Ugandan Government Removes Chinese Firm From Large Hydro Project

Ugandan Government Removes Chinese Firm From Large Hydro Project
15 April 2013, Engineering News-Record
By Shem Oirere

After canceling a $2.2-billion engineering, procurement and construction
contract with a Chinese firm for a 600-MW hydropower dam, Uganda is
seeking to qualify a new list of international EPC bidders in order to
salvage the Karuma project.

According to Uganda government officials, China International Water and
Electric Corp. (CWE) falsified documents that allowed it to prevail
against other international competitors including Salini S.p.A, Vinci
Construction, Orascom Construction and South Africa's Group Five.

In late March, after CWE's successful bid was thrown out, Irene
Mulyagonja, Uganda's inspector general of government, directed the
Ministry of Energy and Mineral Development to invite fresh bids "by
identifying and short-listing reliable and reputable international EPC
contractors who have successfully executed projects of similar magnitude."

In its bid, officials said, CWE claimed the Yunnan Dayongjiang II
hydropower project in China, which it claims to have executed, had a
600-MW capacity and, therefore, met solicitation-document requirements.
In fact, the structure's capacity is 70 MW, "representing a 751%
discrepancy," Mulyagonja said.

The IG continued, "CWE also inflated the capacity of another dam
project, called Qingshan, from 20 MW to 640 MW, representing 3,100%
discrepancy."

In its bid, CWE inflated the Dayingjiang II dam's cost to $315 million
from $63 million. The Chinese firm also claimed to be the lead party in
a joint venture for heightening the Rosieres dam in Sudan.

In fact, another Chinese company, Sinohydro Corp., led the effort, the
Ugandan government said.

In November 2012, unsuccessful Italian bidder Salini went to court and
obtained orders to block CWE as the winner of the lucrative tender over
claims of corruption on the part of Ministry of Energy and Mineral
Development officials and irregular tendering process.

The high court in Uganda ordered a re-evaluation of the bids by all
prequalified EPC bidders. Judge Eldad Mwangusya invalidated the original
evaluation report that favored CWE. He also barred the team involved in
the initial evaluation process from participating in the re-evaluation
process.

CWE did not respond to emails and phone calls seeking comment.

A 100-page dossier presented in the high court also included details by
a whistle-blower who revealed how corruption and irregularities had
engulfed the procurement process.

The project, which is 264 kilometers north of the capital Kampala, has
been delayed for more than two years because of financial concerns and
infighting among top government officials over procurement of an EPC
contractor for Karuma, the country's largest hydropower project.

The delay in the project has heightened fears of a worsening
power-shortage crisis in East Africa's third-largest economy. Demand for
power has been growing at an average of 15% annually. With hydropower
production below 445 MW, daily demand has outstripped supply, leading to
frequent load shedding.

There were indications in early April that President Yoweri Museveni
would prefer a Chinese firm for the Karuma hydropower contract.

Released by President Museveni's office before he left for Durban, South
Africa, for a meeting with delegation heads from Brazil, Russia, India,
China and South Africa (BRICS), a memo said the president hoped to get
commitments for three critical projects, including Karuma.

According to Ugandan media reports, the memo stated, "The President
would hold bilateral talks with the President of China, and these would
include the prospect of the Chinese government funding the construction
of Karuma Dam from funds it had set aside for Africa."

Under Section 94 of Uganda's Public Procurement and Disposal of Assets
Authority Act, CWE faces possible disbarment from government contracting
at a time when the battle for the region's construction market is
getting competitive. CWE ranks at No. 59 on ENR's list of Top 60 Chinese
contractors, reporting $674 million in revenue for 2010.
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