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Challenges in the PPP lifecycle  using the  case study of Kampala-Entebbe Express Highway, Uganda

 

Presented by Mbaguta Innocent Twebaze

                              Senior Auditor

                              Office of the Auditor General , Uganda

 

 

 

Challenges in the PPP lifecycle using the case study of Kampala Entebbe Express Highway, Uganda

Introduction

The Kampala –Entebbe Expressway is a project that will serve as a gateway between the Entebbe international Airport and the capital city Kampala. This is the first PPP arrangement in the road transport sector and it is anticipated that the new road will help to decongest the Central Business District and enhance trade movement through, within and out of the Greater Kampala Metropolitan Area, The urban congestion is increasing in Kampala at an estimated rate of 4.5% annually with increased motorization thus Kampala is facing heavy traffic jams, especially during the peak hours and the road can no longer accommodate current traffic.  Fellow citizens I would like to share with you the challenges in the PPP arrangement of Kampala-Entebbe Express highway by stating the following;

  • ·        Project background
  • ·        Transaction structuring
  • ·        Procurement cycle and project implementation
  • ·        Lessons learnt and critical success factors towards achieving effective PPPs in Uganda

The map of kampala-Entebbe Express highway



Project background

The proposed New Kampala – Entebbe Highway is consistent with the recommendations and objectives of the Master Plan of the Greater Kampala Metropolitan Area by providing an efficient mass transit route between two vital cities in the region.


Artistic impression of Kampala-Entebbe  Express highway Junction.

 The Contract for the Design and Build of the project was awarded to China Communication Construction of China (as the Contractor) by the Ugandan National Roads Authority (the Government representative) on 26 October 2010 and agreed changes are to being executed through Addendum No.1 signed on June 4, 2012. The Consultancy Contract for the Supervision of the Design and Construction of the project was awarded to Beijing Expressway Supervision Co., Ltd (as the Engineer) and the agreement for the Consultancy Service was signed on May 2, 2012. The contract period is 48 months of Construction Supervision Period plus 24 month of defect liability period. The Engineer’s notice to commence the works was May 17, 2012 and finally modified to commence as July 25, 2012 upon the request of the Engineer and the Meeting held on July 3, 2012.


HE. President Yoweri K.Museveni viewing the artistic impression of the Kampala-Entebbe Express Highway during the groundbreaking ceremony.

Basic Contract Information

The tables below describes the basic contract information for both the Contractor and the Consultant

 

Table i : Civil Work Contract (Contractor)

Funding

The Government Uganda and the loan obtained from the Chinese Infrastructure Financing Institution

Employer

Ugandan National Road Authority

 

Contractor

China Communication Construction Company.

Engineer

Beijing Expressway Supervision Co. Ltd

 

Engineer’s Representative

Mr. Gu Jun  Resident Engineer

Date of Commencement

July 30, 2012

Contract Period

1825  Cal Days

Original Completion Date

May 17, 2017 and modified to July 29, 2017

Original Contract Price

USD476,000,000.00

 

Table ii: Supervision Consultancy Contract

Date Agreement signed

May 2, 2012

Commencement of the Supervision Contract phase

May 17, 2012 and modified to July 25, 2012

Original Contract Price(Supervision)

USD4,998,300.00 inclusive all local taxes

Variations

Nil

https://www.unra.go.ug/index.php?option=com_content&view=article&id=263:entebbe-express-highway&catid=43:on-going-projects&Itemid=66

 

The project is still in its infancy due to numerous challenges.  Fellow citizens I would like to share with you the challenges in the ppp life cycle of this project and further opine the remedies to our challenges.

 

PPP project cycle of Kampala –Entebbe Express High way

Project Identification and Detailed Preparation

Government   recognized the need to  reduce traffic congestion in the Kampala  which has risen to about 4.5% annually. Unlike the old Kampala-Entebbe Highway which was Two–lane, the plan for  new Kampala - Express  51.4km highway   has- Four  lane and will significantly reduce the journey time between these two popular destinations from approximately one and a half hours to just thirty minutes.  

 



Proposed four-lane kampala-Entebbe Express High way

 

Current Kampala-Entebbe Express High way (a two-lane road)

Based on the above, the need was well identified however the decision to opt for a PPP arrangement may not have gone a rigorous option  analysis  by analyzing risk associated with each option.Observers argue that the PPP arrrangement was imposed on  government of Uganda by the Chinese government that financed the project  and details of the feasibility study  were not disclosed which casts doubt on the transparency of the  eventual procurement process  where the project is to be undertaken by China Communication Construction Company at a cost of about $476 million (Sh1.19 trillion), which includes a $350 million (Shs 875 bn) 2010 loan secured from China’s EXIM Bank, while $126 million (Shs 315 bn) counter funding will be from the government of Uganda.  The loan will be paid back after 20 - 40 years at 2% interest. http://www.independent.co.ug/business/business-news/5786-entebbe-rd-evictees-to-get-shs-100-bn-#sthash.XOY6Zjdr.dpuf

 

Furthermore there was limited market awareness of the PPP arrangement and  the aspects of value for money  in terms of  costs, quality, project  and sustainability over the whole life of the project may not have been critically assessment for example while the cost yield the desired quality? Will enough revenue be generated from toll fees to maintain the roads? And whether the road will be able to last beyond the concession period with minimal repairs.

