidence.

 

[Geza Ulole]

nimekwambia bila kutapatapa, now you are all over the place ukitafuta mwanya wa kupenyea! kichwa cha Uzi wako kinasema kuwa Malaga-Kampala sgr imefutiliwa mbali........naomba evidence.

Ur link mentioned of Uganda's decision to channel her resources to revamp the narrow gauge that means SGR project will be put aside! U should ask urself whether current excercise to revamp the narrow gauge involves Rift Valley Railway!

 

[Geza Ulole]

Much of this prophecy is happening especially after the suspended Bagamoyo port is being brought to life in this July.


Why neighbours’ cold shoulder may wreck Kenya’s grand infrastructure dream

Photo credit: Lapsset | Government of Kenya
24 May 2016

President Paul Kagame paused and then rested his chin on his left hand when asked what appeared to be a simple question.

“Resources are scarce,” he said to the question on which way Rwanda would go in the development of the Standard Gauge Railway (SGR). The line was originally planned to run from Mombasa in Kenya, through Uganda’s Kampala before terminating in his capital city, Kigali.

“We will take the shorter route,” he said, confirming that Rwanda would tap into the alternate railway project planned by Tanzania. He was speaking at the World Economic Forum on Africa earlier this month.

For years, whenever Kenya has coughed, its neighbours have caught a cold. But it now appears that these neighbours have hatched a plan to simply turn their backs to avoid the cold. From Dar es Salaam in Tanzania through Kigali in Rwanda, to Kampala in Uganda, and finally to Addis Ababa in Ethiopia, something new is brewing, and Kenya is losing.

Even South Sudan, the newest entrant into the East African Community (EAC), seems to be on the fence. Burundi is indifferent, but the nation is limping, making any major investments at this time unlikely.

Kenya is East Africa’s largest economy. It has been the hub for trade, business and investment.

In fact, according to European Union Head of Delegation to Kenya Stefano Dejak, the country features whenever South Africa and Nigeria – Africa’s largest economies – are mentioned.

Yet, before Kenya can fully enjoy this bloom, gloom appears to be fast approaching, and its East African neighbours have something to do with it. Recent developments in policy and projects in neighbouring countries are putting the ‘regional powerhouse’ tag to the test.

And this is happening just 14 years to the deadline to achieve Vision 2030 projects, and when the country is still celebrating the discovery of oil wells in the north.

The twist in the region’s friendship also finds Kenya in the middle of executing huge infrastructure projects. Top on the list are the Sh327 billion SGR, which is the first railway project since independence, and a pipeline that could see Kenya become an oil exporter by 2022,

President Yoweri Museveni, now the longest-serving president in Eastern Africa (25 years), has been a close ally. His country has co-operated with Kenya on infrastructure, security, agriculture and energy.

But this close ally has turned his back on an August 2015 memorandum of understanding with Kenya, choosing instead to build an oil pipeline with Tanzania.

Best hunter

He relied on a Ugandan proverb to support his decision.

“If puppies are young, you don’t know which one will be a better hunter, so you feed all of them, and when they grow, you see which one emerges the best hunter,” Mr Museveni was quoted as saying by Ugandan press after the decision.

In June 2014, Kenya, Uganda and Rwanda had jointly awarded Japan’s Toyota Tsusho a contract to oversee a feasibility study and initial design for the construction of a 1,300-kilometre pipeline.

The Sh450 billion joint pipeline project was to run from the oil-rich Kaiso-Tonya area in western Uganda to Kenya’s Lokichar town in Turkana and end in Lamu.

In August 2014, Tullow Company had said that achieving the project would be dependent on many technological, legal, social and financial factors, including land acquisition for the pipeline and securing an investor.

Despite President Uhuru Kenyatta and Museveni meeting in Nairobi to conduct talks on the pipeline, whose outcome was described as “fruitful”, Uganda ditched Kenya.

Uganda relied on a team of experts’ report that saw Kenya lose the deal to Tanzania on the grounds that the latter country’s route was cheaper. According to Tanzania’s President John Magufuli, its 1,403-kilometre pipeline will cost $4 billion (Sh400 billion) – Sh50 billion less than the Kenyan option.

High costs of compensation in Kenya compared to Tanzania, where all land belongs to the state, and the threat of attacks from Al-Shabaab militants in Lamu conspired against Kenya. Also, experts argued that the Hoima-Lamu terrain was rockier than the flatter route proposed in Tanzania.

