Tl Wi,L, 1.0 INTRODUCTION

PARLIAMENT OF UGANDA

REPORT OF THE COMMITTEE ON NATIONAL ECONOMY ON THE PROPOSAL BY GOVERNMENT TO BORROW UP TO UA 50 MILLTON (USD 68.5 MILLION) FROM THE AFRICAN DEVELOPMENT FUND (ADF) TO FINANCE THE UPGRADING OF THE KABALE.LAKE BUNYONYI/ KISORO.MG+IINGA ROAD PROJECT lW

Office of the Clerk to Parliament

Parliament Building

Kampala

HV q Ge,

(JULY 2O2O 'r( tl wi,l, 1.0 INTRODUCTION

The Committee on National Economy considered the request by Government to borrow up

to UA 50 million (USD 68.5 million) from the African Development Fund (ADF) to flnance the upgrading of the Kabale-Lake Bunyonyi/Kisoro-Mgahinga Road Project in accordance with Rule 166 (2Xb) of the Parliamentary Rules of Procedure.

The request was presented to the House by the Hon. Minister of Finance, Planning and Economic Development on 17th June, 2020 and accordingly referred to the Committee of National Economy for consideration.

The Committee considered and scrutinized the request and now reports.

2.0 METHODOLOGY 2.1 MEETINGS The Committee held meetings with the following: i. The Ministry of Finance, Planning and Economic Development; and ii. Uganda National Roads Authority (UNRA).

Mffi{ D'.,MENTARY REvrEw f ,fu[q--- / 'The Committee studied and made reference to the following documents: i. The Minister of Finance, Planning and Economic Development's Brief on the Loan Request; ii. The Draft Loan Financing Agreement between the Republic of Uganda and the African Development Fund for Kabale-Lake Bunyonyi/Kisoro-Mgahinga Road Upgrading Project (dated 20th May, 2020). iii. The Project Appraisal Report for Kabale-Lake Bunyonyi/Kisoro-Mgahinga Road Upgrading Project (April, 2020); iv. The Project Appraisal Repoft Technical Annexes for the Kabale-Lake Bunyonyi/Kisoro-Mgahinga Road Upgrading pril,2020); ttn+

Cx, 1 t A $ *trV V v. Draft African Development Fund Disbursement Letter in regard to the loan agreement for financing the Kabale-Lake Bunyonyi/Kisoro-Mgahinga Road Upgrading

Project (dated 13th May, 2020); vi. Resettlement Action Plan for the Project (March, 2020); vii. The National Planning Authority Letter on the clearance of the loan for financing the Kabale-Lake Bunyonyi/Kisoro-Mgahinga Road Upgrading Project (15th June,2020); viii. Repoft on the Performance of Externally Financed Projects within the Directorate of Roads and Bridges (UNRA - January, 2020);

IX Third National Development Plan (NDP lll) 202012L - 2024125 (NPA - January, 2020); and

X Letter of H.E. the President to the Minister of Finance, Planning and Economic Development on his suppoft of the Loan financing for Kabale-Lake Bunyonyi/Kisoro- Mgahinga Road Upgrading Project (13th November, 20L7).

3.0 BACKGROUND

Uganda's road network is the predominant mode of transport carrying over 90%o of passenger and freight traffic, and notable driver of national and regional economic arowth and integration. Roads provide the only means of access to most of the rural communities and effective management of this asset is of vital impoftance to GOU's strategy for economic development and povefi reduction. Within the road sector, the national roads make up about 30% of the network, but carry about 85% of the total road traffic.

rnment has in the last 30 years emphasized increasing the stock of paved roads in the w"countryside to facilitate expansion of the productive sectors - agriculture and tourism. While South-Western Uganda is endowed with unique environment and various wildlife, which are a great attraction to tourists, most of its road network is still unpaved. The road network leading to the famous mountain gorilla tracking sites is occasionally cut off as a result of ides d g rainy season, thereby disrupting tourist movements in the area. @

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v lMfl,fr Currently, all-year round access to schools and to medical facilities by the outlying communities of Kabale and Rubanda Districts is constrained by unreliable transpoft connections between the mainland and the spatially dispersed islands on Lake Bunyonyi.

The Kabale-Lake Bunyonyi/Kisoro-Mgahinga Roads Upgrading Project seeks to tackle the accessibility problem in South-western Uganda that continues to hinder growth of tourism in the Western Tourism Development Area. Given the wider economic multiplier effects of tourism to secondary sectors of transpoft and seruices, this intervention is critical to increased market development, job creation and advancing social inclusion.

