Government has dismissed reports that China could take control of the country’s only international airport because of a failure to honour a loan agreement. China’s embassy in Uganda also dismissed the report. But analysts note the loan deal could become a problem if Uganda ever has trouble paying it back.
Daily Monitor reported last week that Uganda risked losing its only international airport to China over a $200 million loan to expand the facility. According to documents shared with Daily Monitor, China rejected Uganda’s request to re-negotiate some clauses in the 2015 loan deal.
This included a clause that required Uganda’s civil aviation authority to set up an escrow account to hold all of its revenues. Under the clause, the revenues in this account cannot be spent by the aviation authority without approval from Beijing.
"It is true that UCAA opened up a Sales Collection Account in Stanbic Bank where all the Authority's revenues are deposited in line with the Escrow Account Agreement terms, but it does not mean that anyone is to control UCAA's finances. The Authority enjoys the freedom and liberty of spending what is collected (as per the budget). The arrangement is only similar to what happens when one gets a salary loan or any other loan for that matter, and the bank requests that the salary is channeled through their bank. It does not mean that the lending bank takes over the borrower's salary," said a statement released earlier by Uganda Civil Aviation Authority (UCAA)
Vianney Luggya, UCAA spokesperson said that the Ugandan government has no intention of defaulting on loan repayments to China.
“It is not true that Uganda is going to lose Entebbe International Airport in any way whatsoever. This is not the first time that this allegation is coming up. Uganda is not about to default in honoring the loan obligation. We are still within a grace period of seven years and during that period we have been paying interest,” said Luggya.
The loan agreement also gives China’s Export-Import Bank oversight over monthly operating budgets for the airport. The bank is also authorized to inspect both the Aviation Authority and Ugandan government books of accounts, which some see as eroding the sovereignty of the state.
When contacted the Chinese Embassy in Uganda, they said they were not in position to comment and referred VOA to a statement they issued yesterday Sunday.
In the statement, the embassy said the loan agreement between China Exim Bank and Uganda was signed voluntarily through dialogue and negotiation on equal footing without any hidden terms or political conditions attached.
They said China-Uganda economic and trade cooperation and financing in the field of large-scale infrastructure follows the principle of equality and mutual benefit and has been conducted in accordance with the laws and rules of the international market and strictly abided by the laws of the host country.
Economic analyst Fred Muhumza explains that technically, any loan received from an EXIM Bank is not treated as a loan but as an export, thus making it difficult to renegotiate. Muhumuza said it is time for the government and its lawyers to re-examine how it handles its agreements with donors.
“These loans are reviewed by solicitor general’s office, who are the lawyers. It also indicates, in case of arbitration, we go to China. We are really at the mercy of China. They have an upper hand on this,” he said.
Uganda currently owes China $1.6 billion in loans extended to the East African country for financing of major infrastructure development projects.
In a 2018 report, Uganda’s auditor general raised concern that Uganda had agreed to several stringent conditions in the loans and these had not only increased the cost of borrowing but also exposed Uganda’s sovereignty to risk.