The contract between the Ugandan government and China Harbour Engineering Company (CHEC) to construct the nation’s first phase of standard gauge railway (SGR), a 273km line from Malaba to Kampala, has been cancelled after eight years of non-execution.
The line between Uganda and Kenya, commencing at the Malaba border post, was estimated to cost $2.2 billion, but Chinese financiers decided against funding the project after raising concerns about Kenya’s SGR’s ability to connect with Uganda’s at the border and make the project financially feasible.
A memorandum of understanding (MoU) has been signed between Kampala and the Turkish company Yapi Merkezi, according to Eng. Perez Wamburu, the project coordinator for the SGR. Within the coming weeks, the business is anticipated to respond to the government’s request for a construction proposal, clearing the way for procurement.
According to Kampala, the project’s funding strategy would also alter. Yapi Merkezi, the company developing Tanzania’s SGR, is anticipated to use its network to recruit Export Credit Agencies (ECAs) to help finance and revive the project.
The UK Export Fund (UKEF), which was suggested to be interested in funding the SGR to the tune of £1.5 billion or $1.72 billion in September, has been mentioned in talks between Ugandan government officials and possible financiers.
President Yoweri Museveni last year instructed his officials to open up the financing of the SGR to the world’s financial capitals, with London and UKEF as the first call in September 2022, according to sources familiar with the project, after growing frustrated with the lack of progress with China Exim Bank.
Mr. Wamburu disclosed that Kampala’s primary infrastructure project lender of the previous ten years, China Exim Bank, had turned cold, prompting Uganda’s Attorney General Kiryowa Kiwanuka to reconsider the contract with CHEC.
“We read between the lines when China’s Ambassador to Uganda said that after the Covid-19 pandemic, China has become more cautious about financing big infrastructure projects in Africa. We all know that Covid didn’t leave economies of the world the same,” he said.
He explained that, in contrast to the customary pattern, in which the Chinese reacted to Kampala’s offers within weeks, Uganda was compelled to reconsider its choices and widen its search for alternative lenders after its request for finance to the China Exim Bank went unanswered for over one year.
Since they submitted the latest funding request in February 2021, there has been no response. After submission, they waited a few months before hearing nothing, and Exim Bank hasn’t said anything since then, he claimed.
The engineering, procurement, and construction contract between CHEC and Uganda was canceled on the grounds that it was dependent on Kampala obtaining finance from Exim Bank, and when this endeavor failed, it was simple for the parties to part ways.