The Parliamentary Budget Office (PBO), which comprises economists and fiscal analysts who advise Parliament on the Budget and economy, has told lawmakers that Kenya is slowly losing its comparative advantage due to poor Government policies.

The numbers are already supporting this story. For instance, exports to Uganda, which has long been the leading destination for Kenyan goods, are shrinking.

Data from the Kenya National Bureau of Statistics (KNBS) shows that over half (54 per cent) of the exports to the EAC were consumed by Uganda. However, the value of these goods has shrunk from a high of Sh75.9 billion in 2011 to Sh68.5 billion last year.

The country is not faring much better in Tanzania, where KNBS data shows exports have dropped 27 per cent from a high of Sh46 billion in 2012 to Sh33.6 billion last year.

Dominant economy

Now, losing the pipeline deal means Kenya will have to embark on finding its own financiers and contractors. In neighbouring Tanzania, Mr Magufuli has said his country will begin construction of its pipeline next year.

And there is plenty Kenya has lost in the deal. Uganda is estimated to have more than 6.5 million barrels of oil – about 10 times more than what Kenya has. If this resource is well managed, Uganda could well unseat Kenya as the dominant economy in the region.

Further, Tanzania’s line will emerge as a strong competitor to Kenya’s in winning oil exports from other Great Lakes countries, such as South Sudan and Eastern DRC.

In an opinion piece published in local media, petroleum and energy consultant George Wachira said Kenya will feel the investment impact of the Tanzania-Uganda pact.

“The Total [the French oil investor in Uganda] factor is likely to play out prominently in the Great Lakes petroleum infrastructure. Across Lake Albert in DRC, Total owns controlling interests in the new oil discoveries, which are essentially an extension of Ugandan oil basins,” he said.

Mr Wachira added that Total’s influence in the region is likely to lead to consignments of oil from most neighbouring countries going through the Tanzanian pipeline.

That means, Kenya’s pipeline may not be fully utilised, which will defeat its initial objective.

The pipeline was seen as an anchor of the Lamu Port-South Sudan-Ethiopia Transport (Lapsset) Corridor project.

The other objective of the Lapsset project was to build a Sh330 billion ($3.3 billion) port in Lamu. Kenya was hoping to use this to entice landlocked countries to import and export their goods through the country.

The designs for three of 29 berths at Lamu Port are complete, and construction is set to begin next year, but the apparent shift in regional power may create some hurdles.

Kenya’s prospects for creating additional jobs and collecting more revenues from transit fees have begun to dim, even though the country has already embarked on a project to expand its port facilities through a Sh25 billion loan.

Tanzania is making even bigger investments. The country is currently constructing a $10 billion (Sh1 trillion) Bagamoyo port and special economic zone to transform Tanzania into a regional trade and transport hub.

On completion, the port is projected to have the capacity to handle 20 million containers a year, in addition to Dar’s 500,000 containers.

Kenya’s revamped port cannot handle more than three million containers.

According to economist Kariithi Murimi, Kenya cannot carry the Lapsset vision by itself.

“We need to be clear that Kenya cannot go it alone because we need enough return volume to justify the economics of the investments in the pipeline, and also the expansion of Lamu as a port,” he said.

Coalition of the willing

The SGR, another project within Lapsset, received its latest blow when Rwanda divorced the Kenyan route and tied the knot with Tanzania.

In 2013, President Kenyatta had marshalled Uganda and Rwanda into a so-called coalition of the willing that saw the countries initiate a raft of projects in East Africa’s Northern Corridor.

However, this grand plan, which had sidelined Tanzania and Burundi, has now come to haunt Kenya. Rwanda has pulled the plug on the alliance, choosing Tanzania and Burundi for access to the sea through Dar es Salaam.

According to Rwanda’s minister of finance and economic planning, Claver Gatete, the landlocked country plans to develop rail links to Indian Ocean ports through Tanzania because it is cheaper and shorter than through Kenya.

“We opted for the route transiting to Tanzania during the construction of our railway line because the Kenyan route would be expensive and time consuming,” Mr Gatete told Mail & Guardian Africa.

