Contractors to help raise sh2.5trillion for 20 roads

By Joel Ogwang

THE Government is to engage private contractors to help raise $1b (sh2.5trillion) to develop over 1, 900km of roads geared at stimulating tourism, agriculture and oil and gas sectors across the country.

Under the new contractor-facilitated financing scheme, contractors will express interest in road projects and source for their funding from any financial institutions. The scheme seeks to fast-track development of 20 out of the 44 priority roads to be worked on this 2012/13 financial year.

The roads will be upgraded from gravel to tarmac.

Construction is expected to be completed within a period of three to five years from commencement. Their development will last between six to 36 months.

A Design-Bid-Build project delivery strategy will be adopted for road projects for which designs are ready whereas the Design and Build approach will be adopted for road projects where designs are not yet ready.

How it will work
The Government will enter a memorandum of understanding with shortlisted firms to confirm their relationship in respect of financing and implementation of the works.

It will also enter into a conditional commercial contract with the winning tenderer conditioned on loan agreements being signed between the state and the winning contractors’ financiers.

The contractors will, in turn, negotiate with the finance ministry on interest rates and repayment periods, says Dan Alinange, the Uganda National Roads Authority (UNRA) publicist.

"It is a new thing we are trying-out. Under this arrangement, the contractor will price the road per kilometre and we (UNRA) will value the bid based on the cost of the road," he says.

"The contractor and financier who offer the best deal will win the tender and go ahead with the road works. The finance ministry will pay the financier over time". The shortlisting of firms for the works will be conducted in accordance with the public procurement procedures contained in the Government of Uganda’s Public Procurement and Disposal of Public Assets Act, 2003 and will be open to all bidders from eligible source countries. 

To close corruption loopholes, the process up to the signature of the loan agreement will involve negotiation, cabinet approval, parliamentary approval and Attorney General’s legal opinion of the loan.

This will be followed by signature of the loan agreement between Government and the contractors’ financiers.

The project works will then commence immediately after the loan becomes effective following signature of the loan agreement and commercial agreement.

How UNRA was doing the bidding 
In the past, UNRA was taking unsolicited offers from contractors, notes Eng. Peter Ssebanakitta, the executive director.

"Now we are opting for a structured way of taking proposals," he says. Proposals calling for expression of interests have been advertised in the local media. However, no contractors have submitted their proposals. 

"But we will start receiving them (proposals) by October. Contracts will most likely be given out early 2013."

Roads financing in Uganda
Traditionally, Uganda has relied on direct budgetary allocations to fund infrastructure developments but scanty tax revenues have meant the country's road network remains poor, stifling growth in east Africa's third largest economy.

For example, Uganda has only 3, 500km out of a total 20, 000kms of national roads under tarmac/ paved, while the rest are in bad to poor condition.

District, urban and community access roads are not any better. 

However, the continued prioritisation of the roads and transport sectors, with over sh1trillion injected in the sector in the last three national budgets, has raised public appetite for better roads, yet it is not wholly quenched with quality roads.

One reason roads experts advance for this predicament, is the continued funding of road works off the consolidated fund, a norm adopted from the colonial times.

Experts argue that state funding of roads don't ensure reliability, timeliness and adequacy at a time Uganda hopes to transit from the doldrums of being a third-world/ low developed country into a medium-income status.

They also note that even when monies are ring-fenced for roads, they are susceptible to budgetary cuts due to the ever-changing government priorities and competing demands from other sectors.

"With funding of roads from the consolidated fund, we can't get better roads easily," says Eng. Dr. Michael Odongo, the Uganda Road Fund (URF) executive director.

"Countries are moving away from this source of funding because it has many challenges."

The low road sector funding, too, threatens the realisation of the five-year National Development Plan (NDP) as bad roads increase the cost of doing business, limits marketing and mobility of factors of production and, ultimately, infringes on the Gross Domestic Product (GDP).

Economists assert that quality roads would leverage Uganda's stagnated annual economic growth threshold of 6% over the past decade.

"This (Uganda) is a small economy and if we're to wait for tax revenues to come in so that we develop these roads it may take time," says Alinange.

"So our new strategy is getting contractors themselves to source funding from financial institutions and we're looking to raise about $950 million to construct the over 1,900 kilometers."

The discovery of commercial hydrocarbon deposits in the Albertine rift basin along its border with the Democratic Republic of Congo, good roads will catalyse optimal mining of these natural resources, alongside boosting the country's development as the Government estimates reserves at about 2.5 billion barrels.

Why the new scheme
The contractor-facilitated financing scheme will come as sweet music to financial institutions, contractors and the Government, with its after-effects trickling down to road users who are starved of quality roads.

Ssebanakitta argues that with a poor investment climate in Europe beckoning, Africa is turning out to be a favourable investment hub for international investors, adding that one such sector that will benefit was roads and transport.

"In the past, we were getting ad hoc proposals of contractors who want to use their little money which didn't measure up to the size of work they had. This meant projects lasted longer than the agreed time" says Ssebanakitta.

"Now they have Public-Private Partnerships (PPP) where they can get money and we pay over time or through road tolls. PPP leverages innovation"

The off-budget financing of roads will ensure road projects are kick-started and concluded within the contractual period, with the Government paying the financiers later-on.

Right now, there is a limitation to what extent the finance ministry can finance the roads budget against other sectors.

UNRA estimates that a minimum of $1 billion will be raised under the scheme. "We have about 1,918km of roads which need to be built to spur development around the country," says Alinange. "We think this is a step in the right direction."

While the new scheme, as appetising as it is, will be open to all contractors, winning the lofty tenders won't come cheap, says Ssebanakitta.