China-Uganda loan deal for Entebbe Airport is binding: MPs
Entebbe Airport in Uganda on March 3, 2020. PHOTO | SUMY SADURNI | AFP
What you need to know:
- Last Monday, US-based research group AidData released a report criticising China’s Exim Bank for imposing stringent and unfair terms on the $200 million loan to expand the Entebbe International Airport.
- The most troubling condition for aviation bosses was a clause that obliged the government to open an escrow account in Stanbic Bank where all transactions have to be monitored and approved by Exim Bank.
A parliamentary committee that unearthed the “bad” terms of the Uganda-China’s Exim Bank Entebbe Airport loan agreement has ended its probe, noting that the deal is binding.
Joel Ssenyonyi, chairperson of the Committee on Commissions, Statutory Authorities and State Enterprises, told The EastAfrican that it is impossible to pull out of the agreement given the dire consequences the country would face. But he says Finance Minister Matia Kasaija and his officials should be prosecuted and jailed.
“In other countries, Mr Kasaija should have resigned yesterday,” he said.
A clause in the agreement, seen by The EastAfrican, says, “the borrower (Uganda) shall keep the documents, terms, conditions of the agreement strictly confidential and must seek permission for disclosure.” But Attorney General Kiryowa Kiwanuka, without giving the consequences, says Uganda could withdraw if it wanted but, “there are consequences of doing so.”
Last Monday, US-based research group AidData released a report criticising China’s Exim Bank for imposing stringent and unfair terms on the $200 million loan to expand the Entebbe International Airport.
There were over 10 clauses that were deemed unfriendly and as good as mortgaging the airport and eroding the country’s sovereignty.
The most troubling for aviation bosses was a clause that obliged the government to open an escrow account in Stanbic Bank where all transactions have to be monitored and approved by Exim Bank.
The clause also gave the bank powers to approve the airport’s budgets and to inspect books of accounts.
And in case of any dispute, the China International Economic and Trade Arbitration Commission (CIETAC) in Beijing would resolve it under Chinese law.
He said there was no worry as the country is meeting its obligations as per the agreement.
The agreement also gave the bank powers to approve annual and monthly operating budgets, which it could reject, and the rights to inspect the government.
According to the 240-month contract, Uganda is expected to deposit the money on the escrow account and give priority to repayment of the loan before investing in any venture, which Bradley Parks, executive director at AidData, said “limits the fiscal autonomy of the government”.
China Communications Construction Company started the works on the 71-year-old airport in 2016 and “the lender is asking not just for revenues from the new projects they are funding, but also from the underlying asset -- or the airport -- that already exists,” Mr Parks said.
In November 2021, Uganda Civil Aviation Authority had told the legislators the terms were not good and would affect operations, adding their voice to an earlier assertion by the Auditor General who had pointed out that the escrow account would put a strain on the financial health of the airport.
However, at the time, Uganda said China cannot take over the airport.
AG Kiwanuka said the loan was a commercial contract with an obligation to both parties. “When you borrow money, your obligation is to pay. If you do not pay, the other party can take you to court, in which case this would be CIETAC,” he said.
“Let everyone do their part. The airport makes money and will meet its obligations.”
Entebbe Airport makes about $68 million annually from rent by companies that operate from its buildings, navigation fees, and landing fees.
According to the agreement, if Uganda fails to pay, Exim bank can debit the bank account without having to go to court.
President Yoweri Museveni in December last year said no airport has been mortgaged as was reported in the media. He said Uganda had capacity to pay the Chinese debt and there was no cause for alarm.
China has been on the spot for signing such stringent agreements with developing countries, and giving a condition that the documents are not made public. Some of the other conditions are that repayment must be done in the Chinese currency and when done in any other currency, it must be converted at the prevailing rate.