Transaction structuring

This is the process where both parties are engaged in a process of defining the risks, rights and responsibilities. The Golden rule of risk management in PPP arrangement is that risks are allocated to the party that is nest positioned to manage the to avoid excessive pricing of the risk. According to Kampala-Entebbe Express Highway PPP arrangement, the government requires Private to  construct and maintain the road is delegated . The Government in turn will give the developers a concession of about 25years  to collect revenues through the road toll fees and consequently carry the risk of getting back a return on their investment. The Chinese Exim Bank and the government of Uganda are jointly funding the Kampala-Entebbe Express Highway with $350m (repayable in 25years) and $126m respectively. The Government will seek to pay back the loan borrowed from the Chinese financier to construct the highway through the fee that will be paid by the road users. The Government anticipates that the operator will get $50m every year, and  in ten years, he will have realized $500m, which will have covered our loan obligation to the bank.  

 

However, it is difficult to suggest that the Private sector will recover its investment as this is affected by a number of risks in particular the demand / traffic risk.  Will there be adequate traffic on the road to generate the toll revenue?  And how much will the toll fees be? The answers to this question will help to determine the viability of the concession agreement to the contractor and whether the government can ably pay back the loan.

 

Procurement cycle and Project implementation challenges

Although the procurement process commenced well with market sounding where 46 contractors expressed interest, and  key stakeholders such as  parliament  approved the PPP arrangement, the project  which have commenced in 2012 has delayed due gaps in  coordination of the procurement  life cycle namely;

 

  Delays in land compensation of affected persons due to difficult in identifying the genuine land owners; Inflated costs of land compensation of about of $9.3 million (Shs 23 bn)per kilometer appears to be high for the Ugandan tax payer compared to similar projects in the region. Comparatively, building a six-lane motorway of 78 km cost Ethiopia $612 million ($7.8 million per kilometer), while the Nairobi Southern By-pass, a four lane 30 km dual carriageway cost $210 million ($7 million per kilometer).http://www.independent.co.ug/business/business-news/5786-entebbe-rd-evictees-to-get-shs-100-bn-#sthash.XOY6Zjdr.dpuf

 

 Uganda National Roads Authority which is responsible for monitoring the PPP arrangement on behalf of the Government of Uganda has been affected by corruption scandals which have resulted in to the termination of contracts of 80 staff including senior managers which has constrained project monitoring and resulted in to reduced public confidence in Government commitment to the project. http://www.monitor.co.ug/News/National/Kagina-fires-80-UNRA-staff/-/688334/2761606/-/jq12s7z/-/index.html

 Poor stakeholder management ; by commencing the  procurement for the construction of the road before negotiating with the affected persons in the villages were the road would pass, suggests that the government did not sufficiently consider the interests of the land owners which has created conflict between government and the land owners and thus derailed the project. Government needs to collect information on all major stakeholders, provide information about the project to the major stakeholders, consult with the and consider them in decision making or even better arrive at some joint action in order to obtain  project acceptability.

Stalled construction of Kampala Express Highway

Stalled construction Kampala – Entebbe Express High way

 

  In light of the above challenges, the delays in project completion were inevitable and there is need for government commitment through enforcement of good governance and consultation with all relevant stakeholders. Further lessons learnt are detailed below;

 

Lesson Learnt from  Uganda ‘s PPP constraints and  the critical success factors of effective PPPs in Uganda.

 

  1. ·         There is need for a legal framework to underpin the decisions through planning and Budgeting of the project. It is important to ensure that the legal framework cannot be bypassed.
  2. ·         The project should be implemented pragmatically with more emphasis of good project formulation and innovation than merely halting the project due an issue may not affect all parts of the project at the same time.
  3. ·         There is need for rigorous interaction with stakeholders early in the project as it might prove expensive to alter contractual arrangements in mid-way through the project.
  4. ·          There is need for government to institute a multidisciplinary contract management unit with authority to articulate what the contract needs and be able to effect the necessary improvements in contract implementation.
  5. ·         The contract management team needs to obtain adequate information for risk assessment and  performance management.
  6. ·        PPP arrangements should be managed in an open environment with transparency in the procurement process.

In conclusion,  effective  PPP arrangements in Uganda require strong  institutional performance from Government by ensuring; effective  assignment of roles to government  during contract design, effective contract monitoring  and ensuring transparency in the procurement process of the PPP.


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