A report from Rwanda’s ministry of East African Community affairs showed that by opting for Tanzania, Rwanda would save its taxpayers money. The route will cost between $800 million (Sh80 billion) and $900 million (Sh90 billion), compared to Kenya’s $1 billion (Sh100 billion).

Rwanda, Tanzania and Burundi will now jointly construct a railway.

Initial agreement

There are also reports that a new railway is being built from Isaka in Tanzania to Kigali, with a branch to Musongati in neighbouring Burundi. There is also the planned upgrading of the Dar es Salaam-Isaka railway.

Kenya, meanwhile, has spent Sh327 million on the Mombasa to Nairobi part of the SGR, using money borrowed from China’s Exim Bank. All this time, Uganda and Rwanda had not secured any funding for their respective lines as per the initial agreement, so they face no financial fall-out.

In 2013, Kenya, Rwanda and Uganda had agreed to link to the Mombasa Port along the SGR at a cost of about $13 billion (Sh1.3 trillion).

However, Kenya Railways Managing Director Atanus Maina has downplayed Rwanda’s decision to change route, saying it is in line with the East African Railways master plan, and that Rwanda had both Kenya and Tanzania to pick from.

The initial plan was to have the railway stem from the Kenyan coast and extend up to South Sudan (Juba) and Ethiopia (Addis Ababa).

However, Ethiopia has decided to turn to Djibouti, while South Sudan has said it will consider if Tanzania is cheaper.

Ethiopia is considering setting up a 550km line to transport diesel, gasoline and jet fuel from Djibouti to central Ethiopia at a cost of ($1.55 billion) Sh155 billion.

Its completion could weaken the attractiveness of the Lapsset project, as Kenya’s feasibility study of the project was premised on Ethiopia being fully on board. South Sudan’s non-commitment is also a threat to the planned oil refinery at Lamu.

“In view of start of operations of the Corridor, co-operation with the Southern Sudanese government and the Kenyan government is very essential in creating sustained demand and supply, as well as constructing and completing the transport corridor in the both countries,” said the Lapsset Corridor Development Authority in its feasibility study.

Kenya’s oil in Turkana is mainly planned for export in crude form, and its quantity cannot guarantee economies of scale if it were to be refined in Lamu.

Therefore, oil rich-South Sudan would be an essential source of oil. If South Sudan turns its back on Kenya, the practicality of a refinery would fade.

Apart from its large crude reserves, South Sudan would also be the perfect partner for Kenya in a joint pipeline project because of its long-running woes transporting its oil through Sudan.

But to keep its infrastructure dreams alive and retain its pole position in the region, Kenya needs to address the suspicions growing between it and its neighbours, according to Mr Murimi.

“We need to go back to the table and remove the fear of Ethiopia, Uganda and Tanzania in terms of our bid and the cost of our investment. There is a silent question mark on whether we have over priced our projects,” he said.

Why neighbours’ cold shoulder may wreck Kenya’s grand infrastructure dream

 

[Geza Ulole]

Much of this prophecy is happening especially after the suspended Bagamoyo port is being brought to life again this July. Greed n tenderprenuer is the main reason why Kenya is losing out.

I can't figure out what would have happened if the former COW signed financing together? It would have been end of story for Tanzania's chance to manoeuvre as all COW would be committed to agreements signed to secure financing.


Why neighbours’ cold shoulder may wreck Kenya’s grand infrastructure dream

Photo credit: Lapsset | Government of Kenya
24 May 2016

President Paul Kagame paused and then rested his chin on his left hand when asked what appeared to be a simple question.

“Resources are scarce,” he said to the question on which way Rwanda would go in the development of the Standard Gauge Railway (SGR). The line was originally planned to run from Mombasa in Kenya, through Uganda’s Kampala before terminating in his capital city, Kigali.

“We will take the shorter route,” he said, confirming that Rwanda would tap into the alternate railway project planned by Tanzania. He was speaking at the World Economic Forum on Africa earlier this month.

For years, whenever Kenya has coughed, its neighbours have caught a cold. But it now appears that these neighbours have hatched a plan to simply turn their backs to avoid the cold. From Dar es Salaam in Tanzania through Kigali in Rwanda, to Kampala in Uganda, and finally to Addis Ababa in Ethiopia, something new is brewing, and Kenya is losing.

