Uganda will offer most of its infrastructure projects to Chinese companies because they can be repaid from future oil revenue, unlike Western businesses that expect advance payment, the Prime Minister’s office said.
Uganda is on the verge of an oil boom after the discovery of crude in 2006. The government is seeking investment in improving electricity generation and transportation networks to drive economic growth intended to propel the country to middle-income status by as early as 2016.
“Western companies want the old model where they are first advanced money before starting on the projects; whereas the Chinese companies, most of which are owned by government, can start without the money,” said David Kyetume Kasanga, a spokesman in Prime Minister Amama Mbabazi’s office.
The terms of so-called “package loans” from China allow upfront investment, delaying payback until later by either cash or “in-kind” payments, Kasanga told the media on Tuesday.
Oil giants Tullow Oil Plc (TLW) and partners Cnooc Ltd. (883) of China and France’s Total SA (FP) are developing Ugandan oilfields estimated to hold 3.5 billion barrels. Production may start on a small scale for domestic consumption next year and rise to a significant amount by 2017, according to Tullow.
“Our government is concentrating on a few priorities due to insufficient funding and China is to fund a number of these,” Bloomberg quoted PM Mbabazi in an e-mailed statement Monday. Chinese companies will “take over all contracts for infrastructural projects,” according to the statement, which didn’t provide further details.
Mbabazi made the comment at the end of a one-week official visit to China in which he met government leaders and officials from companies including China Machinery Engineering Corp, a Beijing-based builder, and Huawei Technologies Co., China’s biggest maker of networking equipment, according to the statement.
Ugandan President Yoweri Museveni and his Chinese counterpart Xi Jinping earlier this year agreed on a “framework” to obtain Chinese investment for power generation, road construction and other infrastructure projects, according to the statement. They met at a summit of BRICS nations — Brazil, Russia, India, China and South Africa — in Durban, South Africa in March, it said.
Projects planned for development in Uganda, East Africa’s third-largest economy, include four hydropower plants and the paving of 21 roads, according to the statement. About one quarter of Uganda’s 37 million people in the $20 billion economy live in poverty, according to World Bank data on its website.