Karuma dam

By Independent Team

Museveni blamed as commission agents, government officials conspire to squeeze money out of project

Deputy Registrar John Eudes Keitirima’s chambers in the High Court building in Kampala were on Sept. 6 the scene of an interesting spectacle. A construction company, Salini SpA, was seeking an order to block the Ministry of Energy from proceeding with the bidding process for the proposed 600MW Karuma Hydro-power Dam project.

Although Salini’s lawyers, Enos Tumusiime and MacDusman Kabega were present, the attorney general, who represents the ministry and the Public Procurement and Disposal of Public Assets Authority (PPDA) lawyers were conspicuously absent.  Quite predictably, an interim order was issued in Salini’s favour and ordered the ministry of Energy, its officials, employees, servants, agents or anyone unders its authority not to open financial bids of engineering, procurement, and construction of Karuma Dam.

Regarded as a minor judicial technicality, a combination such incidents reveals how commission agents, government officials, and investors connive to frustrate the public procurement process for personal gain.

A day before, on Sept.5, the PPDA Executive Director, Cornelia Sabiiti had written a memo to the Permanent Secretary of the Ministry of Energy, Fred Kabagambe Kalisa, alerting him that she had received a complaint from Salini’s lawyers. She also informed that she had received an “anonymous complaint from one claiming to be a citizen of Uganda” about the procurement process for Karuma Dam.

She warned him: “In compliance with Section 26 (f) and Section 90 of the Public Procurement and Disposal of Public Assets Authority, the accounting officer is requested to address all technical issues raised by M/s Tumusiime, Kabega and Co. and to the allegations raised by a concerned citizen”.

Two weeks after the scene in Keitirima’s office, on Sept. 20, State Attorney George Kalemera stood before High Court judge Eldad Mwangusya over the same case. He was this time asking court to dismiss the interim order blocking the Karuma Dam bid. In any case, he argued, Salini SpA has no mandate to complain about the process because it was never invited to the bidding process.  Predictably, Judge Mwangusya cancelled the interim order on two grounds; first the issues Salini raised could be resolved in other stipulated forums, and two; the complaints were not enough justification for blocking progress of a project.

The simple clarity of Judge Mwangusya’s ruling raised several questions: Why did Kalemera not appear before Keitirima with the same arguments that convinced Mwangusya? Do these procurement cases not have precedents to guide judicial decisions? Do some judges and PDDA boss Cornelia Sabiiti really believe that every procurement process should be stopped because an “anonymous” person has complained?

Maze of red-tape

Rather than explain these contradictions, Sabiiti whose actions have thrown uncertainty over the Karuma Hydropower Dam bidding process with her interpretation of the PPDA statute, has chosen to hide behind a maze of red-tape.

“I cannot discuss Karuma Dam issues because of the court injunction,” she told The Independent, effectively sinking to the level where Salini SpA, the originator of the court injunction, wants her to be; a court stymied bureaucrat.

Salini SpA is one of several foreign hydropower dam builders protesting a decision by the Karuma Dam developer, the Ministry of Energy, to lock them out. The other main challenger of the Ministry of Energy action is a joint venture entity comprising Vinci Construction Grands Project, Orascom Construction, and Group Five International. The PPDA statute and the courts are the weapons they have chosen to use to challenge the ministry of Energy.

In the Sept.5 memo, Sabiiti, who was acting on complaints by Salini’s lawyers and the “anonymous” complainant, also demanded that the accounting officer of the ministry of Energy, PS Kabagambe  Kaliisa submits to her  a report on the due diligence of the firms that passed the technical evaluation stage; China International Water & Electric Corporation (CWE) and Perlite Industries of Iran.   This is an old ploy.  As PS Kaliisa told The New Vision newspaper on Sept. 21, Salini’s complaints were a legal trap designed to cause abortion of the procurement exercise.  He said such disclosure could amount to a breach of the law, impede law enforcement, prejudice legitimate commercial interests of the parties, inhibit fair competition and not be in the public interest.

“The complaints are intended to incite the accounting officer to disclose confidential information to cause mis-procurement,” he reportedly told The New Vision, “This is against the law and I cannot release any information regarding procurement until the process is successfully completed.”

A similar trap was laid in 2002, when a High Court order forced the government of Uganda to reveal details of its Power Purchase Agreement with AES Nile Power, a subsidiary of AES Corporation of America which had agreed to build Bujagali Hydropower Dam on the Nile. A week after the PPA was exposed, an independent review by Prayas Energy Group established that the Bujagali was too expensive, its Power Purchase Agreement did not conform to international standards, and that the World Bank wrongly advised Uganda to build the dam. Subsequently, AES Nile power quit the project which was first mooted in 1994 and was to have cost US$550 million. As a result of that court decision, which was spurred by complaints similar to what is being heard today, completion of the Bujagali project was pushed back by over 10 years. Over that period, the cost of its construction rose 56% to over US$860 million.

