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UGANDA: Regime loads up on more debt to tune of UGX 2.2 trillion – SOMEONE SEND MEMO TO IMF!

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Will Shs2.2 trillion phosphate project turn around Uganda’s fortunes?

Unique. An artistic impression of the Osukuru phosphate industrial project in Tororo District. PHOTOS BY ERIC DOMINIC BUKENY

DAILY MONITOR – It is a busy sunny January day at the site of the proposed Osukuru comprehensive development project on the outskirts of Tororo Town at the Uganda-Kenya border.
Graders and excavators level a yard the size of seven football fields as tractor front loaders bundle murram onto large Isuzu trucks. In front of the levelled yard stands a storeyed complex due for completion in a few weeks, with masons balanced on scaffoldings to spray the first coat of paint on the exterior.

On another side, a construction crew is fitting steel purlins for a new structure we are told will double as a service and fuel pumping station. Within a spitting distance, a smaller yard is being cleared to make way for a proposed 132kilovolt (Kv) sub-station that will power the planned ‘mega’ industrial complex.

The site stands still, about 11km from Tororo Town, off the Jinja-Tororo highway – about 5km on the less busy but dusty Busia-Tororo road.
In the background lies the rugged verdant Osukuru hills that ordinarily pass as mere nature’s beauty but buried deep inside are large volumes of iron ore estimated to a tune of 213 million tonnes, and 75 million tonnes of phosphorite, which is associated with, among others, 1 million tonnes of rare earth, 429 tonnes of niobium and other metal resources.

“The dry season is good for the construction, and we are doing everything possible to kick off and complete the phase before rains start,” says Dongsong’s chief executive officer Guo Yaqiong. “And since we are digging up a lot of murram, you know what happens when the rains start,” she adds.

The target, Ms Yaqiong says, is to have the plant running “by the end of the year with full-scale operations.”
M/S Guangzhou Dongsong Energy Group Company Limited arrived on the stage in 2012, embarked on geological explorations of the hills to verify the reserves, and a year later, was awarded a 50-year licence for the Osukuru hills. The licence covers an area spanning 265square kilometres.
The company signed a mineral development agreement with government to establish the Osukuru comprehensive plant that will comprise a fertiliser manufacturing plant (from phosphate) and a steel plant from the vast iron reserves.

The agreement spells out obligations of the two parties, with government required to provide necessary assistance to Dongsong during the implementation of the project. It is for that matter, highly placed sources in ministry of Energy say, President Museveni is very “enthusiastic about the project” and in fact is said to regularly check on its progress.
When in 2016 Inspector General of Government Irene Mulyagonja recommended for revocation of the mining licence after investigations pointed at company officials to have colluded with top Energy ministry staff, the President thwarted such attempts, telling a meeting at State House that he does not “want such things which disorganise my investors,” sources told this newspaper at the time.

Commitment. Construction works at the fertiliser and steel manufacturing plant overlooking Osukuru hills in Tororo District.

Other assurances include providing land for the project. Already, 600 acres of land was allocated to construct the proposed dressing plant (where the ore will be separated), fertiliser and steel factories, and another plant for brick baking from the residues. Dongsong contracted fellow Chinese-based Yunnan Geological Research Bureau to undertake additional exploration and sample analysis of the ores.
According to Ms Yaqiong, the results showed that the iron and phosphate rocks buried in the hills are of “high grade” but intertwined, “which posed” significant challenges to separate them. This explains the planned dressing plant, and partly why it took the company long to get its foot off the ground as it figured a way out.

The company does not have current plans to venture into processing of rare earth metals, which Ms Yaqiong says will be piled on the side, pending more discussions with government for a way forward.
The entire project, according to various government briefs and the company, is up to $620m (Shs2.2 trillion). The money is mobilised from Industrial and Commercial Bank of China (ICBC), said to be the world’s most valuable bank by market capitalisation, and it is also lately involved in the proposed East African Crude Oil Export pipeline from Hoima to the Tanzanian ocean port of Tanga.

Previous attempts that never were
Phosphate, the mineral used in manufacturing of fertilisers, was first mined in Uganda in 1939 from small open pits on Busumbu ridge in eastern Uganda until 1963. The Osukuru deposits were discovered later in the 1940s during the search for limestone for cement manufacturing.
According to the online Uganda mining atlas, until 1956, the ‘hard’ phosphate rock was excavated, crushed and screened before being exported to Kenya for the manufacture of citric-soluble soda phosphate fertilizer using soda-ash from Lake Magadi.

“The undersized, fine phosphatic material was used as direct application fertiliser. From 1956 onward, the customer requirement changed and ‘hard’ phosphate rock was replaced by a blend of soft phosphate rock. This phosphate blend was upgraded using magnetic separation techniques,” the mining atlas notes in a brief on its website.
The annual production of Busumbu reached 6,000 tonnes and a total of 62,000 tonnes of phosphate concentrate was produced over the period that the mine was in operation. Former ministry of Energy Permanent Secretary Kabagambe Kaliisa, in the journal titled ‘Phosphate Deposits of the World: Volume 2’, wrote that during the 1950s, pilot plant studies showed that phosphate concentrate containing “phosphorus pentoxide” could be produced, and various plans and estimates for commercial plans were considered.

“However, none of the schemes proposed was found sufficiently profitable to attract private capital investment required.”
In 1961, Mr Kabagambe wrote that the Uganda Development Corporation announced development of the deposits on a smaller scale than earlier envisaged, and commercial operations in Osukuru began in 1962, with production reaching 30,000 tonnes in 1970.
“The output was consumed in a 25,000-tonne per annum superphosphate plant operated by the Tororo Industrial Chemicals and FertiliSer plant,” the journal reads in part, until it was closed down in the mid-1970s because of the difficulty in obtaining spare parts.

