Kampala, Uganda – Auditor General John Muwanga’s latest report to Parliament has raised a number of queries regarding the on going expansion works at the Entebbe International Airport.
On October 8, 2014, Uganda’s Civil Aviation Authority (CAA) and China Communications Construction Company (CCCC) entered into a contract for the up grading and expansion of Entebbe International Airport (Phase 1).
To access funding for the project, the Government of Uganda (GoU), represented by the finance ministry, signed a concessional agreement with EXIM Bank of China dated March 31, 2015 for the principal amount not exceeding Renminbi 1.26 billion (about $200m) and interest to be charged at a rate of 2% per annum.
Muwanga’s report for the financial year ended June 30, 2018, shows that management fees and commitment fees payable are 0.25%.
The report notes that, an on-lending agreement was signed between GoU and CAA in November 2015, in which GoU agreed to lend to CAA ($200m) as borrower.
It further points out the on-lending agreement which show that obligations of GoU as the principal borrower from EXIM Bank to CAA.
“However, I noted that there are inconsistencies in the operationalization of the requirements of the agreements. The deemed actions of the different parties are contradictory to the requirements of the agreements,” the AG report says.
The report also notes that CAA has not fulfilled the terms to fund the repayment reserve account, rather, it has been done by GoU under the original Government Concessional loan agreement, although the GoU was to pay a management fee of Renminbi 1.315 million.
“This fee was paid by CAA; under the refinancing agreement and funding of the escrow account, it is clearly stated that repayment of the loan is the responsibility of the end user (CAA) and the accounts should be funded using the reserves and collections from the operation of the airport,” it adds.
So far, it is the finance ministry that has made the interest payments and no revenue collections are being deposited on the escrow accounts as expected, adds the report.
“The inconsistencies in the operationalization of the agreements and the involved parties’ deemed actions represent non-compliance/ breach of contract that could result in penalties and even cancellation of the facility.”
It also stresses that the initial contract signed between the contractor and CAA requires an independent consultant’s verification report before the contract can be deemed to come into effect.
However, it affirms that the two subsequent addenda to this contract exclude this clause.
Muwanga says, given the complexity and the nature of the agreement, involving an independent consultant’s verification prior to and during construction would represent best practice and contribute to ensuring that the objective of value-for money is achieved.
He says that, he advised management to take the necessary steps in ensuring that the operationalization of the contracts and the actions of the different parties are in agreement with the original contracts signed and being adhered to by the different parties.