The Karuma Dam Project’s stated starting price is US$2.2 billion. If, as looks likely now, it is delayed under the same conditions as Bujagali and its cost goes up 56%, it will eventually cost US$ 3.4 billion. Although the average cost of per megawatt is usually between US$1 million and US$1.5 million, Karuma could end up costing US$5.6 million per megawatt.

So why do Sabiiti and other officials in her positions, allow a complaint from an anonymous entity to frustrate a project with such dire consequences?

The Independent’s Strategy and Editorial Director, Andrew Mwenda, who reported extensively on the AES Nile Power saga as a reporter at The Monitor and has been involved in the Karuma Dam investigations, says  the controversy reveals the hazardous dynamics of the procurement system in Uganda.   “No bid can be 100% compliant,” he says, “anyone can point at one of a million anomalies in a winning bid unless an official of the ministry, who is aware of all the requirements, prepares it.”

Experts agree that unfortunately under Uganda’s procurement system, there are numerous power centres where appeals can be made on the most flimsy complaints – including anonymous ones, and a bidding process is halted. The official power centres in the bidding process include Sabiiti’s Public Procurement and Disposal of Assets (PPDA), the Inspector General of Government (IGG), and the courts. Other power centres with immense influence over the bidding process include State House, parliament, the media, and intelligence organisations. Each of these institutions has the capacity to interfere and stop a bidding process, reverse it, or even cause it to be re-awarded. The bidding firms understand this and will always go to these institutions of influence peddling to win a tender. When they lose, they go to the next office to cause the bid to be cancelled.

Enter the Aga Khan

Six firms; China Water and Electric Corporation, Sinohydro from China, Perlite Construction Company from Iran, Orascom from Egypt, Salini, and joint venture led by Vince submitted bids for the engineering procurement and engineering aspects of the project.

Typically, the tendering for big projects in Uganda is a multi-pronged process with separate technical and financial bids constituting the final stages.

Officially, after the technical bid phase, only China Electric, Sinohydro, and Perlite remain in the race. The PPDA memo notes that Perlite’s bid is not viable because, since UN sanctions of Iran, it cannot conduct international trade. But the other firms still have a foot in the door because defeating these cartels is not easy, can be expensive, and even lead to paralysis in government.

Since most of the bidding firms are foreign, they usually operate through commission agents who are perceived to have both access and influence to the power centres and the ability to leverage local bureaucratic infrastructure. The commission agents are provided with facilitation to “chase” the deal but are usually paid only if their agency wins the bid. The more intractable the fight for the bid is, the higher the commission agent’s fee.

In the Karuma Dam case, Energy PS Kalisa and Col. John Mugyeni of the Kisekka Market sale fame; have been mentioned on the Salini side. Other names, including tycoons Charles Mbire, Patrick Bitature, and foreign embassy officials have been mentioned on the side of the supposed front-runner, China Water and Electric Corporation or the other challengers, Orascom Construction Industries. Each of these is often fronted by relatives, friends, and in-laws at State House.

Mwenda recalls a case he covered as a reporter in which SGS stood to lose its pre-shipment inspection monopoly of Ugandan imports. At the time, ITS-Intertek had just won a license to be the second pre-inspection service provider. As the fight over the contract intensified, Tumusiime Mutebile, who was the permanent secretary of the ministry of Finance had his office burgled and vital tender documents snatched. A similar case has happened recently over the Shs150 billion NSSF Tower tender on Lumumba Avenue in Kampala.

In an interview with The New Vision which is posted on the PPDA website, Sabiiti attributes the failure of her authority to ensure effective procurement to lack of capacity to handle big projects and poorly paid staff who are susceptible to bribery.

So what should the government do if we cannot trust our institutions and officials to do a good procurement job? There are no easy answers but experts say outsourcing the procurement process is an option. External firms like PricewaterhouseCoopers, Deloitte Touche, and others are mentioned.

