THE REPUBLIC OF

BRIEF TO PARLIAMENT

THE PROPOSAL TO BORROW Up rO USD 456.37 MTLLION (USD FOUR HUNDRED AND FIFTY.SH MILLION THREE HUNDRED SEVENTY THOUSAND) FROM CHrNA EXPORT AND IMPORT BANK TO FTNANCE THE UPGRADE AND CONSTRUCTION OF THE NATIONAL OIL ROADS UNDER PACKAGES 1, 2 AND 3.

PURPOSE

1. This brief is for the purpose of seeking authorization of Parliament and as required under Afticle 159 of the Constitution, to allow the Government to borrow up to borrow up to USD 456F7OPO0 from the Export-Import Bank of China for the Upgrade and Construction of National Oil Roads under three packages 1, 2 & 3.

BACKGROUND

2 Rt. Hon Speaker, as you are aware, the discovery of crude oil in the eastern shores of Lake Albe( has given Uganda great possibilities of boosting its economy through extraction of oil. The Government of Uganda and Paftners through the Basin Development Committee (LABDC) have set a target to achieve First Oil by 2020. In order to achieve this target, key enabling infrastructure, such as road network, must be in place. Accordingly, Government together with the oil partners identified the following oil roads required to be upgraded in

1 order to achieve the 2020 target. The total length of the identified oil roads is approximately 700km as shown in table 1 below.

Table 1: List of Oil Roads

Road Name Length (km), District Traversedr" -- Road 111 Hoima, -Biiso 54 Masindi Masindi-Bugungu via National 80 Masindi Park Hohwa-Nyaironqo-Kyarushesha- Road 25 Hoima Wanseko-Buqunqu Road 23 Buliisa Buhimba-Nalweyo-Kaki ndu-Kakumiro-Mubende 93 Mubende, Kibaale Lusali ra- Nkonge-Sembabule 97 Ssembabule, Mpiqi, Masindi Buqunqu - Buliisa 29 Buliisa Kabale - Kiziramfumbi road 30 Hoima Tangi junction - (Including Tangi Gate & 22 frt Emmi Bridqes) Kabwoya-Buhuka 43 Hoima Karugutu-Ntoroko (Via Semiliki National Park) 55 Fort Portal

3 To aid the implementation process, the above listed roads have been

packaged into six (06) works contract packages as summarized in Table 2 below;

Table 2: Oil Roads Contract Packages Lot Coverage

Package 1 Design and Build of Masindi (Kasanja)-Park Junction and Tangi () junction-Paraa-Buliisa and Wanseko-Bugungu Roads upgrading Projects(159km) Package 2 Civil Works for the Upgrading of Hoima-Butiaba-Wanseko Road (111km) to paved standard. Package 3 Design & Build of Buhimba-Nalweyo-Bulamagi & Bulamagi-Igayaza-Kakumiro roads (93km) Packaqe 4 Design & Build of Lusalira-Nkonge-Lumegere-Ssembabule roads (97km)

2 I

Lot Coverage Package 5 Design & Build of Masindi-Biiso, Kabaale-Kizirafumbi & Hohwa-Nyairongo- Kyaruseha Roads (106km) Packaqe 6 Design & Build of Kabwoya-Buhuka and Ntoroko-Karuqutu roads (98km)

4 UNRA entered into contracts with Chinese contractors for the first three packages namely; Package 1: Masindi-Park Junction and Tangi junction-Paraa Bulisa Road; Package 2: Hoima-Butiaba-Wanseko; and Package 3: Buhimba-Bulamagi-Bulamagi-Igayaza Kakumiro road. The

total contract sum for the three roads is USD 536.9 million as shown in the Table 3 below:

Table 3: List of Three Contract Packa es 1 2and3 si ned

Design and Build of Masindi (Kisanja)-Park Junction 218,888,518.4 and Tangi (Pakwach) junction-Paraa-Buliisa and Wanseko-Bugungu Roads upgradino Proiects(159km) Civil Works for the Upgrading of Hoima-Butiaba- 179,538,545.59 Wanseko Road (1 1 1km) to paved standard Design & Build of Buhimba-Nalweyo-Bulamagi & 138,488,356.00 Bulamagi-lgayaza-Kakumiro roads (93km) Total Cost ofthe three packaqesl 536,915,419.99

5 In view of the above, Government wishes to borrow USD 456.37 million from China Export and Import Bank to finance the Upgrade and Construction of the following National Oil Roads:

i) Masindi-Park lunction and Tangi Junction-Paraa Bulisa Road;

l The total cost comprises of 15% (USD 80,537,313) as counterpart funding by GoU, and 85% (USD 456,378,107) as loan from China EXIM Bank 3 I

ii) Hoima- Butiaba-Wanseko to Pavel Standard; and iii) Buhimba-Bulamagi and Bulamagi-Igayaza-Kakumiro Roads.

