COMMENTARY: Refinery deal points to Kampala’s waning appetite for Chinese money

March 22, 2018 in Business, Columnists, Editorial, Financial Services, Opinion by Editor

Time up

March 22, 2018 – When Uganda and a consortium led by General Electric finally put the ink to the dotted line of the formal agreement for the construction of a $4 billion oil refinery this week, it will be the culmination of a protracted process that has swung between Kampala, Moscow, Seoul and Beijing.

Although American oil field service company Halliburton has been a big player during the exploration phase of Uganda’s oil programme American majors have generally played a peripheral role as Chinese, British and French companies scooped up the up and midstream of the sector. Until GE’s belated bid, the domestic oil refinery – contentious because the upstream companies considered it unviable while Uganda saw it as an opportunity for value retention – the Americans had generally kept a safe distance from the programme and Kampala was not missing them either.

But there appears to have been an internal shift that made Kampala not just amenable to American participation but to eagerly pursue it.

The answer to this change of heart may be found in the tonne of documents at Uganda’s finance ministry on the structure of the country’s staggering foreign debt. Policy makers woke up to the scary reality that Beijing owned 20pc of the country’s staggering $11 billion foreign debt. The profile of the Dragon looms so large over Uganda that even the private sector is not spared. Ninety percent of Stanbic Bank’s infrastructure book is also held by the Chinese.

This is a precarious position that has led to a strategic decision by Uganda to rebalance and diversify her debt portfolio. Were the refinery to be financed by Chinese money, Beijing would be holding 41pc of Uganda’s foreign debt portfolio while total external debt would rise to $14.7 billion. That is not taking into account a pending application to the China Exim Bank for a $2.2 billion loan to fund the first phase of Uganda’s Standard Gauge Railway.

It is probable that the recent conversion by China of an unpaid $1.3 billion debt owed by Sri Lanka into a 99 year lease over Hambantota Port in the south of the country, has set the alarm bells ringing in many places, not least Tanzania which has also opted to source funding for its SGR from sources other than China Exim Bank.