Going for cheap

The other alternative would be to do what the government did with Bujagali; get a private developer to build the dam and sell the electricity to the public. President Museveni is reportedly against this arrangement in Karuma’s case because it leads to high cost of power for the final consumer. The President is reportedly looking for a guarantee of cheaper electricity. Although the government had promised the consumer power tariff to reduce after commission of Bujagali in June, it has not happened. Instead, power tariffs remain unreasonably high in Uganda compared to neighbours Kenya, and Tanzania. This makes the cost of doing business in Uganda high and stifles economic growth.  The Karuma construction tender has not been awarded although bids first went out in 2006 and any of these options can still be chosen.  On Oct. 8, President Museveni and the Aga Khan will travel to Jinja to inaugurate the 250MW Bujagali Dam. It is a momentous date filled with symbolism as it comes just a day to the all-important 50th anniversary of Uganda’s independence. It is doubtful the day will end without mention of Karuma Dam by either Museveni or the Aga Khan.

As a harbinger, on Sept. 21, the Aga Khan’s advance team which is already in town hosted a major PR fete for journalists and other communications people. Mahmood Ahmed, the Resident Representative of the Aga Khan Development Foundation Network which, through its for-profit arm, the Aga Khan Fund for Economic Development, is the joint owner with Sithe Global power, of Bujagali Power Project was on hand to announce how Bujagali Dam was the biggest infrastructure project in Uganda which has been delivered “on time and in budget”. Never mind that hen the foundation stone was laid on August 21, 2001, the cost of the bill was US$770 million.  Officially now, the dam cost US$860 million to build.  Dr. Kevin K. Kariuki, the Head of Infrastructure, Industrial Promotion Services (IPS) (K) Ltd, the industrial arm of AKFED, was in upbeat mood as he they will be the best bidders of another power project, the 50MW Nzizi project in Hoima near the Nzizi Natural Gas & Oil field. Salini Costrutorri S.P.A constructed the Bujagali Dam. Will that influence the talk between the Aga Khan and Museveni about Salini’s bid for Karuma. Nothing is certain.

Corruption everywhere

For now, focus is on the numerous obstacles related to corruption that Karuma appears to run into. Currently, China Electric and another Chinese firm, Sinohydro are said to be ahead of the pack.  China Electric, although less experienced than Sinohydro, has more clout because of its perceived expertise as a subsidiary of the state-owned Chinese Three Gorges Corporation, builders of the world’s largest dam, the Three Gorges Dam, on the Yangtze River in China.

China Electric is also said to have jumped ahead because of a peculiar requirement in the bid document for the successful firm to guarantee quality of work and time of completion. These are usually problematic and are the main causes of delays and escalation of the costs when major construction projects encounter unexpected obstacles.

In the Bujagali Dam project, for example, unanticipated soft rock found in the gate spillway that needed to be replaced with concrete pushed the completion date of first turbine from December 2011 to February 2012. It also presumably pushed the cost up which was borne by the private developer, Bujagali Electricity Ltd because it was a Private public Partnership (PPP) Build, Operate, and Transfer (BOT) project.

In case of Karuma, which the government is planning as a wholly public facility, any escalation of costs would be borne by the government as the developer. President Yoweri Museveni is, therefore, anxious to get a contractor who will guarantee that they will build the dam within the agreed budget and time. Only China Electric has so far reportedly guaranteed that although the other bidders dispute this. They say China Electric does not have the capacity to offer such a guarantee. The Secretary to the Treasury, Chris Kassami, says however that he met with officials of the Three Gorges Corporation who gave similar guarantees on behalf of China Electric. The anonymous complaint to the PDDA cited this guarantee as one of the irregularities in the bidding process.   As a result, The Independent has learnt that ministry of Energy officials have been traversing the globe to ascertain the other claims made by China Electric in its bid.  China Electric has also been accused of misrepresenting its work record. It allegedly claimed to have constructed Qingshan Hydropower Station with a capacity of 640MW for US$350 million when, in reality, it is a small 20MW facility worth US$20 million. Since the Karuma Dam is to be built underground outside the Murchison Falls National Park with a 9km dam water discharge tunnel, emphasis is being placed on tunnel construction competence. China Electric’s rivals say although it claims to have constructed a 21km tunnel in the Kazakhstan Moinak Hydropower Project, the tunnel is only 9kms in length. The Independent has confirmed that the distance between the Moinak Dam reservoir and its engine room is indeed 9km. However, engineers familiar with such construction say it was indeed more complex to make than the 9kms China Electric would have to construct for Karuma. Although the explanations given are of a technical nature, they boil down to the Karuma tunnel allegedly being easier to construct because it has water, which Moinak did not. The Minister of State for Energy, engineer Simon D’Ujanga reportedly travelled to Kazakhstan to verify some of this information.  Other ministry of Energy official went to Laos and Khartoum to verify some of the claims China Electric made in its bid. Despite of all this activity, the Karuma Dam tendering process must now await a court ruling in October. Depending on how that goes, or which commission agent emerges triumphant, the process could be stopped, reversed or finally, allowed to proceed to the financial bids stage.