5 China Exim Bank will only cover 85% of the commercial contract for each package and therefore Government will finance 15olo under each package. The requested borrowing of USD 456.37 million (Four Hundred and Fifty-Six Million Three Hundred Seventy Thousand United States Dollars) will therefore cover only 85% of the contract amount including the required insurance from SINOSURE.

PROBLEM STATEMENT

7 Rt. Hon Speaker, you may wish to note the existing roads are predominantly gravel, narrow, swampy, and are structurally noncompliant to the kind of traffic envisaged that the oil sector will be adding during their operations. This poses huge logistics challenges to the oil production timelines. These project roads are earmarked as key access roads required for constructing the East African Community Oil Pipeline and the Refinery in Hoima. The existing roads also suffer from excessive flooding during wet season and have a series of both permanent and seasonal long swaps.

8. In order to aveft the challenges noted above and in order to realise the Government objective of developing transport infrastructure required to support oil development and other strategic priorities of the country, implementation of this project is of priority.

4 I

THE PROJECT AND THE COUNTRY STRATEGY

9 The overarching goal of the Government of Uganda is to develop transpoft infrastructure required to support oil development and other strategic priorities of the country. This therefore calls for improvement of the regional transpoft network to facilitate freight for oil industry logistics and evacuation of oil products for export. If large benefits are to be reaped from Uganda's oil and gas resources, the development of Ugandat transport infrastructure network is a critical factor that will be necessary for successful execution of planned logistics and early activities, as well as the early export of oil product.

10. One of the objectives of the NDP II is to 'produce reflned oil and by products for the local and expoft markets'. Improved road infrastructure in the oil producing region is pivotal in the achievement of this objective. The identified roads are paft of a group of selected critical Oil roads which will improve the accessibility in the Albertine region.

11. Therefore upgrading and constructing of the above national oil roads will; a) Facilitate the efficient development and production of the strategic national oil resources; b) Enhance the tourism potential of Murchison Falls National park for example and the areas around, by provision of a sustainable upgraded paved road solution which addresses the challenges faced in transportation in the area c) At a regional level, add to the network of road infrastructure required for impoftation of plant and equipment for production

5 from the seapoft/s, and movement of construction materials, workers and consumables from other pafts of the country and region;

THE PROJECT

12. Objective: At national level, the objective is to facilitate the efficient development and production of the strategic national oil resources.

13. At regional level, the objective is to add to the network of road infrastructure required for importation of plant and equipment for production from the seapoft/s, and movement of construction materials, workers and consumables from other parts of the country and region.

PROJECT DESCRIPTION:

14. The details of each package are as below;

PACKAGE 1: MASINDI-PARK JUNCTION AND TANGI JUNCTION- PARAA BULIISA ROAD

15. The road includes: Paraa-Pakwach; Masindi-Kasanja/Park Junction; Buliisa-Paraa; Sambiya-Murchison Falls; and Wanseko - Bugungu.

16. This route was selected for upgrading due to its proximity to the Oil

resource and its similarity in regard to the ecosystem with the other 3

6 I selected critical oil roads. The above proposed road will be upgraded to class II paved with right of way 50m and carriage way of 7m. From start to finish, the entire Lot Z8 road traverses three administrative districts of Masindi, Bulisa and Nwoya.

17. The total length of the road is approximately 169 km of which, a significant section (i22km) lies in the Murchion Falls National Park in the

district of Nwoya and Masindi without settlements and developed areas. Most of the route moves along the existing roads all the way from Masindi-Kisanja I Park lunction to Buliisa and Tangi gate in .

