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Uganda Wants Chinese-Built Infrastructure Paid for With Oil

Photographer: Rodger Bosch/AFP via Getty Images

Uganda's Prime Minister Amama Mbabazi said, “Our government is concentrating on a few priorities due to insufficient funding and China is to fund a number of these.” Close

Uganda's Prime Minister Amama Mbabazi said, “Our government is concentrating on a few... Read More

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Photographer: Rodger Bosch/AFP via Getty Images

Uganda's Prime Minister Amama Mbabazi said, “Our government is concentrating on a few priorities due to insufficient funding and China is to fund a number of these.”

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, classified as one of the world’s poorest countries by the World Bank, 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 said by phone today.

Trade between China and Africa grew to $160 billion in 2011 from $10.6 billion in 2000, according to China’s state-run Xinhua news service, while Chinese investment in the continent stands at $20 billion, according to Standard Bank Group Ltd. (SBK) The world’s second-biggest economy is tapping resources in African countries ranging from the Democratic Republic Congo, the world’s eighth-biggest copper producer, to Tanzania, the second-largest holder of natural gas reserves in East Africa.

Political Support

China faces growing competition from other countries interested in investing in Africa.

Last month at the Tokyo International Conference on African Development, Japanese Prime Minister Shinzo Abe pledged 3.2 trillion yen ($32 billion) of public and private support over five years. U.S. President Barack Obama last week ended a three-nation tour of Africa in which he unveiled a $7 billion initiative to enhance access to electricity across Africa.

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,” Mbabazi said in an e-mailed statement yesterday. Chinese companies will “take over all contracts for infrastructural projects,” according to the statement, which didn’t provide further details.

Weeklong Visit

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. (1829), 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.

To contact the reporters on this story: Sarah McGregor in Nairobi at smcgregor5@bloomberg.net; Fred Ojambo in Kampala at fojambo@bloomberg.net

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net

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