Even South Sudan, the newest entrant into the East African Community (EAC), seems to be on the fence. Burundi is indifferent, but the nation is limping, making any major investments at this time unlikely.

Kenya is East Africa’s largest economy. It has been the hub for trade, business and investment.

In fact, according to European Union Head of Delegation to Kenya Stefano Dejak, the country features whenever South Africa and Nigeria – Africa’s largest economies – are mentioned.

Yet, before Kenya can fully enjoy this bloom, gloom appears to be fast approaching, and its East African neighbours have something to do with it. Recent developments in policy and projects in neighbouring countries are putting the ‘regional powerhouse’ tag to the test.

And this is happening just 14 years to the deadline to achieve Vision 2030 projects, and when the country is still celebrating the discovery of oil wells in the north.

The twist in the region’s friendship also finds Kenya in the middle of executing huge infrastructure projects. Top on the list are the Sh327 billion SGR, which is the first railway project since independence, and a pipeline that could see Kenya become an oil exporter by 2022,

President Yoweri Museveni, now the longest-serving president in Eastern Africa (25 years), has been a close ally. His country has co-operated with Kenya on infrastructure, security, agriculture and energy.

But this close ally has turned his back on an August 2015 memorandum of understanding with Kenya, choosing instead to build an oil pipeline with Tanzania.

Best hunter

He relied on a Ugandan proverb to support his decision.

“If puppies are young, you don’t know which one will be a better hunter, so you feed all of them, and when they grow, you see which one emerges the best hunter,” Mr Museveni was quoted as saying by Ugandan press after the decision.

In June 2014, Kenya, Uganda and Rwanda had jointly awarded Japan’s Toyota Tsusho a contract to oversee a feasibility study and initial design for the construction of a 1,300-kilometre pipeline.

The Sh450 billion joint pipeline project was to run from the oil-rich Kaiso-Tonya area in western Uganda to Kenya’s Lokichar town in Turkana and end in Lamu.

In August 2014, Tullow Company had said that achieving the project would be dependent on many technological, legal, social and financial factors, including land acquisition for the pipeline and securing an investor.

Despite President Uhuru Kenyatta and Museveni meeting in Nairobi to conduct talks on the pipeline, whose outcome was described as “fruitful”, Uganda ditched Kenya.

Uganda relied on a team of experts’ report that saw Kenya lose the deal to Tanzania on the grounds that the latter country’s route was cheaper. According to Tanzania’s President John Magufuli, its 1,403-kilometre pipeline will cost $4 billion (Sh400 billion) – Sh50 billion less than the Kenyan option.

High costs of compensation in Kenya compared to Tanzania, where all land belongs to the state, and the threat of attacks from Al-Shabaab militants in Lamu conspired against Kenya. Also, experts argued that the Hoima-Lamu terrain was rockier than the flatter route proposed in Tanzania.

The Parliamentary Budget Office (PBO), which comprises economists and fiscal analysts who advise Parliament on the Budget and economy, has told lawmakers that Kenya is slowly losing its comparative advantage due to poor Government policies.

The numbers are already supporting this story. For instance, exports to Uganda, which has long been the leading destination for Kenyan goods, are shrinking.

Data from the Kenya National Bureau of Statistics (KNBS) shows that over half (54 per cent) of the exports to the EAC were consumed by Uganda. However, the value of these goods has shrunk from a high of Sh75.9 billion in 2011 to Sh68.5 billion last year.

The country is not faring much better in Tanzania, where KNBS data shows exports have dropped 27 per cent from a high of Sh46 billion in 2012 to Sh33.6 billion last year.

Dominant economy

Now, losing the pipeline deal means Kenya will have to embark on finding its own financiers and contractors. In neighbouring Tanzania, Mr Magufuli has said his country will begin construction of its pipeline next year.

And there is plenty Kenya has lost in the deal. Uganda is estimated to have more than 6.5 million barrels of oil – about 10 times more than what Kenya has. If this resource is well managed, Uganda could well unseat Kenya as the dominant economy in the region.

Further, Tanzania’s line will emerge as a strong competitor to Kenya’s in winning oil exports from other Great Lakes countries, such as South Sudan and Eastern DRC.

In an opinion piece published in local media, petroleum and energy consultant George Wachira said Kenya will feel the investment impact of the Tanzania-Uganda pact.

