Uganda Looks to Turkish Firm to Salvage Delayed $2.2B Rail Project
Photo Courtesy Yapi Merkezi
Having failed to get pledged funding from the Export-Import Bank of China for the long-delayed $2.2-billion, 273-km (170-mile) Standard Gauge Railway (SGR) project, Uganda has ended its contract with China Harbour Engineering Co. (CHEC), project coordinator Perez Wamburu told local media last month.
“From the time of our last submission for financing in February 2021, we have heard only silence. After submission, we waited for a few months, it was silence, and up to now, it’s still silence from [China] Exim Bank,” he said.
Instead, a memorandum of understanding (MoU) has now been signed with Turkish-based contractor Yapi Merkezi to submit an expression of interest to build the SGR—initially a part of China’s Belt and Road Initiative (BRI)—from the capital of Kampala to the city of Malaba on the eastern border with Kenya. The plan had aimed to link into a 730-km Chinese financed Kenyan SGR from the port of Mombasa to landlocked Uganda, with further connections into Rwanda and South Sudan. A protocol was signed between the countries in 2017 to follow common standards and specifications using Chinese Class 1 railway standards.
Yapi Merkezi in partnership with Portugal-based Mota Engil, is constructing part of the China-backed Tanzanian SGR network and has completed the first phase, a 300-km link between Dar es Salaam and Morogoro. It may be likely that the Turkish firm could bring in the financing to build a rail link to Tanzania, a source that asked not to be named told ENR.
Yapi Merkezi with branches in the United Arab Emirates, Qatar, Saudi Arabia, Algeria, Morocco, Ethiopia, and Tanzania, has constructed 4,200 km of railways and 445 stations in 63 projects.
China had announced in 2013 that it would provide overseas finance and outbound investment as state policy. CHEC was anticipated to provide 85% of the project costs, to be later reclaimed against cash flow income from usage according to Chris Devonshire-Ellis, founder of consulting and professional services firm Dezan Shira & Associates.
In addition to China possibly viewing Uganda as risk-averse, the decision to follow a ‘local content strategy’ requiring at least 40% of the project value to be spent domestically, with a personnel ratio of 9:1 Ugandans to foreigners, may have further dissuaded China from moving ahead on the project, an industry financier told ENR. “This goes against a practice of bringing Chinese labor for BRI projects rather than using local workers,” he said. Uganda's strategy seeks to bolster technology skills of local Ugandans, especially in areas of design, construction and maintenance.
Looking for quick answers on construction and engineering topics?
Try Ask ENR, our new smart AI search tool.
Ask ENR →
According to SGR Uganda, “CHEC has carried out preliminary works (engineering surveys, geotechnical investigations, hydrological assessments) to ascertain the conditions on the route and see if the data given by the employer (SGR) was actual.”
Uganda’s Ministry of Works and Transport along with the Directorate of Geological Survey and Mines has carried out a mineralogy assessment study to confirm the railway does not pass through areas with promising mineral resources.
Despite the challenges, planning work for the SGR continues, with land acquisitions underway. Properties along the affected route have been assessed, with 60% fully paid and their residents resettled according to SGR Uganda. However, the years-long delays in construction of the SGR has resulted in some confusion, with local reports of residents who were compensated now selling the land to unsuspecting investors or beginning new construction in areas already marked for the railway.