18. The Kisanja-Park junction road mainly crosses community settlements along the flrst 16km up to Kicumbanyobo gate of MFNP and within the Park for the rest of the 56km. The Buliisa-Paraa road (30km), stafts from Buliisa town and traverses community settlements up to Bugungu gate of MFNP and then proceeds through the Park to Victoria ferry crossing at Paraa. The Wanseko - Kasenyi-Kirango - Bugungu Camp road (11km), traverses agricultural and grazing areas. Sambiya - Murchison Falls (12km) stafts from the Northern Bank of River Sambiya to the Southern Bank view of the Murchison Falls whereas Paraa - Pakwach road (24km) stafts from the Nofthern Bank of Paraa (Ferry crossing) to the Karuma- Pakwach road near to Pakwach Bridge.

19. Upgrading of the road will contribute to the required supporting infrastructure for efficient exploration and production of oil in the

7 Albertine Graben. This road project has the potential to significantly improve livelihoods of people in Masindi, Buliisa and Nwoya districts. Road works activities will provide considerable economic opportunities for material/ equipment suppliers, sub-local contractors, local labour and farmers dealing in agricultural produce. When the Masindi-Kasanja/Park Junction; Paraa-Pakwach; Sambiya-Murchison Falls; Wanseko-Bugungu road (169km) is upgraded to bituminous standard, its routine maintenance will have negligible environmental impacts.

20. The communities directly affected by the project were consulted through engagement and sensitization meetings at community level. These gave unanimous approval to the proposed project. The proposed project will reduce on distance and travel time between Masindi and Buliisa and Wanseko and Paraa-Pakwach, improve on the interconnectivity with underdeveloped and inaccessible areas, improve households' economic status, productivity and competitiveness, increase locally available employment oppotunities and market for local products and services. The project will also improve domestic, national and international tourism

especially activities in the Murchison Falls National Park.

2t. Several possible negative impacts of upgrading this road are anticipated which include impact on public infrastructure such as water supply systems, power lines, interruption in traffic, noise and dust pollution, increased road accidents and animal kills especially in trading centres

and in the park. Some land, structures, crops and trees will be permanently lost to the road. Other negative impact include impact on

8 land-based livelihoods especially for vulnerable groups, destruction of sensitive ecosystems and social ills including child labour, defilement, school dropout due to child labour, family breakdown, prostitutions and increase in HIV/AIDS. However, a Resettlement Action Plan (RAP) has been developed with social safeguards and mitigation measures to address these negative impacts.

22. A monitoring framework with relevant performance indicator for the RAP has been proposed to address the identified environmental and social impacts. Compared to socioeconomic benefits of the proposed road, many of the negative impacts will be insignificant as long as fair compensation, appropriate livelihood restoration measures and mitigation actions are effectively and efficiently implemented.

23. The total project cost of the Masindi-Park Junction and Tangi Junction- Paraa Buliisa Road is USD 218,88&518.40 (Two hundred eighteen million eight hundred and eighty-eight thousand five hundred and eighteen dollars and fofi cents) exclusive of 18o/o VAT. The Design and Build Contract Agreement for the road was signed between Government and M/s China Communications Construction Company Ltd

on Sth February, 2018.

PACKAGE2: HOIMA-BUTIABA-WANSEKOROAD(111km)

24. The Hoima-Butiaba-Wanseko (111km) road in the western region of Uganda forms paft of the national road network that traverse very rich

agricultural hinterland. It is part of the National Roads Network and it is

9 linked to the rest of the network by Hoima - Lwamata road (95Km) which is a paved road and Masindi- Biiso road (5lkm) which is unpaved.

25. The specific objective of the road project is to promote the effort of Government in poverty reduction through improvement of road infrastructure in rural areas of western Uganda by providing all weather access for the supply of farm inputs, evacuation of produce to major market centers and socio-economic facilities, thus improving the level of service and efficienry of the road network.

26. The rehabilitated road will facilitate multi-modal transport systems by linking road with inland water transport on Lake Albert. Virtually, all passengers and freight destined for Wanseko and the island and beyond has to use this road. It is therefore one of the most important strategic road links in the country.

27. The total project cost of the road is USD L79,538F45.59 (one hundred and seventy-nine million five hundred and thifi-eight thousand five hundred and fofi-five Dollars and fifty-nine cents). Government signed a Contract Agreement for the Design and build of the Hoima-Butiaba-Wanseko road with M/s Chongqing International Construction Corporation (CICO) on 18th January, 2018.

