Entebbe Airport gone or not?

A June 15, 2021 statement by the Uganda Debt Network also says everyone should be concerned about Uganda’s “rapid debt growth”.

It said, in one year -2019, the country’s total debt burden grew by 35% from Shs49 trillion in December 2019 to Shs65 trillion by December 2020. At the time of issuing the statement in June 2021, UDN said the total debt burden had climbed even higher; to Shs68 trillion.

The surge is attributed to challenges imposed on the economy by the outbreak of the COVID-19 pandemic in late 2019. China remains the country’s biggest bilateral and commercial lender through its twin-lending arms of the Export Imports (EXIM) Bank and China Development Bank (CBD).

The other reason why when Muwanga released the report in 2019, it did not generate the level of debate being seen today, is possibly because what was being described regarding use of escrow accounts is not unusual in  Chinese dent contracts. In fact, it is common practice. Perhaps the concern being raised now is a result of fears that since the Ugandan economy is not as robust as in the past, the probability of  defaulting is higher today.

In an official statement, the Uganda Civil Aviation Authority (UCAA) has confirmed that for its loan, it opened up a Sales Collection Account in Stanbic Bank where all the Authority’s revenues are deposited in line with the Escrow Account Agreement terms.

“But it does not mean that anyone is to control UCAA’s finances,” the statement said, “The Authority enjoys the freedom and liberty of spending what is collected (as per the budget).”

That statement said the arrangement is similar to what happens when one gets a loan and there is conditionality that the borrower’s income is channeled through the lending bank.

“It does not mean that the lending bank takes over the borrower’s salary,” said a statement.

According to some experts, however, China might not be interested in taking over the assets that borrower countries sign off as collateral for loans. According to them, China is mainly interest in gaining leverage over the borrower country that is can use to extract strategic and material concessions.

“While much of the language in the contracts can be seen as economically or commercially motivated, some of the provisions are more political in nature,” said Scott Morris, a senior fellow at the Center for Global Development and one of the report’s authors.

For example, some contracts state that cutting diplomatic ties with China would result in default. The contracts often include broad language: for example, defaults can be triggered by borrower actions that are adverse to a Chinese entity.

A clear case happened in Argentina when a new presidential administration came in and tried to cancel a dam project on environmental grounds. But the $4.7 billion loan from Chinese banks for the hydroelectric dam project had a cross-cancellation clause tied to a $2 billion China Development Bank loan for a railway project. So the China Development Bank threatened to cancel the railway project loan. Argentina’s government reversed its decision.

In 2017, a Chinese company; China Merchants Port, took over control of Hambantota Port in Sri Lanka. Trouble started when Sri Lanka ran into difficulty with repaying its debts to China. A deal was arranged in which China Merchants Port (CMPort) was to pay US$1.12 billion and spend additional amounts to develop the port into full operation. But the money that China Merchants Port paid would not go to the Sri Lanka government. It would go back directly to the Chinese as repayment for maturing sovereign bonds unrelated to the port. In July 2017, the agreement was signed in which CMPort was allowed a 70% stake and a 99-year lease on the Sri Lankan port which was now dubbed a joint venture.

Ethiopia is another country that mentioned often when China’s so-called `debt-trap diplomacy’ is discussed. Ethiopia faces a debt crisis linked in large part to the Chinese-financed, $4 billion Addis Ababa-Djibouti Railway. Opened in January 2018, the railway intended to expand Ethiopia’s export market by connecting its capital to the sea via Djibouti.

But it has since emerged that Ethiopia is importing more than it is exporting via the railway and is not generating the revenue needed to service its debt to China, according to a report by the Council on Foreign Relations (CFR). In response to Ethiopia’s troubles, China has renegotiated the terms of the loan with Ethiopia to extend the payments over a longer period of time.

So what will it be for Entebbe Airport in case the Uganda government enters a debt crisis? Will China allow a renegotiation of the loan or will it take over the airport as a joint venture?

Despite Apio’s assurance to COSASE, there is evidence that very little can change regarding the Chinese lending terms.

The Chinese embassy in Uganda has said headlines claiming China’s intends to takeover Entebbe Airport are “malicious allegations with no factual basis and ill-intended only to distort the good relations that China enjoys with developing countries including Uganda.

“Not a single project in Africa has ever been confiscated by China because of failing to pay Chinese loans.”

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