Chinese contractors for Isimba dam and Uganda Electricity Generation Company Limited Payment Dispute

A $42 million payment dispute between the Chinese contractors for Isimba dam and Uganda Electricity Generation Company Limited (UEGCL) has escalated further with counteraccusations of contract violations. 

A meeting convened by the speaker of parliament, Rebecca Kadaga on Tuesday to resolve the impasse, recommended legal interpretation of the contract after both parties failed to agree on the reasons why the monies cannot be paid. 

China International Water & Electric Corporation (CWE), the contractors of the 183MW Isimba dam project accuse the ministry of Finance of unfairly withholding the payment of their $28 million yet the dam was already complete and commissioned in May last year. However, UEGCL insists the money was withheld because they found over 700 defects on the completed dam which the contractor has not rectified to date.  

In the meeting, Kadaga also summoned the Finance minister, Matia Kasaija to particularly explain the controversy regarding the dam bridges that are supposed to run from Kayunga to Kuva island and another from Kuva island to Kamuli side. Kadaga has severally demanded for answers from the Finance ministry on why the works on the bridges have stalled.

During the meeting, Xia Neihang, the Isimba dam project manager and an executive from CWE, said they can’t continue with the bridge construction works when the ministry of Finance unfairly withheld their $28 million payment. Xia said 95 per cent of the bridge is complete and the outstanding works are due for completion in three month’s period pending the release of funds.

However, Harrison Mutikanga, the UEGCL executive director noted that the contractor should have constructed the bridge on top of the dam, but since he had neglected to do so, he had to incur extra costs for a new bridge.  

He also revealed that the contractor was informed that he was eligible to apply for an advance of the $14 million in line with their contract provided he produced a retention money guarantee in accordance with Bank of Uganda requirements. He emphasized that the guarantee was supposed to be irrevocable and unconditional.  

“He’s now facing a challenge because he has to do a new bridge, so he has to spend extra money – may be on the foundations of the concrete and things like that…When the contractor started a new bridge and expressed that he had cash flow problems, we said the contract allows that we can actually advance you money. We told the contractor that you’re free to access this retention money which is $14 million if you provide a retention money guarantee. Now the contractor provided a retention money guarantee I think like in June. We verified the guarantee and the guarantee was not in accordance with the requirements of Bank of Uganda,” said Mutikanga. 

On his part, minister Kasaija noted that the total project cost is $567.7 million, adding that the Ugandan government has already paid the contractor $525.3 million representing 92.5 per cent payment. He said the outstanding balance is $42.3 million, which is under the defects liability period. However, Xia couldn’t have any of this noting that only $14 million was part of the defects retention money and his company was entitled to the balance of $28 million.

In response, Mutikanga noted that there are a number of issues that need to be resolved before the contractor can earn all the remaining money. He argued that $28.3 million had been retained by the employer owing to a number of defects in the works.

He noted that in March 2019 when the government took over the dam, the contractor was supposed to have cured the defects by September 2019, which they identified while running the plant. Mutikanga also revealed that there is still outstanding scope of works like the visitors’ area.

“If a contractor completes work and there are defects in the work, the contract allows us to withhold money. Madam speaker, the $28 million is being withheld in so many defects. When we took over that plant, we had a list of over 700 defects and the contractor promised – this was in March when we took over the plant. The contractor, when you look at their takeover statement they were supposed to complete all these defects by September 2019 but up to today the defects are not completed

However, Xia insisted that according to the contract, his company was entitled to 95 per cent payment having completed the works. He explained that the defects liability amount is meant to be only 5 per cent of the total contract amount, saying the government’s conduct was unacceptable.

“First in the contract we did not there is a requirement that the employer can withhold any money for defects. Defects will be covered by retention money only. That is the function of retention money but the employer cannot withhold double the price. You cannot withhold double payment where you have retention money, you withhold another money for defects. That is not acceptable,” Xia said.  

The meeting agreed that the ministry of Energy writes to the solicitor general for legal interpretation to help sort the impasse. Kadaga asked how the contractor would be able to present their side of the story.

Mutikanga noted that the contract provides for a dispute adjudication board that has a representative of both parties and a neutral member agreed upon by both parties to solve any dispute that may arise.

The parties agreed that Kadaga writes to the Energy ministry asking the permanent secretary to seek the Solicitor General’s legal interpretation of the impasse and demand a response within two weeks.