Auditor General blames Museveni for Karuma, Isimba contract flaws

President Yoweri Museveni’s interference with the procurement processes has caused the country to suffer heavy losses in several multi-billion, the Auditor General John Muwanga has told Parliament.

According to audit reports on the Ministry of Energy, the losses suffered by the Ugandan taxpayers are directly blamed Museveni’s role in awarding contracts for the construction of both Karuma and Isimba power dams.

The Auditor General discovered that the decision to grant contracts to the Sino Hydro Corporation for the Karuma project and China International Water and Electric Corporation for the Isimba hydro Project was a directive by the President of the Republic of Uganda.

In his report, Muwanga recommended that even where government feels that it is tied by bilateral agreements, the due procurement process must be respected other than circumventing it under the guise of presidential directives.

“The President should desist from interfering with procurement processes and disempowering institutions in the course of their work, which in the end may cost Ugandans unnecessarily as it is evident with Karuma,” Muwanga’s 2014/2015 audit report reads in part.

Uganda is undertaking the construction of Karuma (600MW) and Isimba 183.2 MW Hydro Power Dam at a cost of $1.65bn (Shs 6.2trillion) and $570m (Shs 2.1trillion) respectively.
The two projects are funded with a loan from EXIM Bank of China.

The audit investigation unearthed a number of loopholes in the contract awards with the report highlighting that there was no evidence that the contractors had the technical capacity to construct the dam.

For instance, since there was no bidding, the report raises questions on how the contract price for Isimba dam was arrived at.

 

Museveni during the Karuma visit in August 2018

The report says that there is a possibility that the project costs for both Karuma and Isimba Hydropower projects were exaggerated.

It also queried how government entered into an agreement with China International Water and Electric Corporation, a company that was blacklisted by the World Bank because it had previously engaged in ‘sanctionable practices’ in a hydropower project in Africa.

Besides being on World Bank’s blacklist, the same company was also found by the Inspectorate of Government and the High Court of Uganda to have firm misrepresented facts in their bid for the Karuma Hydropower project.

The Auditor General said he had not received evidence showing that management undertook appropriate due diligence to determine whether such practices would not affect the firm’s ability to undertake the Isimba Hydropower project.

At the time of the audit, Eng Paul Mubiru, the Accounting Officer at Ministry of Energy and Mineral Development explained that the Karuma procurement was characterized by so many complaints from different parties including whistle blowers and bidders.

This slowed down the procurement process through court injunctions which spread for a period of more than two years.

Subsequently, Mubiru said, government made a strategic decision to finance the project using funds from China, and have Syno Hydro Corporation Limited directly procured to construct both the Karuma Hydropower Project and the associated Transmission Lines.

Government claimed that was obliged to select a Chinese construction company to undertake the construction of the project if the funding had to be got from China.

Museveni while addressing the nation on Sept 9 2018

However, the Auditor General found no express provision in the Memorandum of Understanding dispensing the selection of a contractor through competitive bidding.

The report also revealed that the Ministry of Energy did not have an estimated cost for the Karuma project and that the cost was proposed by the contractor and while the contractor.

Interestingly, while in proposal, the contractor had promised not to exceed $1.4bn, the actual cost came to $1.6bn without any justification for this contract price variation.

It was also discovered that although a Cabinet Committee was constituted to prepare a paper on the construction of Karuma Hydro dam, their input into the process was not evident.

As per the agreement signed between Government and Syno Hydro was supposed to insure the dam  against physical loss or damage to facilities, equipment; third party Insurance, Automobile Liability Insurance, Workers Compensation and Design Insurances.

The five-year policy, whose premiums amount to $11m (Shs 41.2bn) is to hedge against damage to the power plants, tunnels and other facilities during construction of the hydropower project.

But despite the contract provisions, the Auditor General established that while construction of the power station and associated tunneling works is going on, the contractor had not paid any premiums.

The  contractor admitted to being uncomfortable with the choice of firm and high costs of the premium and insisted on alternative service providers, a proposal the Auditor General said goes against the contract terms which require the identity of the insurers and the form of the policies to be subject to the approval of the employer (Ministry of Energy and Mineral Development).

The Auditor General also noted that the proposal against the national policy that requires all national projects to be insured with Ugandan firms as a way of reducing capital flight, promote local content and helping deepen domestic financial system.

The same case is with Isimba project, where the agreement required for the contractor to acquire an all Risk insurance policy should within 6O days from the date of advance payment (August 2014), but three years down the road, the insurance has not been acquired.

This meant that if components of the project are not insured, Uganda could lose such strategic investments in the event of a catastrophe.