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Stop interfering in procurement processes, Auditor General tells Museveni

AG John Muwanga cites several faults in the procurement of Karuma and Isimba projects that were awarded by executive orders, saying interference in the procurement laws is costing taxpayers money

SPECIAL REPORT | Auditor General John Muwanga has asked President Museveni to desist from interfering with procuring processes, saying his actions have made taxpayers incur unnecessary losses in multi-billion projects.

Muwanga’s warning is contained in the his audit reports on the Ministry of Energy, after establishing the role played by the president in awarding contracts to both Karuma and Isimba power dams.

During the audit investigations, the auditors were told 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 followed a directive from President Museveni.

The AG argued that even when government feels its hands have been tied by bilateral agreements it has entered into, public officials should desist from circumventing the due process under the guise of presidential directives.

“The president should desist from interfering with procurement processes and dis-empowering institutions in the course of their work, which in the end may cost Ugandans unnecessarily as it is evident with Karuma,” Muwanga’s 2014/15 audit report on the Ministry of Energy reads in part.

Uganda is undertaking the construction of Karuma (600MW) and Isimba (183.2MW) hydro power dams at a cost of $1.65 billion (about Shs5 trillion) and $570 million (about Shs2 trillion), respectively, with the two projects to be jointly funded by both Government and a loan from EXIM Bank of China.

For the projects. the government undertook an international bidding process and evaluation where China International Water & Electric Corporation was evaluated as the best bidder.

However, following challenges in the procurement process, executive decisions were taken and Sinohydro Corporation Limited was procured through direct method to construct both the Karuma Hydropower Dam and the associated transmission lines, while the contract to Isimba Hydropower Dam was awarded to China International Water & Electric Corporation.

Loopholes in procurement

However, an audit investigation — whose findings were tabled before Parliament on Tuesday — unearthed a number of loopholes in the contract awards with the report highlighting that there was no evidence that this firm had the technical capacity to construct the dam.

The report further noted that since there was no bidding, the contract price of $567 million had no basis with the Auditor General failing to establish if the amount arrived at was done in the most frugal way.

Auditors warned that there could be a risk that the project costs for both Karuma and Isimba hydropower projects could have been exaggerated.

Yet still, China International Water & Electric Corporation had been blacklisted by the World Bank because it had previously engaged in ‘sanctionable practices’ in a hydropower project in Africa.

But the ministry claimed to have ascertained the credibility of the contractor from the World Bank website.

Additionally, both the Inspectorate of Government and the High Courts of Uganda had established that the firm had misrepresented facts in their bid for the Karuma hydropower project.

To make matters worse, the Auditor General confessed to having 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, explained that the Karuma procurement was characterised by so many complaints from different parties, including whistle blowers, concerned citizens, bidders as well as stoppages of the procurement process through court injunctions which spread for a period of more than two years.

“Those who make key decisions and those who will be affected by them are often separated by various impediments, including politics,” Twaweza, a local NGO that works to create an enabling socio-political environment, says.

For instance, data from Twaweza’s new ‘Sauti za Wananchi’ (Voices of the Citizens) survey, says in Uganda, as with many countries, citizens’ views and experiences can easily be ignored by policymakers.

As such, Mubiru said that 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.

The auditors revealed that government was obliged to select a Chinese construction company to undertake the construction of the project if the funding had to be got from China.

However, this argument was questioned by auditors as there is no express provision in the Memorandum of Understanding dispensing the selection of a contractor through competitive bidding with the report stating that there was no justifiable cause for disregarding due process, the bilateral agreement notwithstanding.

No estimated cost

The report also revealed that the Ministry of Energy did not have an estimated cost for the Karuma project and that the $1.4 billion was proposed by the contractor and while the contractor in his proposal had promised not to exceed $1.4 billion, the actual cost came to $1.6 billion, yet no justification was given 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 project, their input into the process was not evident.

As per the agreement signed between the 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 $11 million, 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 auditors established that while construction of the power station and associated tunneling works is going on, the contractor had not paid any premiums.

When the auditors inquired about the matter, 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 auditors argue 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 audit team also argued that the proposal is also against 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.

The stalemate, according to auditors, means that if components of the project are not insured, Uganda could lose such strategic investments in the event of a catastrophe.

According to the auditors, the lack of various insurance cover exposed the project to potential risks and the reluctance to acquire the insurance policies are a clear manifestation of weakness in the supervision and management of the contract as evidenced by the failure to secure the various insurance covers within the stipulated 60 days and up to one year delay.

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