PACKAGE 3: BUHIMBA.BULAMAGI AND BULAMAGI.IGAYAZA- KAKUMIRO ROADS

10 28. The existing Buhimba-Bulamagi-Kakumiro road is presently of gravel standard and is often impassable during the rainy season. The objective of the project is to upgrade the road and improve the road alignment to provide for uninterrupted flow of traffic and an all-weather surfaced road.

29. The Buhimba-Bulamagi-Kakumiro Road, approximately 93km traverses the mid-western districts of Hoima, Kikuube, Kibaale and Kakumiro. The road is presently of gravel with an average carriageway width of 4.5m and drain to drain width of 7.5m. Section 1 of the road (Buhima - Bulamagi 51km) traverses the towns of Buhimba, Kinyaginva, Musajjamukulu, Ruhunga, Kasambya, Katikaara, Nalweyo, Buluko, Mulusambya, Kihuuna, Kakindo, Kasansa, Kiryabukururwa and Mbooga. The road also passes through the Nakuyazo central Forest Reserve which is gazetted under the National Forestry Authority (NFA).

30. Section 2 of the road (Bulamagi to Kakumiro, 42km) traverses the towns of Bulamagi, lgayaza, Kijaguza, Birembo, Bujagule, Kiweeza, Kasambya, Semuto, Bukooda, Nkondo, Kyamuzi, Busenge, Kitaremwa and Semwemwa. The Bulamagi- Igayaza- Kakumiro road crosses at least 1.5km of swamp. Additionally, other swamps are located in the following locations; Kikuyo, Kiweeza, Kasambya, Semuto, Bokonda, Nkondo and Kikyamuzi.

31. The total estimated project cost of the Buhimba-Bulamagi and Bulamagi- igayaza-kakumiro road is USD 1381488,356 (one hundred and thifi-eight million four hundred and eighty-eight thousand

11 three hundred and fifty-six dollars). A Contract Agreement for Design and Build of the Buhimba-Nalweyo-Bulamagi and Bulamagi- Igayaza-Kakumiro Roads Upgrade was signed with M/s China Wu Yi

Co. Ltd on 2nd of February 2018.

PROJECT COST AND FINANCING

32. Cost: The total estimated cost of the three packages is USD 536,915,419.99 of which China Exim Bank 85olo of the total cost and

Government of Uganda will finance 15olo ds shown in the table below;

l Design and Build of Masindi 218,888,518.4 186,055,241 32,833,278 (Kisanja)-Park Junction and Tangi (Pakwach) junction- Paraa-Buliisa and Wanseko-Bugungu Roads upqradinq Proiects(1 59km) Civil Works for the 179,538,545.59 152,607,764 26,930,782 Upgrading of Hoima- Butiaba-Wanseko Road (1 1 1 km) to paved standard Design & Build of Buhimba- 138,488,356.00 117 ,715,103 20,773,253 Nalweyo-Bu lamagi & Bulamagi-lgayaza-Kakumiro roads (93km) Total Cost of the three s36,915,419.S9 4s6,378,107 80,537,313 packages

12 TERMS AND CONDITIONS

33. The total project cost is estimated at USD 536.915 million of which B5o/o equivalent to USD 456.378 Million (USD four hundred and fifty-six million three hundred Seventy Eighty thousand) will be funded by China Exim Bank and t\o/o by Government of Uganda.

34. The Loan terms are as follows:

Loan Amount: usD 456,378,107. (Package 1: USD 186,055, 241 Package 2: USD 152,607,764 and Package 3: USD 117,775,103).

Maturity: 15 years including 5 years grace period.

Interest Rate: 6 months Libor + 3.00o/o Management Fee: 0.5% calculated on loan amount (upfront). Commitment Fee: 0.5% on undisbursed balances.

35. The Current 6 months Libor rate as of 7th May 2019 is 2.59o/o * 3o/o (margin) and this results into an interest rate of 5.60lo p.a. The proposed flnancing terms as provided above are commercial in nature.

Conditions attached to the Loan

36. The loan financing has the following conditions;

13 (a) Submission to the bank of the Hon. Attorney General's legal Opinion certifying that the Financing Agreement has been duly executed and ratified, and is legally binding on the Republic of Uganda;

(b) Satisfactory evidence that the Agreement has been validly executed by a person, authorized to sign on behalf of the Borrower;

(c) Neither the Borrower nor any of its assets will be entitled to any right of immunity on the grounds of sovereign or otherwise from arbitration, suit, execution or any other legal process with respect

to its obligations under the Loan Agreement, as the case may be, in any jurisdiction

JUSTIFICATION AND BENEFITS OF THE PROJECT

37. The road project will greatly stimulate and support local economic activities by improving connectivity to social economic facilities, reducing road maintenance costs, vehicle operating costs (VOCs) and travel time in the Albertine region.