4.0 ALIGNMENT OF THE PROJECT TO THE NATIONAL PLANNING FRAMEWORK

Uganda Vision 2040 points out the key infrastructural developments for harnessing opportunities in the Works and Transport Sector, among which are, tourism roads leading to the tourism attraction areas. The Third National Development Plan (NDP III) 202012L - 2024125 fufther envisages a number of programmes through which it will be implemented, which include the implementation of Integrated Transport Infrastructure and Seruices. The Kabale-Lake Bunyonyi/Kisoro-Mgahinga Road Upgrading Project is one of the key road sections prioritized under the NDP III (2020-2025).

Therefore, the Kabale-Lake Bunyonyi/Kisoro-Mgahinga Road Upgrading Project is in line with the Uganda Vision 2040 and the Third National Development Plan (NDP Ill) 2020121 - 2024125 and is consistent with Development Objective 3 of the NDP III: "Consolidate and increase the stock and quality of productive infrastructure. " In this regard, the project intends to increase the total national paved road network to enable timely as well as efficient movement of merchandise and passengers across and into and out of the country to local and export markets plus enhancing regional integration. I 'W6Vn addition, the project anchors on the fifteen-year National Transport Master PIan (NTMP ' '-/ ' 2008-2023) aimed to facilitate an efficient movement of passengers and freight across the co to support the groMh objectives articulated in NDP III @ tL#J (} g 3 4( wol) 5.0 ALIGNMENT OF THE PROJECT WITH THE SUSTAINABLE DEVELOPMENT GoALs (SDGs)

The public investment cornerstones for sustainable infrastructure are the SDGs. Infrastructure is deeply embedded in many of the SDGs. This project is particularly aligned to SDG 9 of building resilient infrastructure, promoting inclusive and sustainable industrialization and fostering innovation. The Goal of SDG 9.1 is to develop qualiff, reliable, sustainable and resilient infrastructure, including regional and trans-border infrastructure, to support economic development and human well-being, with a focus on affordable and equitable access for all. The indicators of this goal are proportion of the rural population who live within 2 km of an all-season road and passenger and freight volumes, by mode of transpoft.

6.0 PERFORMANCE OF PREVIOUS PROJECTS IMPLEMENTED UNDER THE WORKS AND TRANSPORT SECTOR

Table 1: Loan Peformance under the Works and Transpoft Sector as at 31st December 2019 (US$ million)

Donor Project Parliament Loan Disbursement Undisbursed olo Initial Approva! Amount Amount Amount Disbursed Completion Date Committed Date JAPAN- Construction of New 28s April 129.30 106.0 23.3 82o/o 25rh July 2022 JBIC Bridge across River Nile 2011

EIB Dualling of Kampala 4h April 71.50 56.40 15.10 79o/o 21st December Nofthern By pass and 2013 2015 Construction of Mbarara Bvoass BADEA Masaka-Bukakata road 2lst May 12.00 2.5 9.5 20.5o/o 31st December 2013 2015

OFID Masaka-Bukakata road 21st May 15.00 L.7 13.3 ll.5o/o 31st December 2013 2016

ADB Road Sector Support 4- 6th Nov 1t2.4 38.2 74.2 34o/o 30th June 2018 Kyenjonjo-Hoima- 2013 Masindi-Kiqumba road IDB Tirinyi-Palisa- 16h Sept. 120.00 43.2 76.8 360/o 30h lune 2017 Kumi/Kamonkoli Road 20t4

ADB Road Sector Support 4u Dec. 98.70 31.6 67.1 32o/o 30h Dec. 2020 Project 5- Rukungiri- 20t4 Ishasha and Mbale- Lwakhakha-Bubobi ltr \- ttv (/ ( .#- ilw Donor Project Parliament Loan Disbursement Undisbursed olo Initial Approva! Amount Amount Amount Disbursed Completion Date Committed Date IDA North Eastern Corridor 17th Dec. 243.80 29.60 214.20 L2o/o 31st Oct 2024 Asset Manaqement 2014 IDB Muyembe - Nakapiripirit 10th March 110.00 11 99.0 l0o/o 30th lune 2019 Road 2015 IDA Albertine Region 22nd Suly 95.00 37.65 57.35 40o/o 31st July 2019 Sustainable 2015 Development Project (Kyenjojo to Kabwoya Road) CHINA Expansion and Upgrade 29th July 200.0 133.2 66.8 66.60/o 30h December EXIM of Entebbe International 2015 2018 BANK Airpoft JAPAN- Greater Kampala Flyover 3'd Sept. 199.89 14.0 185.90 7o/o 26s February JICA Project 2015 2024