“The Total [the French oil investor in Uganda] factor is likely to play out prominently in the Great Lakes petroleum infrastructure. Across Lake Albert in DRC, Total owns controlling interests in the new oil discoveries, which are essentially an extension of Ugandan oil basins,” he said.

Mr Wachira added that Total’s influence in the region is likely to lead to consignments of oil from most neighbouring countries going through the Tanzanian pipeline.

That means, Kenya’s pipeline may not be fully utilised, which will defeat its initial objective.

The pipeline was seen as an anchor of the Lamu Port-South Sudan-Ethiopia Transport (Lapsset) Corridor project.

The other objective of the Lapsset project was to build a Sh330 billion ($3.3 billion) port in Lamu. Kenya was hoping to use this to entice landlocked countries to import and export their goods through the country.

The designs for three of 29 berths at Lamu Port are complete, and construction is set to begin next year, but the apparent shift in regional power may create some hurdles.

Kenya’s prospects for creating additional jobs and collecting more revenues from transit fees have begun to dim, even though the country has already embarked on a project to expand its port facilities through a Sh25 billion loan.

Tanzania is making even bigger investments. The country is currently constructing a $10 billion (Sh1 trillion) Bagamoyo port and special economic zone to transform Tanzania into a regional trade and transport hub.

On completion, the port is projected to have the capacity to handle 20 million containers a year, in addition to Dar’s 500,000 containers.

Kenya’s revamped port cannot handle more than three million containers.

According to economist Kariithi Murimi, Kenya cannot carry the Lapsset vision by itself.

“We need to be clear that Kenya cannot go it alone because we need enough return volume to justify the economics of the investments in the pipeline, and also the expansion of Lamu as a port,” he said.

Coalition of the willing

The SGR, another project within Lapsset, received its latest blow when Rwanda divorced the Kenyan route and tied the knot with Tanzania.

In 2013, President Kenyatta had marshalled Uganda and Rwanda into a so-called coalition of the willing that saw the countries initiate a raft of projects in East Africa’s Northern Corridor.

However, this grand plan, which had sidelined Tanzania and Burundi, has now come to haunt Kenya. Rwanda has pulled the plug on the alliance, choosing Tanzania and Burundi for access to the sea through Dar es Salaam.

According to Rwanda’s minister of finance and economic planning, Claver Gatete, the landlocked country plans to develop rail links to Indian Ocean ports through Tanzania because it is cheaper and shorter than through Kenya.

“We opted for the route transiting to Tanzania during the construction of our railway line because the Kenyan route would be expensive and time consuming,” Mr Gatete told Mail & Guardian Africa.

A report from Rwanda’s ministry of East African Community affairs showed that by opting for Tanzania, Rwanda would save its taxpayers money. The route will cost between $800 million (Sh80 billion) and $900 million (Sh90 billion), compared to Kenya’s $1 billion (Sh100 billion).

Rwanda, Tanzania and Burundi will now jointly construct a railway.

Initial agreement

There are also reports that a new railway is being built from Isaka in Tanzania to Kigali, with a branch to Musongati in neighbouring Burundi. There is also the planned upgrading of the Dar es Salaam-Isaka railway.

Kenya, meanwhile, has spent Sh327 million on the Mombasa to Nairobi part of the SGR, using money borrowed from China’s Exim Bank. All this time, Uganda and Rwanda had not secured any funding for their respective lines as per the initial agreement, so they face no financial fall-out.

In 2013, Kenya, Rwanda and Uganda had agreed to link to the Mombasa Port along the SGR at a cost of about $13 billion (Sh1.3 trillion).

However, Kenya Railways Managing Director Atanus Maina has downplayed Rwanda’s decision to change route, saying it is in line with the East African Railways master plan, and that Rwanda had both Kenya and Tanzania to pick from.

The initial plan was to have the railway stem from the Kenyan coast and extend up to South Sudan (Juba) and Ethiopia (Addis Ababa).

However, Ethiopia has decided to turn to Djibouti, while South Sudan has said it will consider if Tanzania is cheaper.

Ethiopia is considering setting up a 550km line to transport diesel, gasoline and jet fuel from Djibouti to central Ethiopia at a cost of ($1.55 billion) Sh155 billion.

Its completion could weaken the attractiveness of the Lapsset project, as Kenya’s feasibility study of the project was premised on Ethiopia being fully on board. South Sudan’s non-commitment is also a threat to the planned oil refinery at Lamu.

