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Fresh Details On How Chinese Firms Controversially Landed Karuma, Isimba Deals

Fresh details have emerged about the controversial awarding of contracts to Chinese Firms to construct Karuma and Isimba hydro power dams.

It has been revealed that Uganda wouldn’t get funding from China for the dams in question without awarding construction contracts to Chinese firms.

It is against this background that Ministry of Energy and Mineral Development officials faulted procurement guidelines on the ‘directive of President Yoweri Museveni’.

This shocking revelation is contained in Parliament’s Public Accounts Committee report on the report of the Auditor General for FY 2014/15 (Ministry of Energy and Mineral Development).

“Government of the Republic of Uganda was obliged to select a Chinese construction company to undertake the construction of the project if the funding had to be got from the Peoples’ Republic of China,” the report reads in part.

About four years ago, the Government of Uganda (GOU) is undertaking the construction of two hydro Power dams; Karuma Hydro Power Dam (600MW) and Isimba HPP (183.2 MW) at a cost of USD 1.65bn and USD 570m respectively. The two projects are jointly funded by GOU and a loan from EXIM Bank of China in the ratio (15:85).

Government undertook the procurement of an Engineering Procurement and Construction (EPC) contractor for Karuma through an International bidding process, evaluation was undertaken and one company, China International Water & Electric Corporation was evaluated as the best bidder.

However, following challenges in the procurement process, executive decisions were taken and M/s Sinohydro Corporation Limited was procured through direct method to construct both the Karuma Hydropower Dam and the associated Transmission Lines, at USD 1.65bn

Relatedly, the EPC contract for Isimba Hydropower Dam was awarded to China International Water & Electric Corporation at a cost of USD 567m (including USD.27,7m for transmission lines and substations) through the same method of procurement (Direct).

However, there was no tendering undertaken and therefore no bidding was done.

In his report, the Auditor General revealed that “there is no evidence that this firm had the technical capacity to construct the dam. Since there was no bidding, the contract price of USD 567m had no basis and the Auditor General could not satisfy himself that this amount was arrived at in the most frugal way. There is a risk that the project costs for both Karuma and Isimba Hydropower project could be exaggerated.”

Further, the Auditor General indicated in his report that the firm, China International Water & Electric Corporation had been blacklisted by the World Bank because it had previously engaged in “sanctionable practices” in a hydropower projects in Africa.”

Similarly, the Inspectorate of Government and the High Courts of Uganda had established that the firm had misrepresented facts in their bid for the Karuma Hydropower project.

The Auditor General was not availed with evidence that management undertook appropriate due diligence to determine whether such practices would not affect the firm’s ability to undertake the Isimba Hydropower project.

“There was no evidence that the direct procurement method used followed the requirements prescribed by the procurement law. Eng. Paul Mubrru, the Accounting Officer explained that the Karuma procurement was characterized by so many complaints from different parties including whistle blowers, “concerned citizens”, bidders as well as stoppages of the procurement process through court injunctions which spread for a period of more than two years,” the report says.

It adds that the process was then halted by IGG and later, Government made a strategic decision to finance the project using funds borrowed from the Government of the People’s Republic of China, and have M/s Sino hydro Corporation Limited directly procured to construct both the Karuma Hydrop Project and the associated Transmission Lines.

The Accounting Officer further explained to the committee that in the same vein, it was decided that China International Water & Electric Corporation should be directly procured to construct the Isimba Hydropower Project.

Observations

The report reveals that the Committee observed that identification and selection of Sino-hydro was not subjected to a competitive process.

“There is no express provision in the MoU dispensing the selection of a contractor through competitive bidding. There was no justifiable cause for disregarding due process, the bilateral agreement notwithstanding,” the report says, adding that the Accounting Officer confessed to the committee that the Ministry did not have an estimated cost for the Karuma project. The US$ 1.4 billion was proposed by the contractor.

“While the contractor in his proposal had promised not to exceed US$ 1.4 billion, the actual cost came to US$ 1.6 billion with no apparent reasons given. The Contractor procured was known to have been blacklisted by the World Bank according to the Auditor General.

Surprisingly, the Accounting Officer informed the committee that the Ministry ascertained the credibility of the contractor from the World Bank website,” the report says.

The Committee also observed that “the decision to grant contracts to the M/S Sino Hydro Corporation for the Karuma project and M/S China International Water and Electric Corporation for the Isimba hydro Project was a directive by H. E the President of the Republic of Uganda.”

“The failure by the Ministry of Energy to adhere to the provisions of the PPDA Act and the several disputes by stakeholders involved in the process further escalated the cost of the dams and delayed the commencement and eventual take off of the projects,” the report says, adding: “The Ministry should take stock of progress made and further correct the wrongs which have been made along the way to enable the country to get value for money at the tail end of the process.”

It adds that Government officials who are mandated to carry out their activities in accordance with stipulated laws and regulations should desist from circumventing the due process under the guise of presidential directives.

 

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