Germany Consruction of Inland 23'd March 47.8 24.5 23.3 51.3olo 15th April 2021 Port at Bukasa 2016

ADB Busega - Mpigi express 21st Dec. 91.00 6.4 84.6 7o/o 31st December highway 2016 2019

AfDF Busega - Mpigi express 21st Dec. 61.00 4.3 56.7 7o/o 31st December hiqhwav 2016 2019 BADEA Luwero Butalangu 21st Dec. 11.50 2.4 9.1 20.50/o 31st December Road 2016 2020 OFID Luwero Butalangu 21st Dec 11.50 1.3 10.2 11.50/o 3lst December Road 2016 2020

IDB Rwekunye-Apac-Lira 16th May 210.00 21,0 189.0 10% 30h June 2020 - Acholibur Road project 20t6

ADB Multinational Lake 2gth t4.4 0.50 13.9 3.50/o 30th April 2021 Victoria Maritime November Communication and 2017 Transoort Proiect AfDF Ka pchorwa-Sua m-Kita le 28h Nov 59.70 5.4 54.3 9o/o 31st December Road Project 20t7 2022

ADB Kapchorwa-Suam-Kita le 28th Nov 38.40 3.5 39.4 9o/o 31st December Road Project 2017 2022

UKEF/ST Phase 1 of Kabaale 2gth 362.3 t57.6 204.7 43.50/o 8th February ANCHART International Airport November 2022 Project 2017 JAPAN- Construction of New 13h Mar 49.20 49.20 0o/o 25th July 2022 JBIC Bridge across River Nile- 2018 Additional Financinq TOTAL 2F64.39 731.95 1,536.95 3Lo/o Source: MoFPED MoWT, UNRA and DRS Computations @ WJ B_N-! {+

ilUil,fr Approved on-going debt financed projects under the Works and Transpoft Sector as at end December, 2019 amounted to US$2,364.39 million of which US$731.95 million had been disbursed representing an overall average disbursement rate of 31%. This is below the Committee requirement of at least 50 per cent disbursement rate, as obserued in Table 7.

However, this includes the projects of upgrading the Luweero-Butalangu road, Muyembe- Nakapiripirit Road, Rwekunye-Apac-Lira-Acholibur Road, Busega-Mpigi Express Highway, Multinational Lake Victoria Maritime Communication and Transport Project, Kapchorwa- Suam-Kitale Road Project and the Nofth Eastern Corridor Asset Management Projects, whose disbursement are all below 20 per cent.

The major challenges faced by debt financed projects in the Works and Transpoft Sector include; delays in acquisition of right of way; delayed procurement and administrative reviews; delayed completion of designs; delays in fulfillment of loan effective conditions; and inadequate MTEF allocation for the growing project counterpaft funding needs in the sector. All these challenges tantamount to the general lack of project implementation readiness within the works and transport sector.

7.O PROJECT OBJECTMS, IMPACT, OUTCOMES AND OUTPUTS

The development objective of the project is to facilitate growth of tourism and socioeconomic development in South-Western Uganda through increased tourist earnings and attraction of private investments in tourist related hospitality facilities and agricultural ventures.

7.1 Project Specific Objectives: The specific objectives of the project are; Improve transport connectiviW by enabling seamless intermodal connection of the W road infrastructure with inland water transport (IVW) on Lake Bunyonyi, thereby enabling safe access to social and economic activities on the various islands by the

local tres; (-\, 6 c>- ( tr @ W/,1) ii. Contribute to improved agricultural supply chain efficiency in the Districts of Kabale, Rubanda, and Kisoro in South-Western Uganda; and iii. Enhance road safety.

7.2 Project Impact The project will contribute to tourism development and wellbeing of the immediate communities served by the project road through: i. increased tourism earnings; ii. increased farm gate prices of key agricultural commodities; iii. increased school enrolmenU and iv, improved hospital attendance.

7.3 Project Outcomes The project development outcomes are: i. improved foreign receipts from tourist arrivals/visit to South-Western Uganda; ii. reduced travel time to passengers and freight on the upgraded roads; iii. improved average farm gate prices for key agricultural produce (e.9. irish potatoes and cabbages) in the project area; iv. improved primary school net enrolment rate (NER) in the project area; v. increased access to health facilities in the island district of Rubanda and in Mgahinga area; and vi. easier access to tourism sites.