“In view of start of operations of the Corridor, co-operation with the Southern Sudanese government and the Kenyan government is very essential in creating sustained demand and supply, as well as constructing and completing the transport corridor in the both countries,” said the Lapsset Corridor Development Authority in its feasibility study.

Kenya’s oil in Turkana is mainly planned for export in crude form, and its quantity cannot guarantee economies of scale if it were to be refined in Lamu.

Therefore, oil rich-South Sudan would be an essential source of oil. If South Sudan turns its back on Kenya, the practicality of a refinery would fade.

Apart from its large crude reserves, South Sudan would also be the perfect partner for Kenya in a joint pipeline project because of its long-running woes transporting its oil through Sudan.

But to keep its infrastructure dreams alive and retain its pole position in the region, Kenya needs to address the suspicions growing between it and its neighbours, according to Mr Murimi.

“We need to go back to the table and remove the fear of Ethiopia, Uganda and Tanzania in terms of our bid and the cost of our investment. There is a silent question mark on whether we have over priced our projects,” he said.

Why neighbours’ cold shoulder may wreck Kenya’s grand infrastructure dream

 

[Geza Ulole]

Malaysia scraps high speed railway deal: A stack lesson for Uganda, China and other African countries.
By Admin

Added 5th June 2018 01:36 PM


There is an emerging discourse that the Chinese firms exaggerate costs of these projects to their benefit. This is one of the key reasons cited by Mahathir in pulling out of the HSR deal in Malaysia.

By Rama Omonya

The new Prime Minster of Malaysia, Mahathir Mohamed just announced, to the shock of investment world that Malaysia is pulling out of the High Speed Railway (HSR) deal with Singapore. The futuristic HSR deal, signed by the previous Malaysian government in December 2016, would have seen the 350km line reduce travelling time between the two cities to 90 minutes when completed in 2026.

The HSR had been described by political leaders as a "game changer" in that it would have benefited both countries by enhancing the infrastructure for economic growth and job opportunities. Construction would have cost Malaysia 110 billion ringgit ($28b).

Mahathir’s reasons for scraping the deal is that it was to “avoid [Malaysia] being declared bankrupt.” Mahathir’s government is faced with liabilities that exceed 1 trillion Ringgit (approx. $251b) due to state guarantees on borrowing. That is nearly double the 687-billion-ringgit federal government debt number disclosed by the former administration. Mahathir also said his government was also in the process of renegotiating with Chinese partners over the terms of a $14b rail deal aimed at connecting the South China Sea. This, I am certain, will happen to Uganda in future.



How relevant is this development for China- Africa relationship?

It is estimated that China’s commercial loans to African governments is in excess of $80 billion between 200-2014 and they are funding over 3000 largely critical infrastructure projects in Sub Saharan Africa. China is thus the region’s largest creditor with 14% of the debt stock. In 2015, at the China-Africa Co-operation (FOCAC), president Xi Jinping pledged more $60 billion in commercial loans.

For Uganda, the Parliament’s Committee on National Economy for the 2016/17 financial report puts the stock of external debt for both the public and private sector at 41.4 per cent of gross domestic product (GDP), up from 40.2% in the preceding financial year. Ministry of Finance puts it at approximately 33.8% of the GDP (2017 FIGURES). When you factor in undisbursed loans, however, the ratio of total public debt to GDP is closer to the threshold of 50%, experts say.

The International Development Association of the World Bank (IDA) is Uganda’s biggest creditor. Debt owed to IDA has declined from 61.9 per cent of the total stock in 2010/11 financial year to 45.2%. Over the same period, debt owed to China has increased from 3.3 per cent to 20.3%. It is believed that most of the debts are secured by sovereign guarantees to insulate risks such as political risks. Unfortunately, most of these contracts are kept in secret and majority of citizens have no idea what is binding their posterity.

It is understandable why the crave for Chinese financing in Africa. Unlike the western led group of World Bank, EU and other western agencies, China does not tie their finances to stringent conditions such as human rights or governance standards. The other important aspect is that China does not only provide finances but prefers the Engineering, Procurement, Construction (EPC) model for its companies executing the projects funded by them. It also provides technology, human resource, design, materials and project consultancies. This is where the problem lies for African countries.

