Standard gauge railway deal in Uganda seems headed for court

The controversy surrounding the standard gauge railway in Kenya seems to have spread to Uganda, threatening the project’s success.

According to a report published by The EastAfrican, the country’s Ministry of Works last week terminated a memorandum of understanding (MoU) with China Civil Engineering and Construction Company (CCECC), setting off potentially protracted litigation that could expose Uganda to a multi-million dollar claim in compensation and cause slippage in the schedule for the project.

In an April 8 letter to the president of the construction firm, Uganda’s junior minister for Works, Mr John Byabagambi, served the Chinese contractor with a three-month notice of intention to terminate the agreement entered into by the parties in March 2012.

“CCECC has shown unwillingness to resolve any differences with the Government of Uganda amicably, even before we sign formal contracts for the projects. Instead, the company has resorted to threats of court action among others. I am convinced that CCECC shall not be a reliable partner in the execution of the projects, should the government go ahead to sign contracts with them,” Mr Byabagambi wrote before  serving the notice of termination from April 9  to July 10, 2014.

REGIONAL INTERESTS

The contractor’s representatives, however, disputed the minister’s grounds, arguing that in all meetings with him, he has attempted to force rather than negotiate positions with CCECC.

“We have also never threatened to go to court as alleged by the honourable minister, and it is only this latest action by him that now invites us to go to court,” the company told The EastAfrican.

Cut transport costs

The SGR project is meant to open up the East African Community infrastructure. A fortnight ago, South Sudan announced that it would join EAC countries in the development of the railway to cut transport costs and boost regional trade.

Kenya reached a deal with Uganda and Rwanda to construct the SGR railway to link Mombasa port to Malaba on the border with Uganda. It will be extended to Uganda, and, by 2018, to Rwanda.

The major point of contention in Uganda revolves around attempts by the minister to reallocate the Kampala-Malaba section from CCECC to a rival contractor, yet the latter had already submitted detailed designs and feasibility studies.

CCECC entered three MoUs with the government for upgrading of the rail network covering the Kampala-Kasese, Tororo Pakwach-Gulu-Nimule and Kampala-Malaba sections, but it is only for the latter section that design and feasibility studies were submitted.

Mr Byabagambi’s letter came just a day after he wrote to Ugandan President Yoweri Museveni, telling him it was not possible to accommodate another Chinese bidder, China National Corporation for Overseas Economic Corporation (CCOEC), in the SGR project because the work had been given to CCECC and the China Harbour Engineering Corporation (CHEC) as directed earlier by the president.

CCECC’s lawyers declined to comment on the amount of compensation they would be seeking but, according to official correspondence between the Finance and Works ministries, it is likely to be in millions of dollars.

HUGE COSTS INCURRED

According to figures from a June 2012 letter, in which the Ministry of Works sought a certificate of clearance from the Finance ministry for the cash implications of the SGR project, the cost of designing the 251-kilometre Kampala-Malaba segment was estimated at Ush7.8 billion ($3.1 million).

Sources, however, say CCECC, which was contracted to design close to 900 kilometres of SGR that includes the 500 kilometre Tororo-Pakwach section and a line to Nimule on the border with South Sudan, could lodge a claim of about $100 million.

The contractor’s agents in Kampala say the company has already incurred huge costs to produce the designs and feasibility study.

In his notice, Mr Byabagambi cites sections of the MoU, which say it was not legally binding; disputes arising from any part of the document would be resolved amicably between the parties and the MoU could be terminated by either party giving a three-month notice.