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7 ( 0 I,l vlf,tr 7.4 Expected Project Outputs and Pedormance indicators:

Table 2 Outputs and Peformance Indicators for the Project SN Outputs Performance Indicators 1 34km of roads upgraded, water landing sites on L. By 2026, 34km of roads, 2 roadside Bunyonyi, markets at Kachwekano and Lake Loop Area, markets, 4 landing sites, and 3 farm

and farm produce holding facilities at Mgahinga produce storage faci I ities constructed

constru ctedoperationa I 2 Ferries, search and rescue boats and NAVAIDS procured By 2026, 2 ferries and safety boats and seruices operationalized on Lake Bunyonyi equipped with NAVAIDS procured and in operation 3 25 women staff of MoWI/UNRA trained on safety 50 MoWT & UNRA staff trained (> 25 management women) 4 National Road Safety Strategy produced National Road Safety Strategy launched and implemented tuurce: Project Appra isa I Docu ment (ADB, April 2O2O)

8.0 PROJECTS DESCRIPTION AND COMPONENTS

8.1 Project Description The Kabale-Lake Bunyonyi/Kisoro-Mgahinga Road Upgrading Project has been defined within the context of "tourist roads" that link the main district towns to natural attractions, passing through sensitive natural environments. The roads are adjacent to the national tourist circuit that the Government of Uganda is planning to develop. Kabale is paft of the "Touristic Ring Road" network that aims to connect all the main National Parks and touristic attractions in a round circuit in order to facilitate movement of tourists. The project interuention is paft of the cross-country programme aimed at expanding and upgrading tourism facilitating transport infrastructure and seruices.

The project entails upgrading to bituminous standards 34km of the roads, construction of four landing sites on Lake Bunyonyi, construction of two roadside markets, farm produce holding facilities, and provision of two ferries, including two search and rescue boats, complete I aids (NAVAIDS). {Eh

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@ Mfrfr 8.2 Project Area and Beneficiaries The Project roads are in South-western Uganda in the Districts of Kabale, Rubanda and Kisoro with an estimated population of over 1 million people to be directly impacted by the proposed intervention. The main economic activity in the area is tourism. The Kabale-Lake Bunyonyi-Kabeho road link connects to almost 20 hotels while the Kisoro-Mgahinga gate road links lead to the mountain gorilla families. The region is home to 54o/o of the world's

mountain gorillas. The area is agriculturally rich; however, farming is carried out on a subsistence basis due to the hilly terrain and high population density that limits arable land that can be utilized for large scale mechanized farming operations.

8.3 Project Components The project has the following 5 components as shown in Table 3,

Table.t Project Com ponents No. Component ''Estimated i ,,. .:Colnponent Description o/o Share Name :Cost (UA) Million

1 Road 37.70 (i) Construction of 34km of Kabale-Lake 64.640/o Construction Bunyonyi-Kabeho/Kisoro-Mgahinga Park Works gate's roads including: - Street lighting in trading centres, Non-Motorhed Traffic (NMD facilities and tree planting. - Two roadside markets including sanitary facilities. - Farm produce holding facilities. - Four landing sites on Lake Bunyonyi. - Power connection to Bwama Island.

2 Project 3.10 (i) Construction superuision seruices; 5.32o/o Supervision & (ii) Monitoring and evaluation, technical audit Implementation road safety and Support services and audit Seruices sensitization; and (iii) Financial audit services. 3 Institutional 1.00 (i) Development of Road Safety Strategy and L.7lo/o Capacity Training of MoWT and UNRA staff; and Bui (ii) TA - Maritime advisory seruices and ( training of UNRA staff \\Ftr

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r (tfltu No, COmponent .l,..,,].',Component..Description o/o Share Name

4 Provision of 8.20 (i) Supply and commissioning of two ferries L4.060/o ferries & Search and two safety boats; and and Rescue (ii) Installation of NAVAIDS in Lake Bunyonyi. boats

5 Compensation 8.32 (i) Compensation of project affected persons L4.270/o and and relocation of utilities. Resettlement

Total 58.32

Source: ProjectAppraisal Document (ADB, April2O2O) & DRS Computations

9.0 PROJECTCOSTS AND FINANCING ARRANGEMENT

9.1 Project Cost The total estimated cost for the Kabale-Lake Bunyonyi/Kisoro-Mgahinga Roads Upgrading Project, net of taxes, including financial contingencies, is UA 58.32 Million (Aprox. USD 79.90 millionl (UGX 294.t6 billion using 30.3.2020 exchange rate of USD 1 = UGX 3,681.64. Table 3 provides a breakdown of the costs per component.

