Finance, Uganda Railways Fight Over AfDB Loan

A row has broken out between the Ministry of Finance, Planning and Economic Development and the Uganda Railways Corporation -URC over the application of the 301-million-dollar loan to railways sector.

The facility that was approved last year by African Development Bank, AfDB, is meant for the rehabilitation of URC assets and refurbishment of others, according to the AfDB. 

The financing approved on November 30, last year consists of loans and grants from the Bank and its concessional lending window, the African Development Fund, for, among others, “the rehabilitation of the 265 km of MGR tracks between Malaba and Mukono, including the line to Jinja Pier and Port Bell on Lake Victoria,” according to the Bank’s statement.  

It has now surfaced that the Ministry of Finance wants the money diverted to the Standard Gauge Railway, a project independent of the Uganda Railways, to the irritation of URC. 

Sources at both the ministry and at URC say the Ministry of Finance is using the recent announcement by President Yoweri Museveni that the country would soon embark on the “construction of a new standard gauge railway from Kampala to the borders with the Democratic Republic of Congo and South Sudan.” 

URC says this is one of the many moves that the different government ministries are taing without consulting URC, and seemingly aimed at failing the corporation. 

It is also feared that should the application of the facility be altered from URC projects to the SGR, it will affect the relationship between the lender and the Ugandan authorities. 

The Ministry of Finance Principal Communications Officer, Apollo Munghinda confirmed the development but said talks are yet to be concluded on the matter. 

“Focus is really on the SGR, but not yet conclusively discussed. We shall have a clear picture in the coming days,” he said. 

An official at URC told URN that there are actually no talks in any attempt to coerce the agency’s top leadership into accepting the idea, with the last having been between their Chief Finance Officer and the Secretary to the Treasury, Ramathan Ggoobi. 

“The loan is the only chance we have to move this thing (railway) forward because a lot of money due to us is tied up with other government agencies who have refused to pay us,” the official said referring to the delayed release of more than 30 billion shillings for the land that was taken over by the Kampala Flyover project. 

Minister Fred Byamukama, the political supervisor of the URC did not pick up his phone when sought for the view of the Ministry of Works and Transport, nor did he respond to text messages, while the ministry’s spokesperson, Susan Kataike said they were not aware of such developments. 

“But that is not to say that it is not true,” she said. 

Asked about the matter, the Head of Corporate Affairs at the URC John Linon Sengendo could not give any detail, but said SGR officials have visited the headquarters twice since December. 

Despite queries about the prudence of investing 10 trillion shillings in the SGR just from Malaba to Kampala instead of putting fewer resources into upgrading of the metre gauge railway, an SGR Project official says the SGR is more economically reasonable. 

“Important to note that all economic indicators favour development of a modern railway with capacity to haul about 20 million tonnes for a rising economy like Uganda in the next 5-10 years.”

Some economic experts have also questioned the heavy investment planned for the SGR compared to the expected benefits. 

They say that the country does not have the capacity to meet the profitability of the SGR because there is not enough to export via the SGR, while even the imports being touted, will mostly end up in neighbouring countries DRC and S Sudan. 

URC officials say that unfortunately, they can only rely on the AfDB to maintain its stand on the use of the loan, because URC is just a beneficiary of the arrangement between the Bank and the ministry of finance. 

“ADB already approved the credit, but the problem for URC is, it is government to sign off,” says a  source, additionally claiming: “Government is going to tell the Bank to give them less than what was approved so that then, it will have the reason to borrow more to top up and use the money on SGR.”

This means the ministry will have reduced the debt obligation at URC since the corporation is highly indebted, then they will borrow from elsewhere, not AfDB “because at signing, that is where negotiations are going to happen again and then they will cut it!” 

The ministry of finance is also believed to be holding the master card, that is, should the AfDB reject the proposal in URC’s favour, then the government can step out of the deal and tell Uganda Railways to repay the entre loan itself.

Last month, it was revealed that the government was in discussion with a Turkish company Yapi Merkezi to build the SGR from Kampala to Malaba, having been frustrated by the Chine Export-Import Bank over financing of the project. The government wants the agreement with the Chinese terminated. 

The Chinese, among other reasons, dragged their feet on the project, unsure that Kenya would extend its SGR line from Naivasha to the Ugandan border so that there would be a seamless flow of cargo from Mombasa to Kampala and beyond. 

Uganda could only give verbal commitment since the government does not have the money to build part of the railway network to Malaba. 

President Uhuru Kenyatta is said to have described it as a railway to nowhere, but his successor, William Ruto has vowed to complete the stretch to Malaba.

Uganda Railways Corporation says that this alone is not assurance that the Kenya SGR will extend to Malaba because still, Nairobi is asking China to revive the financing plan halted about five years ago over the viability of the project.

It was made worse when Kenya defaulted on repayment of the loan on the completed SGR from Mombasa to Naivasha, and was fined 10.8 million dollars (close to 40 billion Uganda shillings) for defaulting. 

“If that money does not come as planned, it will have a disastrous effect on Uganda Railways because the government gives it very little money,” the official says. “I wonder why it is not being treated like you see the other state companies like Uganda Airlines.” 

Scroll to top