The first phase of the feasibility study by US-based Bearden-Potter Corporation, which recommended rehabilitation of the plant was completed in 1984 “with encouraging results” but no decision was taken to reopen the mines.
The World Bank-funded study also recommended that “the best option for the exploitation of the Osukuru hills phosphate deposits is to establish a single superphosphates plant with an annual capacity of 217,000 tonnes using sulfuric acid based on imported sulfur.”

Guangzhou Dongsong, a hitherto unknown company, in 2013 beat the Canadian-Ugandan registered M/s Frontier Exploration, which claimed that due processes were deliberately short-circuited to favour its Chinese competitor to the mining license for the Osukuru hills.
Later the directors of the company, who included Ms Fang Min, the proprietor of the Fang Fang restaurant chain and was their local fixer for the deal, fell out over shareholding, which set in motion a protracted legal battle that is still ongoing. This is one of the headwinds that has dragged the entire process.

Then in 2014, several Tororo residents living near the proposed site threw the spanner in works over unfair compensation for their land and accused the company of unscrupulous practices, which both Ms Yaqiong and the company’s lawyer, Mr Denis Kusasira, denied.
“The law provides that compensation should be fair and adequate. So, compensation is not supposed to make affected persons rich, neither is it supposed to make one worse off, but restore the person to be able to re-establish themselves,” Mr Kusasira said. 

Progress. Construction works at the project site in Osukuru, Tororo District.

“But I believe we dealt with the process in a very fair manner.”
He said the 2013 rates by the Tororo District administration were exorbitant and were not approved by the chief government valuer, who came in later in 2014 with compensation rates for the district, which were used for payment towards end of 2014.
Part of the other land needed was occupied by the National Livestock Research and Resource Institute, an affiliate of the National Agricultural Research Organisation (NARO), which meant back-and-forth haggling between the Agriculture and Energy ministries to reach a bargain. The process was concluded early last year and Dongsong got access to the land.

The proposed complex will sit on 26.5 square kilometres in Osukuru Sub-county and the neighbouring Rubongi Sub-county.
Mr Kusasira said it was agreed that NARO be allocated the land equivalent to 600 acres elsewhere.
Since 2013, Ms Yaqiong explains that the company, which operates several businesses in coal mining and real estate back in China, embarked on geotechnical studies on the site of the proposed plant and analysis of the suitability of the phosphate ore on the Ugandans soils for fertilisers.

Although the Osukuru project is hooked on manufacturing fertilisers, Ms Yaqiong indicates that “manufacturing high grade steel” from the vast iron deposits makes the “strongest business sense” especially against backdrop of the ongoing construction bonanza in the country.
Uganda’s iron and steel product imports average to around 440,000 tonnes, according to the National Planning Authority, at a bill of Shs1 trillion. On the other hand, exports average to around 200,000 tonnes or Shs314b.
“The steel mill is the centre of everything,” Ms Yaqiong says during a guided tour of the site. The main hiccup is the key ingredients needed to produce the said “quality steel” such as coal, which has to be imported from their operations in China. She says they also need limestone, which they will have to import.

“In fact, it is the steel mill that has delayed us; before we were using technology that uses coal whose prices kept fluctuating, which means running an expensive operation but now that coal prices world over are falling due to the clean energy campaign, we are now certain.”
“The limestone in Uganda is good but only for cement manufacturing. Kenya too has some good limestone but we are still looking into where to get it from.”
Dongsong says it plans to manufacture bio-organic fertlisers, whose trials have been so far made on among other crops potatoes, vegetables, tea and rice in different parts of the country.

The problem though is that Uganda, according to the International Food Policy Research Institute, has one of the highest soil nutrient depletion rates in the world but at the same time with the lowest rates of annual inorganic fertiliser application (only 1.8 kg per hectare), a fact that both Ms Yaqiong and Mr Kusasira acknowledge.
In fact, Ms Yaqiong adds that “only commercial agriculture in Uganda is known to embrace fertilisers”, which explains the plan to start with small size operation. That notwithstanding, their target is to produce for the East Africa region.

“To manufacture fertilisers, you need to sulphur and it is not available in Uganda and neighbouring countries, so it has to be imported, which is very risky. So we have to process it from here,” she says.
For steel, which makes stronger business sense, she says they plan to produce 500,000 tonnes per year—from hoes, iron bars, etc.
Six years down the road after getting the licence, butting heads with bureaucracy from one office to another, and laying ground for the much awaited venture, Ms Yaqiong says they do not envisage any setback to hold back progress, going forward.

Full development of the project would represent an important step in the faded mining sector that is, among others, reeling from decades of neglect, grappling with setting up competitive infrastructure to attract private investors, and overhauling legislation to make it competitive.
Being their first project outside China, Dongsong is upbeat about the future. But whether everything will go according to plan or they can live up to the task is another aspect that only time will tell.

Details of the contract
Survey. In 2012, M/S Guangzhou Dongsong Energy Group Company Limited embarked on geological explorations of the hills to verify the reserves.
Contract. The company signed a mineral development agreement with government to establish the Osukuru comprehensive plant that will comprise a fertiliser manufacturing plant (from phosphate) and a steel plant from the vast iron reserves.

Funding source. The $620m (Shs2.2 trillion) is mobilised from Industrial and Commercial Bank of China (ICBC), said to be the world’s most valuable bank by market capitalisation.
Minor setback. The problem though is that Uganda has one of the lowest rates of annual inorganic fertiliser application. To manufacture fertilisers, the company must first process sulphur.

In Part Three tomorrow, we look at the haunting legacy of Kilembe mines

—— AUTO – GENERATED; Published (Halifax Canada Time AST) on: May 29, 2018 at 09:31AM

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