Table 3 shows that the Road Construction Works component of the the Kabale-Lake Bunyonyi/Kisoro-Mgahinga Road Upgrading Project will cost 64.6440/o (UA 37.70 million) of the total project cost. The Project Superuision & Implementation Support Services component will cost UA 3.10 million (5.32o/o of total project costs), while L4.27o/o (UA 8.32 million) of the total project costs will be spent towards compensation of project affected persons and relocation of utilities during road construction works. The provision of ferries and search and rescue boats component will cost UA 8.20 million (L4.06o/o of total project costs). L.7lo/o of the total project cost (UA 1.0 miilion) will be spent on Institutional Capacity Buildi oWT and UNRA staff and the development of a Road Safety Strategy

@ 11uA= 1.37 2020 A 10 ( (, (IIe w Nr ulLil' 9.2 Project Financing Arrangements

Table 4: Financi of the ect Source UA million Source of Funding Amount(UA million) o/o Share ADF.Loan s0.00 85.73o/o GoU 8.32 14.27o/o Total Financinq Required 58.32 Source: Project Appraisal Document (ADB, April 2O2O)

Table 4 shows that the total required financing of the Kabale-Lake Bunyonyi/Kisoro- Mgahinga Road Upgrading Project is UA 58.32 million (Aprox USD 79.90 Million). 85.73o/o (UA 50 million) of required financing of the Kabale-Lake Bunyonyi/Kisoro-Mgahinga Road Upgrading Project will be provided by the African Development Fund of the Africa Development Bank Group through a loan. L4,27o/o (UA 8.32 million) of the required additional financing of the the Kabale-Lake Bunyonyi/Kisoro-Mgahinga Road Upgrading Project will provided by the GoU as counterpaft funding to fund the Resettlement Action Plan (RAP) of the project.

9.0 LOAN TERMS, ECONOMIC AND FINANCTAL RETURNS, AND BUDGETARY IMPLICATIONS

9.1 Loan Terms:

The African Development Fund will provide UA 50 million (USD 68.50 million) to finance the Kabale-Lake Bunyonyi/Kisoro-Mgahinga Roads Upgrading Project under the terms indicated in Table 5.

Table 5: African Development Fund Loan Terms

ftem Terms

Maturity Period 40 years (including grace period)

Grace period 10 years

Service Charge 0.75o/o per annum of the disbursed Loan Balance. ,Source: ADF Agreement Mayr 2O2O) Cb 1 /,( W 9.2 Loan Conditions:

The loans have the following conditions;

i. Approval of Loan by the Parliament of Uganda;

ii. Submission to the bank of the Attorney General's legal opinion certifying that the Financing Agreements have been duly executed and ratified, and are legally binding on the Republic of Uganda;

iii. Letter to the bank authorising persons to sign withdrawal applications together with specimen signatures;

iv. Submission of evidence of the designation or appointment of the following staff for the project implementation unit: project coordinator, a civil engineer, procurement expert, an accountant, an environmentalist, and a socio-economisU

v. Submission of works compensation schedule prepared in accordance to the resettlement action plan;

vi. Evidence that all project affected persons, in respect to civil works in a given lot has been compensated and or resettled in accordance to the Environmental and Social Management Plan (ESMP);

vii. Designation of a special account in Bank of Uganda to receive the proceeds of the loan; and

viii.Before the date of the loan agreement, Government shall submit a procurement plan to the lender covering the entire project period.

9.3. Financing conditionality Table 5: Debt indicators of African Development Fund Loan

40 years 10 years USD 20.39 Million USD 69.64 Million (c+

,tuurce: ADF Draft Financing Agrcement (2P May, 2O2O) & DRS Computations M*",'"' jA (,( U @ fifiifr' v V From Table 6, the present value of the loan (USD 20.39 million) is lower than the nominal value of the loan contracted (USD 68.5 million). This implies that the country's total future payment for this loan is less than the proposed amount to be borrowed in present terms. Total repayment of the loan will amount to USD 69.64 million.

The ADF loan is highly concessional, since its grant element (70%o) is larger than the threshold of 35o/o, recommended by IMF/World Bank. The concessionality of this loan is further influenced by its long maturity and grace period.

9.4 BudgetaryImplication

The project is included in the FY 2020121 draft budget estimates for Uganda National Roads

Authority (Project Codes 1544 & 1545 under Vote 113) with a provision of UGX 9,600,000,000 under Government development budget of the project. In addition, a total of UGX 3,838,050,000 is also provided for as external financing for only the Kisoro-Lake Bunyonyi Road (Project Codes t544) in the FY 2020121 under Vote 113.

