November 27, 2021

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China denies ‘debt trap’ to take over Entebbe airport

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The Chinese Embassy in Uganda has denied reports saying the Asian giant will take over Entebbe International Airport over a $200m (Shs713b) loan  from Export-Import (Exim) Bank.

“Why is money offered by Western countries to developing countries considered ‘assistance for development’, while the money offered by China is labelled as ‘debt trap’? This view is NOT logic or correct!”, said Wu Jianghao, Assistant Minister of Foreign Affairs, China.

“Which of the Chinese projects in Africa have been confiscated in Africa? NONE! The hype surrounding Chinese ‘debt trap’ in Africa have NO factual basis and is being pushed on malicious grounds”, said Wu Peng, Director-General, Department of African Affairs, MoFA, China.

This followed a report by Daily Monitor saying top Ugandan officials have been boxed into a corner of bother after lenders in China rejected their request to re-negotiate ‘toxic clauses’ in the $200m (Shs713b) loan picked six years ago to expand Entebbe International Airport.

Some of the unfavourable provisions in the loan agreement that Uganda signed with the Export-Import (Exim) Bank of China on March 31, 2015, if not amended, expose Uganda’s sovereign assets to attachments and take-over upon arbitration awards in Beijing.

Daily Monitor investigations found out that any proceedings against Uganda Civil Aviation Authority (UCAA) assets by the lender would not be protected by sovereign immunity since Uganda government, in the 2015 deal, waived the immunity on airport assets.

The report said the risk presented by the Financing Agreement on March 7, 2019, prompted Uganda to send an 11-member delegation to Beijing to plead with Exim Bank to renegotiate the clauses now impugned by Kampala.

The joint team from the Works, Foreign Affairs, and Finance ministries, as well as UCAA and Attorney General’s Chambers, was led by Dr Chrispus Kiyonga, Uganda’s Ambassador to China.

In the meeting, the four Exim Bank executives reportedly rejected any amendments to clauses of the signed Financing Agreement, and made it clear to the Ugandan executives that any attempts to make alterations would set a bad precedent. In addition, the Chinese told their guests that they saw no cause to warrant the amendment.

The lenders advised Dr Kiyonga and his team to accept “friendly consultations” from time to time, to ensure smooth implementation of the airport expansion project. They also agreed to keep the details of the meeting confidential.

Naysayers

“The claim by some MPs that the loan terms in the agreement with Chinese EXIM Bank are unfair to Uganda and puts the Entebbe Airport

 at risk should Uganda fail to pay is UNTRUE”, said Dr. Allawi Ssemanda, founder of Development Watch Centre, in his recent article

newvision.co.ug.

Why China’s lending terms are the best African countries can get

When extending development loans, many countries take seriously the issue of controlling and reducing investment risks and ensure the security of capital, he wrote.

 “The UNTRUE claim is dancing to some Western capital’s narrative driven by fear of growing Sino-Africa relations characterised by principles of mutual respect and benefit.”

“What Chinese EXIM Bank does is a legitimate and commonly accepted commercial practice employed to ensure the capital safety of lenders. Indeed, it was adopted by some Organisation for Economic Co-operation and Development (OECD) creditors we look up to.”

“For the record, Chinese funding is the best deal any developing country can get to address growing infrastructure funding gaps. The commonly-accepted clauses like cross default and cross cancellation that  Chinese creditors include in loan contracts should not be taken as tricks of loan sharks but rather devise used to ensure safety of their funds.”

According to Ssemanda, it should be noted that the text used in Chinese loans agreements are ones generally accepted by the market and these terms are consistent with the principles of balance and of rights and obligations of parties involved.

“Over time, China has proved to be a brotherly country to all African countries and promotes mutual trust and benefit that by all means, it cannot avoid good faith consultation where necessary. China considers African countries close allies and is not interested in seizing their properties but ensuring borrowing countries join China in growing and developing together so as to realize Chinese leadership philosophy of a shared future for mankind.”

How it happened

Faced with the need to expand the transport sector in tandem with regional infrastructural development, Uganda launched an aggressive and ambitious 20-year civil aviation masterplan which included the upgrade of its only international airport in Entebbe along the shores of Lake Victoria, 43km south of the capital Kampala, reported The EastAfrican.

The refurbished airport would handle about 150,000 operations a year, as the landlocked country looked at making its main gateway a regional hub.

On March 24, 2015, Finance minister Matia Kasaija asked Parliament to approve a $325 million (Ush1.1 trillion) loan from Exim Bank of China for the expansion works on the airport.  The money was approved, and the works started in January the following year. Addressing the MPs, Mr Kasaija said it was the best offer available and that they had to take it very quickly.

The upgrade would see the modification and modernisation of the main terminal building to handle an expected increase in traffic, a new cargo centre, and multi-storey parking.

Red flags

However, as construction was ongoing, the Uganda Civil Aviation Authority (UCAA) managers feeling uncomfortable with some clauses of the loan agreement raised red flags.

Some 13 clauses were deemed unfriendly and as good as mortgaging the airport and eroding the country’s sovereignty. The most troubling for the aviation bosses was a clause that gave Exim Bank the sole authority to approve withdraws of funds from the UCAA accounts.

The bank also had the power to approve annual and monthly operating budgets, which it could reject, and the rights to inspect the government and UCCA books of accounts. The China International Economic and Trade Arbitration Commission (CIETAC) in Beijing also had the mandate to resolve disputes.

First to raise the alarm was the former UCAA managing director David Kakuba who warned that failure to amend the clauses could expose government assets to attachment and take over by China.

A team led by former envoy to China Dr Crispus Kiyonga in 2019 was told outrightly that there would not be any amendment to the loan agreement.

Stringent measures

Planning Minister Amos Lugoloobi admitted that the loan was poorly negotiated and signed but that the ministry has put in place stringent measures, including setting up an entire department to ensure loans are closely monitored so that the country does not slip into debt distress.

“We have restricted borrowing to only critical projects, and we ensure our loan ratio does not go beyond 50 percent of the GDP,” he said. Uganda’s current debt ratio to GDP is about 45.7 percent.

Mr Lugoloobi ruled out any kickbacks during the negotiations, although President Yoweri Museveni has previously castigated technocrats seeking bribes, inflating projects’ costs, and influencing negotiations.

‘No cause for alarm’

Attorney General Kiwanuka Kiryowa playing down the fears of the airport takeover says there is no cause for alarm because no property of Uganda has been mortgaged. He added that the loan was a commercial contract with an obligation to both parties.

“When you borrow money, your obligation is to pay. If you do not pay, the other party can take you to court, in which case this would be CIETAC,” he said.

“Let everyone do their part. The airport makes money and will meet its obligations.”

The AG says the agreement is not unusual and requires no amendment.

Finance minister Kasaija said in case of a loan default, the government would intervene. “In the unlikely event that UCAA were to fail to generate sufficient revenue to service the loan, the central government will step in,” he said.

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