Uganda Entebbe Airport To Be Taken Over By China As Beijing Refuses To Renegotiate 'Toxic Clauses' In $207million Loan

by India Infrahub - Nov 28, 2021 09:43 AM +05:30 IST
Uganda Entebbe Airport To Be Taken Over By China As Beijing Refuses To Renegotiate 'Toxic Clauses' In $207million LoanEntebbe Airport
Snapshot
  • The Export-Import Bank of China (Exim) is set to take over the Uganda's Entebbe International Airport over the failure of the Ugandan government to repay a $207 million loan.

    Uganda Civil Aviation Authority (UCAA) officials have often raised red flags on various provisions in the loan agreement that rendered Entebbe airport vulnerable to being attached and acquired by Chinese lenders upon arbitration in Beijing.

    Uganda is latest in the list of African countries that obtained commercial loans for infrastructure development only to realise later that they cannot sustain repayment without further borrowing or persuade Chinese state lenders to restructure the loans.

The Export-Import Bank of China (Exim), the country's state owned lender that provides financial backing to promote export of Chinese products and services globally, is set to take over the Uganda's Entebbe International Airport over the failure of the Ugandan government to repay a loan.

In 2015, Uganda's Finance Ministry signed an agreement with Exim Bank
to borrow $207 million as part of an ambitious 20-year civil aviation masterplan to upgrade the country's only international airport in Entebbe along the shores of Lake Victoria, 43km south of the capital Kampala. The loan was borrowed at 2% upon disbursement; with a maturity period of 20 years including a seven-year grace period. Entebbe International Airport modernisation and expansion project will equip it to handle 6.1 million passengers and 172,000t of cargo a year by 2033.


Even as the work on airport modernisation proceeded briskly, Uganda Civil Aviation Authority (UCAA) officials raised red flags on various provisions in the loan agreement that rendered Entebbe airport vulnerable to being attached and acquired by Chinese lenders upon arbitration in Beijing. The Ugandan government waived international immunity in the agreements it signed to secure the loans, exposing the airport to take over.

Other clauses which were deemed as 'toxic' include Exim Bank anointing itself as the sole authority to approve withdraws of funds from the UCAA accounts, assuming power to approve annual /monthly operating budgets of UCAA and assigning itself the rights to inspect the government/UCCA books of accounts.

Uganda has sought to renegotiate the 'toxic' clauses in the deal. President Yoweri Museveni sent a delegation to Beijing for a renegotiation with the Chinese government but attempts at renegotiation were repeatedly rebuffed by Beijing. A team led by former envoy to China Dr Crispus Kiyonga in 2019 was told outrightly that there would not be any amendment to the loan agreement.

Last week, Uganda’s Finance Minister, Matia Kasaija, apologised to parliament for the “mishandling of the $207 million loan” from the China Exim Bank to expand Entebbe International Airport.

Entebbe International Airport is the only international airport in the landlocked country and handles over 1.9 million passengers per year.

The airport expansion project is over 70% complete. Ugandan government has ruled out any kickbacks during the negotiations.

Uganda is latest in the list of African countries that obtained commercial loans for infrastructure development only to realise later that they cannot sustain repayment without further borrowing or persuade Chinese state lenders to restructure the loans.

Ethiopia, Kenya, Zambia are among the other African nations that have faced trouble with repayment of Chinese debt.

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