38. The oil roads will provide an alternative route corridor integrating the Western, Southern and Central regions to districts of Hoima and Kakumiro, thus easing the connectivity; and will foster regional integration through reliable, efficient and seamless transpoft infrastructure.

74 39. The roads will also improve access to rural, economically productive areas and thereby contribute to socio-economic development, poverty reduction, regional and national integration and stimulate and support local economic activities by reducing transport costs and travel time along the existing gravel road.

IMPLEMENTATION

40. The project will be implemented by Uganda National Roads Authority under the supervision of the Ministry of Works and Transport. The Executive Director of UNRA will be the Accounting Officer of the project. Design and Construction of the oil roads will be done by three Chinese construction companies namely: M/s Chongqing Internationa! Construction Corporation (CICO) for Hoima-Butiaba-Wanseko road; M/s China Wu Yi Co. Ltd for Buhimba-Nalweyo-Bulamagi and Bulamagi-Igayaza-Kakumiro Roads Upgrade; and M/s China Communications Construction Company Ltd for Masindi-Park Junction and Tangi Junction-Paraa Buliisa Road.

OTHER POINTS TO NOTE

41. Cabinet in December, 2018 guided that the construction of oil roads be fast tracked for delivery of flrst oil. Consequently, the Ministry implemented the Cabinet directive by providing counterpaft funds amounting UGX 198.731 billion (UGX One Hundred and Ninety-Eight

Billion Seven Hundred and Thifi-One Million) in FY 2017118 for RAP

15 implementation, and any other activities that would be required to fast track the construction of the oil roads.

42. Relatedly, UNRA signed contracts with Chinese contractors for the first three packages namely; Package 1: Masindi-Park Junction and Tangi junction-Paraa Bulisa Road; Package 2: Hoima-Butiaba-Wanseko; and Package 3: Buhimba-Bulamagi and Bulamagi-Igayaza Kakumioro roads. Civil works have commenced and government is required to secure external funding for the roads. The contracts entered into with the Chinese contractors provided for pre-financing of the works for a period of 12 months as government mobilizes the funding from prospective financiers. As per the contracts signed, this financing must be secured by March 2OL9.

43. The Loan and the Current Debt Situation of the Country; Rt. Hon Speaker, as at end of December 2018, the outstanding total public debt, including publically guaranteed debt, amounted to USD 11,515.07 million. Out of which USD 7,655.29 million (66.5%) was external debt and USD 3,859.77 million (33.5%) was domestic debt. Nominal Debt as a percentage of GDP is 4L.8o/o. This number is impoftant because it clearly highlights the proportion of the country's debt to its income. The Present value of debt as a percentage of GDP is 31.7o/o. The PV of debt to GDP is important because it shows the country's ability to pay back its debt in the long term while at the same time it is an indicator in the

macro economic convergence criteria of the EAC that provides a threshold of 50% PV of debt to GDP ratio for all EAC member states. As per the ratios shown above, Government is still able to service her debt

1,6 without stress and taking on this loan will not result into a debt distress' (Source: Directorate of Debt and Cash Policy, MoFPED)

CONCLUSION

44 In light of the above, I shall request Hon. Members to:-

a) Note that the Government has already entered into contractual obligations with contractors to pre-finance the construction of the roads and the need to acquire financing for the upgrade and construction of the National Oil Roads;

b) Endorse the request by Government to borrow up to USD 456.37 Million (USD four hundred and fifty-six million three hundred seventy thousand) from China Export and Impoft Bank to finance the Upgrade and Construction of the National Oil Roads for Packages 1, 2 and 3; and

c) Authorize the Government by passing a Resolution in line with the requirements of Article 159 of the Constitution, to borrow up to USD 456,370,000 from the Expoft-Impoft Bank of China to support Upgrade and Construction of National Oil Roads under three packages 1, 2 & 3, upon the terms and conditions stated above.

Prepared By; Minister of Finance, Planning and Economic Development P.O. BOX 8147 May,2O19 17