9.5 Economic Benefit and Return of the Project

The much-needed upgrading to bituminous standards of the Kabale-Lake Bunyonyi/Kisoro- Mgahinga roads will result in an increased number of visitors to Mgahinga National Park for the gorillas. Uganda Vision 2040 envisaged that with a pivotal role of the infrastructure sector, the expected groMh of tourist arrivals would reach over 2 million by 20t9 (Vision 2040).

For economic analysis of this Project, it is envisaged that the increased tourism benefits from the absolute comparative advantage on the mountain gorilla trekking over neighboring countries is projected at USD 2 million dollars per annum, as well as the additional USD 4t2,875 dollars from improved/increased hotel accommodation revenue. Boosting tourism benefits are estimated at approximately USD 2,4t2,875 dollars per annum when the paved road is open to traffic. The tourism benefits are projected to grow at 50/o for the first 10 years paving the road and then at 3% in subsequent years. fr"t- @ (,i @

Wfu,f Based on the costs and benefits related to the project, the evaluation of the investment option, at 2019 prices, resulted in a t9.4 o/o economic internal rate of return for the upgraded project roads (which is above the oppoftunity cost for capital at l2o/o for Uganda).

1O.O PROJECT IMPLEMENTATION ARRANGEMENTS The project will be implemented over a period of five years by the Uganda National Roads Authority (UNRA) as the Executing Agency (EA) for this Project, under the oversight of the

Permanent Secretary, Ministry of Works and Transpoft. The Executive Director of UNRA shall constitute a project implementation team (PfD led by the Project Coordinator (a senior civil engineer with adequate experience in transport infrastructure projects management) and comprising of procurement expert, an accountant, an environmentalist, and a socio-economist. The team shall work in close consultation with the MoWT to assure compliance with the relevant specifications and construction standards. A Project Steering Committee (PSC) will be instituted, chaired by the Permanent Secretary of MoWT, and comprising of the key stakeholders including: MoFPED, UNRA, NEMA, MoTWA, UWA, UTB, Rural Electrification Agency (REA), Water Utility Company, Civil Society representatives, local elected officials (LC 5), community representatives, and any other agencies deemed appropriate, to provide oversight superuision to the project implementation team.

11.0 THE LOAN CURRENT DEBT SITUATION OF THE COUNTRY This loan will increase the country's total nominal public debt that stood at UGX 47.305 trillion (USD 12.55 billion) at the end of June 2019 from UGX 42.07047 trillion at end of June, 2018. However, the provisional total public debt stock as at April 2020 stood at UGX 53.6976 trillion, an increase of about 13.7 percent relative to July, 20tg (Bank of Uganda, June 2020), The estimated ratio of debt as a percentage of GDP stood at 39.1 percent in

nominal value terms as at end of April, 2020 relative to 37o/o of GDP as at end June, 20t9. \tr-+t

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fffi\fr,' The Present Value (PV) of public sector debt to GDP stood at29.7 percent in present value terms, as at end of March 2020 relative to 27.29o/o as of end June 20t9, increasing the risks of public debt sustainability if the productive capacity of the economy grows at a much lower rate. However, this is still relatively below the Public Debt Management Framework threshold of 50 per cent.

The recent loans acquired by Government and approved by Parliament during the COVID- 19 pandemic (Between May & June, 2020 - Approximately USD L.4l2L7 Billion) could possibly push the ratios up in part due to weaker fundamentals, including slower growth, exchange rate depreciation, weaker exports and a fragile domestic revenue base. Public debt will be manageable, if infrastructure spending raises growth and domestic revenues improve further.

Despite the increase in sovereign debt, it is still sustainable. While Uganda is at low debt distress, significant vulnerabilities are evident (e.g. high debt seruice as a share of government tax revenue at 23 percent for the period ending June 2019). There is need for government to stay within the Chafter of Fiscal Responsibility budget deficit target (3% of GDP by FY2020121).

12.0 COMPLIANCE WITH PARLIAMENTARY APPROVAL GUIDELINES The Committee on National Economy developed guidelines to be considered when scrutinizing all loans that require approval of Parliament. The guidelines require performance information and impact assessment for previous projects by a ministry or government agency; evidence of project appraisal; consistency with the national planning framework; institutional framework for project implementation; procurement plan; evidence of implementation of the Resettlement Action plan; provision of counterpaft funding; evidence of readi for implementation; and financing mechanism. A ( () 15 4, I

ltlflfr Below are the combined scores UNRA received based on submitted documents.

