Big deal

By Independent Team  

Inside UPDF purchase of Russian fighter jets and missiles

On April 5, 2010 the Russian leading business daily newspaper Vedomotsi reported that the Russian state arms exporter Rosoboronexport had entered a contract to supply the Ugandan government with eight Su-30-MK2 fighter jets and missiles in probably the country’s most expensive single military transaction ever.

Early last month, Russian state radio, The Voice of Russia, quoted a military diplomat in Moscow as saying: ‘Since Uganda is short of real money to pay for the planes, Russian LUKoil is negotiating its potential participation in developing large oil fields in Uganda, implying a possible swapping.’ But the Army and Defence Spokesman Lt. Col. Felix Kulayigye promptly denied the reports at that time. ‘We had negotiations with the Russians over the jet fighters but upon realising that the cost was too high, we decided otherwise. We never entered into an agreement with them,’ he told the press.
However, the following day on April 6, Kulayigye made a U-turn and admitted that although the Ministry of Defence had not yet signed the contract, the purchase of the jets would proceed because Uganda needs the high-tech Russian jets to strengthen the army’s air firepower.

‘Do we need them? Yes. And if we get the money, we shall definitely procure them because if you examine the potential

threats and geopolitics, yes we need them. We need to guard against external aggression and security threats like Nile waters which can be a source of conflict in the region,’ said Lt. Col. Kulayigye.

Indeed on April 11, 2010 the UPDF Air Force met the Russian state delegation at the Air Force headquarters in Entebbe to discuss the deal.

The cost of the jets and the armament could not be readily established for lack of information from the Ministry of Defence. However a standard Su-30K fighter jet costs US$34 million (about Shs71 billion). This does not include the missiles whose  cost also could not be readily established.The jet cost ranges from $33- $44 million depending on the version of the aircraft. Therefore at US$34m, the eight jets would cost Uganda US$272 million (about Shs570 billion) or the total projected 2010/11 budget of the ministries of Agriculture, Trade and Industry, and Water and Environment).

‘The transaction was never concluded. Any information therefore is premature,’ Kulayigye told The Independent last week when he was asked about the cost of the transaction.

When he was challenged that the UPDF could not have entered the negotiations without knowing the price of the jets they wanted to buy, Kulayigye said: ‘I am not privy to the cost implications.’

According to minutes of the meeting which The Independent has accessed, the UPDF Air Force wanted the amount of the proposed missiles and armament reduced by half so as to reduce the cost of the contract. But the Russian delegation warned that the reduction could result in pilots failing to train on such missiles. However, after further discussions they agreed to have the missiles and armament reduced by half. Details of the meeting between the UPDF and the Russian delegation show that it was chaired by the Air Force Commander Maj. Gen. J.B. Owoyesigire.

An arms deal of this magnitude in a poor country causes protests from donors who finance a significant slice of Uganda’s budget. Indeed when the news of the deal initially broke out, donors went up in arms threatening to pull out of Uganda if the government went ahead with it.

Uganda’s largest donor, the World Bank wrote to the Ministry of Finance, Planning and Economic Development (MFPED) asking about the press reports. Finance replied confirming the plan to purchase the planes but adding that the money will not be drawn from the budget. Rather government would borrow it from the nation’s for eign exchange reserves, now worth US$ 2.3 billion and held by Bank of Uganda.

Although the government has always upheld high budgetary standards, this is not the first time it seeks to use foreign exchange reserves to solve a fiscal problem. When it confronted a serious infrastructure problem, it sought and obtained the consent of the International Monetary Fund (IMF) to use reserves to build roads in the 2008/09.

Yet as Uganda moves closer to the 2010/2011 budget, insiders are already saying that almost the budget of every ministry especially Health, Education, Infrastructure and Energy are going to remain stagnant while many others will be slashed to raise money for the jets. Clearly, therefore, this purchase has powerful implications on other sectors especially those considered vital for poverty reduction.

The most affected budgets, sources inside the budget making process say, are going to be districts. This means that the hopes of large revenue windfalls new districts were planning to ‘fall into’ are unlikely to be realised. This may also have political implications: Will affected districts remain loyal to the president and the ruling party when newly granted district status turns out to be another ‘byoya bwanswa (good-for-nothing)?’

If the government of Uganda does not increase the budgets for infrastructure, health, education and energy, it will mark a fundamental departure from the established practice of the last two decades. Since 1990, the government has sustained a fairly good rate of growth in budget allocations to these sectors. For example, in 1999/2000, the health budget was Shs249 billion while that of education was Shs373 billion. In 2009/10, the two sectors got Shs637 billion and Shs1.1 trillion respectively.

Now, under the Medium Term Expenditure Framework (MTEF), a budgetary tool to forecast government spending, the Ministry of Finance had allocated education Shs1.03 trillion and health Shs748 billion in March last year. Since the budget is to be read next month, observers should be looking at whether these commitments will be met. Some donors were threatening to pull out of Uganda if government went ahead to purchase the fighter jets. But this may prove difficult. Uganda’s largest donor, the World Bank considers this a sovereignty issue and therefore cannot intervene. Bilateral donors are divided in their objectives to form a united front to push government towards a particular direction.

If the past actions of donors are a guide, the budget for public administration (political appointments) has been growing rapidly. Donors make protests at this trend from 2001 to 2005 without getting the results they   sought and without being

able to cut aid. Equally so, donors fought hard throughout the 1990s and from early to mid 2000s to stop the growth of the defence budget without success.

The budget for public administration grew from Shs251 billion in 1999/2000 to Shs980 billion in 2009/2010. (The definition of public administration is based on the May 2001 standards to retain consistence in analysis because its current scope is less than it was then). Meanwhile, the budget for defence has grown from Shs177 billion in 1999/2000 to Shs600 billion in 2009/10. In both cases, government ignored donors without many costs.

It is highly likely therefore that government will go ahead and buy these jets. Yet an analysis of Uganda’s security needs (see page 9) does not show that given our nation’s geographical location, the military capacity of its neighbours and its fiscal standing, spending US$ 1.2billion on high tech planes is the most optimal solution. This money, used over a period of time, can give Uganda better military preparedness and strength than investing it in only six or eight jet fighters.