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Madhvani battles Chinese firm over phosphate plant


One of Uganda’s richest families is embroiled in a battle for a multimillion dollar mining project with a Chinese firm in a dispute that sheds light on how high-profile business deals are struck in Uganda, with allegations of bribery and biased government officials being peddled around.

The fight over the phosphate deposits at Sukulu in eastern Uganda, between Nilefos Minerals Limited, which belongs to the Madhvani family, and China’s Guangzhou Dongsong Energy Group Company Ltd could derail the country’s biggest mining project, and also leave the government embarrassed.

At the centre of the dispute is the claim that government denied Nilefos a mining licence over the mineral-rich Sukulu hills even after the company had spent money while carrying out studies on the prospects of phosphates in the area, and showed interest to carry out exploration. Instead, government decided to sign an agreement with Guangzhou for the undertaking of the project.

Kaliisa's son

Of much more concern, though, is Nilefos’ assertions that the permanent secretary in the ministry of Energy, Fred Kabagambe-Kaliisa, was biased as his son represented Guangzhou. The company also said the minister for Energy, Irene Muloni, was biased. Former Prime Minister Amama Mbabazi has also been accused of frustrating Madhvani’s ambitions over the project.

In his affidavit, drawn by M/S Karuhanga and Company Advocates, Nitin Madhvani, the chairman of Nilefos, writes that “prior to applying for an exploration licence, the 2nd respondent (Guangzhou Dongsong Energy) and its officials met me at Kakira and we discussed the Sukulu project in detail.”

However, he added: “The 2nd respondent then went to State House and asked the president to be granted right to the Sukulu project and thereby depriving the applicant of its property.” He later wrote: “The second respondent did not approach the instant matter with ‘clean hands’.”

In its defence filed in court, Young Hu, who heads Guangzhou Dongsong’s branch in Uganda, says that in 2013 the company’s representatives travelled to Uganda to explore business opportunities in the energy and mining sector.

During the visit, Guangzhou Dongsong’s officials met with Madhvani at his home in Kakira in which they proposed a joint venture under which the Chinese company was to contribute, among other things, half of the Shs 100bn meant to resettle project-affected persons.

Hu, however, says that upon conducting due diligence on the studies of Nilefos, they decided not to pursue any further discussions of a possible venture with the company. He explained that they couldn’t partner with Nilefos since it didn’t demonstrate technical competence to successfully undertake a project of that magnitude.

Besides, the Chinese said, it was risky to go into a venture with Nilefos since its retention licence was due to expire in about three months and was ineligible for further renewal.

Genesis

This is a story of how political brokers hold sway over huge lucrative projects, and how investors need a god father to succeed in this country.  Much of this story starts around 2008. Madhvani says that on June 24, 2008, the commissioner of Geological Surveys and Mines granted Nilefos a retention licence over the area after being satisfied that the company was able to fulfil conditions for the exploration.

After receiving the retention licence, the company says it completed bulk sampling, mineral evaluation, geological analysis and other studies on the deposit using various international laboratories in South Africa. From the studies, Nilefos was able to establish that there were 206 million tonnes of minerals.

Madhvani said Nilefos carried out exhaustive exploratory work “at a significant cost” to assess the potential of Sukulu. The company places this figure at more than Shs 24bn, which also includes exploration work.

Madhvani said he met Museveni and informed him of the challenges the company faced with the project. Consequently, Museveni wrote a letter dated September 24, 2008 to the then Prime Minister Apolo Nsibambi and directed that “the ministry of Finance should budget for the compensation money in the next year‘s budget but plans of resettlement should start now.”

However, the government did not allocate the money to the project as Museveni had directed.

Stiff resistance

Madhvani decided to use another option. The family would get a loan and finance the compensation process if government promised to pay back the money.

“That in order to move the project forward, the applicant approached dfcu bank and applied for the bank to arrange financing that would help the government pay tenants and repay the facility in a six-year period,” Madhvani said.

The government appeared to warm up to the idea that the then deputy Secretary to the Treasury, Keith Muhakanizi, agreed to the proposal and instructed Madhvani to negotiate with Uganda Development Corporation (UDC).

“That I know that after the commencement of our negotiations with UDC, a proposed memorandum of understanding for a joint venture structure was under consideration by parties and which required the approval of the minster of Trade and Industry.”

To finance the project, Nilefos said it brought together a consortium that included the Industrial Development Corporation, the African Development Bank, and the Gujarat State Fertilizer Corporation. Nilefos got a commitment of $200m for the project. Just as Nilefos was getting close to striking a deal with government, an underhand campaign to undermine this prospect went into overdrive, according to the affidavit.

Government had earlier claimed that the Sukulu area belonged to it through a company called Sukulu Fertilisers and Chemical Industries Limited. To protect government’s interest, the Office of the Prime Minister was handed the task of handling the matter.

Nilefos said their chances of getting a mining licence for the project were reduced because Amama Mbabazi, the then prime minister, could have had an interest for the project to go to the Chinese. (Different media houses have in the past reported that Mbabazi has connections with some companies from China.)

Madhvani says in a meeting in June 2012 in the boardroom of the Office of the Prime Minister, Mbabazi noted that “The Madhvani lease period is elapsing on June 22, 2013 and the government instead of being seen to frustrate it could wait until it collapses naturally.”

With Mbabazi seen to take sides, Nilefos did not have much luck with the ministry of Energy either, especially with the permanent secretary Fred Kabagambe-Kaliisa. The company said that Kaliisa’s son, Henry Kaliisa, is the chief executive officer of Abmak Associates, the law firm representing Guangzhou Dongsong.

Nilefos also said Irene Muloni, the minister of Energy, was biased in supporting Guangzhou’s plans for Sukulu. Madhvani said that Muloni’s decision of Nilefos’ administrative review over its project as Sukulu was “irrational, illegal, tainted with bias and prejudice, procedurally improper and full of factual and technical inconsistencies.”

Now, Madhvani is placing his hope in the courts of law. It might be late.

Too little too late?

After government offered Guangzhou the thumbs-up to carry out the project, Museveni launched it in August 2014. The Chinese firm said it would invest more than $600m in the project. They said the project would not only create more than 1,000 jobs but also earn Uganda Shs 1.6 trillion in taxes annually.

A few days before Christmas, government signed an agreement with Guangzhou, almost effectively ending Nilefos’ ambition to undertake the project. Now, government is looking ahead of what is to become of Sukulu.

According to government, when completed, the project would include a phosphate fertilizer plant with a production capacity of at least 300,000 tonnes per annum.

There will be a steel mill with a capacity of not less than 300,000 tonnes per year. A power plant of 12 megawatts will also be set up and a sulphuric acid plant, with a capacity of 400,000 tonnes per year, will also be established.

It will be interesting to see what happens if the Madhvani family succeeds in its court application and derails these plans.

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© 2016 Observer Media Ltd