Table 7: Compliance with Parliamentary Approval Guidelines

Target Institutional Peformance Indicator Score Score (o/o) Performance of previous projects 5 2.5 500/o Consistency with the National Planning 3 3 100o/o Framework Institutiona I fra mework 2 2 100o/o

Procurement 1 0.5 50o/o Resettlement Action Plan 4 2 50o/o Budqetary Implications 3 1 33o/o Implementation Readiness B 3 38o/o Financinq 6 3 s0% Total 32 21.5 53o/o fuurce: DRS Staff Computations

T2.O OBSERVATIONS AND RECOMMENDATIONS

Lz.I GOVERNMENT COUNTERPART FUNDING TO FULLY IMPLEMENT THE RAP The Committee noted that based on the prepared Resettlement Action Plan (RAP) for the project, counterpaft funding of UGX 52,005,783,901 is required to be committed by GoU for Right of Way (RoW) acquisition during the implementation of this project. In addition, counterpaft funding will also be used to implement the Livelihood Restoration Programme under the project for Project Affected Persons. In addition irregular release of counterpart resources by Ministry of Finance, Planning and Economic Development for the majority of infrastructure projects in the Works and Transpoft, and Energy and Mineral Development Sectors that are financed by external debt, has contributed to cost escalation due to delayed land acquisition. The Committee recommends that the Ministry of Finance, Planning and Economic Development ensures funds for the acquisition of the Right of Way (ROW) for this project are ring-fenced to enable the completion of all compensation payments prior to commencement of construction wor(s @ within the contractor. A

(. I w7 &+ tu L2.2 SLOW DISBURSEMENT OF EXTERNALLY BORROWED FUNDS IN THE WORKS AND TRANSPORT SECTOR A review of the Works and Transport Sector external debt portfolio by the Committee shows delays in payment of compensation is one of the major factors contributing to the slow disbursement of externally borrowed funds. The delays are usually caused by litigation over ownership of land, 'red tape' in approval of RAP evaluation reports by both the financiers and Government, ring-fencing of allocated compensation budget for specific projects, which results in significant unused funds for projects where there are delays and/or hold ups at the end of each Financial Year. The Committee strongly recommends that Government Agencies desist from making commitments on behalf of Government before seeking approva! from Parliament.

L2.3 LOCAL CONTENT The Committee noted that despite the continued subcontracting of part of the road construction project works to local companies to boost the local construction industry, the local construction industry is still weak even when it comes to facilitating timely and cost- effective maintenance of the national road network. The Committee recommends that Government fufther assists the local contractors to enhance their capacity, especially in acquisition of heavy duty vehicles at affordable rates to enable the effective and efficient pafticipation of the local construction industry in this project. UNRA should further encourage joint tendering of project works and services with local firms to assure the project's Iasting impact of the domestic construction industry. In addition, local contractors should be considered for acquisition of soft Ioans under Uganda Development Bank (UDB). trk

t7 (,( w YV aw,k I2,4 INSTITUTIONAL CAPACITY BUILDING The Committee noted that UA 1,000,000 (USD 1,370,000) will be spent on the institutional capacity building of UNRA and MoWT towards staff training and development of a Road Safety Strategy. These funds will also finance technical assistance towards martime advisory seruices and traning for UNRA staff. The Committee recommends that the Office of the Auditor General undeftakes an audit of all institutional capacity building activities that are financed by external debt for all externally financed road projects under the Works and Transpoft Sector, in order to determine their economic benefits and sustainability.

12.5 COVID.1g PANDEMIC IMPACTS ON THE CONSTRUCTION INDUSTRY The Committee noted the disruption of the implementation of capital intensive debt- financed projects in the Works and Transpoft Sector (witnessed with slowed progress for on-going road construction of the national oil roads) that relies heavily on global production supply chains, that are now severely affected by the lockdowns and declining fiscal resources. The pandemic is expected to ease off in the medium term just before commencement of project civil works in 202t. The Committee recommends that UNRA prioritizes the joint tendering provision under this project especially in encouraging joint tendering between foreign and domestic firms in order to provide stability during the implementation of this project.

T2,6 ENVIRONMENTAL AND SOCIAL IMPACTS OF THE PROJECT The Committee noted that the Kabale-Lake Bunyonyi/Kisoro-Mgahinga Road Upgrading Project will generate adverse environmental impacts that include: land expropriation for road development affecting up to 507 households involving 1, 933 persons and 260 businesses in Kabale and Kisoro Municipalities over the entire length of the project road; anticipated loss of sources of livelihoods arising from damage of communal facilities and