There is an emerging discourse that the Chinese firms exaggerate costs of these projects to their benefit. This is one of the key reasons cited by Mahathir in pulling out of the HSR deal in Malaysia. There are choruses about the inflated costs for; the Entebbe Express Highway (although authorities have attempted to explain the topographical nature as a basis for the high cost), construction for Karuma and Isimba etc, the planned Standard Gauge Railways (SGR) and many others. The UNRA probe found that only 1500 kilometers of tarmac was built and yet the shillings 9 trillion allocated could build 5000 kilometers of tarmac.

Of course there are serious capacity issues with most African governments including Uganda in assessing the genuine project costs. The World Bank recommended Institutional strengthening – “that there is a need to build capacity of institutions across the entire project cycle to prepare quality projects, carry out rigorous appraisal, construct the assets efficiently and at minimum cost, and monitor and maintain these assets”. The UNRA Commission similarly recommended that “UNRA puts measurers in place to match, within reason, the cost of construction of sister countries by eliminating the fat built in and front loaded in the Bills of Quantities in Uganda”

The other major economic concern about Chinese money is that they always negotiate as a condition that Chinese firms be contracted using the EPC model. This is plough back mechanism because they end up procuring materials such as steel, aluminum, cement and other materials from their country denying Ugandan manufacturers the economic value chain benefits. Uganda Manufacturers Association has gone on record crying foul of such practices. Their loans do not create sufficient manufacturing thrust in the borrowing countries but rather in China. This is partly what the Trump administration call Chinese “Predatory Economics”

It would be consoling if the infrastructure, for which we are heavily indebted, were generating the much needed revenues. This seems not to be the case. The World Bank 2016 Economic Outlook titled Unleashing the power of public investment management: from smart budgets to smart returns stated that Uganda's public investments are falling short of generating the desired economic return.

It found that for every dollar invested in Uganda’s capital infrastructure, only seventh-tenth has been generated. This is way below the $3 generated in other fast growing countries. Besides, most of the infrastructure monies are lost to corruption.

The UNRA probe findings above is perhaps a testament to why this is so. Corruption is another explanation as sh4 trillion was misappropriated or stolen within a period of seven years in the road sector alone. If we were to institute probes for dams and other infrastructure projects, we would find similar trends or even worse.


Political risks?

With the removal of age limit, a decent projection of 20 more years is not farfetched for Mr Museveni. . This should provide a good assurance for the Chinese lenders. However, political terrain is the hardest to predict. Should there be new leaders in Kampala whose views about “Chinasation” of our debt stock differs with the current one, we could see a Malaysia happening. Therefore, the real risks of any new government reneging on its sovereign guarantee undertaking is big and China will have to struggle to recover such debts.

Governments, especially in developing worlds, often keep many capital infrastructure contracts as “top secret” documents away from probing public eye. Just like Mahathirs government is discovering that the actual debt stock is nearly twice than what was declared by the previous government. We may find ourselves in that situation after change of guards. And that should worry all of us.

In the wake of the Malaysian story, policy thinkers in China must be scratching their heads hard. How can they safeguard against the Malaysia scenario? One of the measures China could be thinking is strengthening the terms in sovereign debt contracts that enable them to enforce their debts judicially and may be that which can enable sovereigns to restructure their debts. The Mozambican debt experience of 2013 shows how the guarantee contract gave exclusive jurisdictions to British Courts to handle the matter can be cumbersome for a sovereign state. Will China opt for jurisdictions of western courts? That would be an interesting development or will they buy the rather expensive political risks insurance? The later usually pushes the costs of financing since financer have a clever way of factoring the insurance premiums in their deals.

What should we do?

In the meantime, we should pay kin attention to the costs of our infrastructure projects. Lest we will pay for infrastructure that we never had. Also, the Government should ensure all contracts especially those relating to infrastructure financing and extractive resources are made public.


Public scrutiny can help governments especially in countries with high corrupt practices in public affairs like ours. The president could really mean well for Uganda, but does his bureaucrats and politicians do the same? If it is really Hakuna mchezo, then the Malaysian example should make people scratch hard, their bold heads!

The writer is a Partner with ABN Advocates, with specialty in policy and development analysis

Malaysia scraps high speed railway deal: A stack lesson for Uganda, China and other African countries.