household perty ssociated challenges in obtaining suitable S to

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f,ll)l^ mountainous terrain and fufther loss of socioeconomic networks by the communities directly affecting more than 2,000 people (PAPs); and the likelihood of extensive loss of vegetation cover and disturbance of the sensitive conseruation ecosystems close to Mgahinga Gorilla National Park through erosion, landslides and sedimentation, arising from road construction activities. The Committee recommends that the implementation of an appropriate monitoring strategy for the Project will be impoftant to ensure that existing management measures are effective, and to identify the need for improved or additional measures, UNRA should therefore during the project environmental and social monitoring programme:

i. Detect and analyze environmental and social trends or changes to develop an appropriate response, where required; ii. Ensure relevant environmental legislation and licensing commitments of the Project are complied with; iia. Measure the pedormance of environmental and social management measures to ensure impacts remain at an acceptable level and there is on-going improvement of the Project's operations; and iv. Provide early warning of potential impacts, determine the extent of anticipated impacts and identify any unforeseen impacts associated with Project activities. W'"/

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l)il,fi' 12.7 SUSTAINABLE FUNDTNG FOR TOURISM INFRASTRUCTURE DEVELOMENT ACROSS THE COUNTRY

The Committee noted that in order for Uganda to take advantage of its attractiveness as a preferred tourist destination, there is need for a deliberate effort by Government to invest in the development of all tourism-related infrastructure across all tourist sites, including aerodromes. The Committee recommends that Government sources for adequate funds for the development of all tourism infrastructure across the country, including the rehabilitation of all aerodromes across the country.

13.0 CONCLUSTON The Committee recommends that the request by Government to borrow up to UA 50 million (USD 68.5 million) from the African Development Fund (ADF) to finance the Kabale-Lake Bunyonyi/Kisoro-Mgahinga Road Upgrading Project be approved subject to the recommendations herein.

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ilfi|^y REPORT OF THE COMMITTEE ON NATIONAL ECONOMY ON THE PROPOSAL BY GOVERNMENT TO BORROW UP TO UA 50 MILLTON (USD 68.5 MTLLION) FROM THE AFRTCAN DEVELOPMENT FUND (ADF) TO FINANCE THE UPGRADING OF THE KABALE-|AKE BUNYONYT/KISORO-MGAHINGA ROAD PROJECT

( 1 Hon. Bbumba Syda Namirembe Nakaseke North V 2. Hon. Bategeka Lawrence Hoima Municipality <-

3 Hon. Tayebwa Thomas Ruhinda North Ir 4 Hon. Kajara Aston Mwenge South

5 Hon. Yeri Apollo Ofwono Tororo Municipality

6 Hon. Kiwanuka Keefa Kiboga East

7 Hon. Seguya Lubyayi John Bosco Mawokota South

8 Hon. Musoke Paul Sebulime Buikwe Nofth

l'vl 9 Hon. Kabafunzaki Herbeft Rukiga County

10. Hon. Ayepa Michael Labwor County 11. Hon. Katoto Hatwib Katerera County @ t2 Hon. Lokeris Samson Dodoth East )

13 Hon. Rwemulikya Ibanda Ntoroko County

14. Hon. Migadde Robeft Ndugwa Buvuma Islands

15. Hon. Mandera Amos Buyamba County

15 Hon. Wamakuyu Mudimi Ignatius Elgon County

tzl 17. Hon. Okello Anthony Kioga County \\ 1B Hon. Dhamuzungu Geoffrey Budiope East 4 19. Hon. Guma Gumisiriza David Ibanda North U 20 Hon. Sematimba Simon Peter Busiro South -d,t-- 2t. Hon. Elotu Cosmas Dakabela County

22 Hon. Alyek Judith DWR, Kole

23 Hon. Turyahikayo K. M. Paula Rubabo County

24. Hon. Isala Eragu Veronica Bichetero Kaberamaido County fl q 25 Hon. Azainrue Dorothy Nshaija K. DWR, Kamwenge \

26. Hon. Akol Anthony Kilak Nofth

27. Hon. Okupa Elijah Kasilo County

a lr ) 28. Hon. Ariko Herbert Edmund Soroti Municipality <= s I 29. Hon. Nzoghu William Busongora Nofth

30 Hon. Bakireke Nambooze Betty Mukono Municipality

31. Hon. Akena James Jimmy Lira Municipality A nl 32. Hon. Baryayanga Andrew Aja Kabale Municipality

33. Hon. Katwesigye Oliver Koyekyenga DWR Buhweju I

34. Hon. Akamba Paul Busiki County 35. Hon. Atiku Bernard Ayivu County tw-/ 36 Hon. Okumu Ronald Reagan Aswa County z- I 37. Hon. Kassiano Wadri Ezati Arua Municipality a- U /1 ,A lM,^[ 3B Hon. Kutesa Pecos Onesmus UPDF Representative