Competing Against Chinese Loans, U.S. Companies Face Long Odds


KAMPALA, Uganda — Growing up in suburban Ohio, Rajakumari Jandhyala never imagined she would end up in the oil business, much less on the front line of America’s global competition with China. She spent two decades as a policy adviser on Africa, most recently as an aid official in the Obama administration.

But in 2016, she heard about a call for proposals to build an oil refinery in Uganda that could be the largest in East Africa, and she put together a bid. She landed an investor in Kenya. She recruited oil and gas executives from General Electric. An Italian contractor joined the group of companies that formed a consortium, too.

The main problem was the big advantages enjoyed by the competition: two Chinese energy companies, one of them a state oil giant with Beijing’s support.

China is aggressively seeking investments and contracts around the world, and perhaps nowhere is this more visible than Africa, where Chinese companies have won contracts to build dams, roads, stadiums, airports and railways. In country after country, governments have borrowed heavily from China to pay for these projects.

Ms. Jandhyala’s bid for the $4 billion refinery project was a case study in the long odds the United States faces as it tries to go head-to-head against China in infrastructure development — and in the conditions under which American companies could prevail.

The competition came to a head early last year, when Ms. Jandhyala and other consortium executives faced off in a conference room above Lake Victoria against Ugandan officials backing the Chinese companies. Uganda’s strongman president for the past 33 years, Yoweri Museveni, had called the meeting in his compound to try to resolve the bitter dispute.

In a sign of the intense infighting, Uganda’s domestic intelligence agency investigated three officials believed to favor the American consortium and questioned its ability to finance the project, according to a copy of the agency’s report reviewed by The New York Times.

In an April speech, Mr. Museveni praised Western companies for finally “waking up” to Africa. But he also noted that “the Chinese have already woken up — they are really, really, really very active and fast.”

“So why not take advantage of both?” he asked.

The African Great Lakes have long tempted outsiders seeking riches, including the European nations that began plundering the continent in the 19th century. But in 2006, four decades after the end of British rule in Uganda, a prize untapped by the colonialists was discovered: oil deposits by Lake Albert that are among the largest in East Africa, enough to transform parts of impoverished Uganda.

Mr. Museveni’s government negotiated for years with foreign companies before agreeing to a plan for extraction and the construction of a pipeline southeast to the Tanzanian coast, where the oil could be shipped around the world.

But Mr. Museveni also insisted on building a refinery in Uganda to ease the region’s dependence on imported fuel. The contract went to Russians at first, but they withdrew.

The American consortium tried to set itself apart, proposing that Uganda’s state oil company and other East African nations own up to 40 percent of a new private company that would build and run the refinery. The consortium would finance the project by selling shares to investors as well as by borrowing, but it was not asking for a sovereign guarantee.

The American proposal meant less debt risk for Uganda, but there were questions about the consortium’s ability to raise the money. The Chinese bids, by contrast, promised immediate financing from Chinese state banks. And at the energy ministry, officials were longtime proponents of Chinese companies.

“At the end of the day, we are developing a lot of capital-intensive projects,” said Robert Kasande, a top energy official. “We need the financing. The Chinese can do that.”

Ugandan soldiers with Kalashnikov rifles stand guard at Dongsong’s headquarters in Kampala, a hilltop villa with a swimming pool and sweeping views of the capital. Lü Weidong, the company’s founder, flies in several times a year.

“My biggest ambition is that when I walk into Ugandan villages, villagers line up and welcome me with applause,” he said at his China office, seated behind a rosewood tea table inlaid with carved dragons. “I hope to drive the industrial development of Uganda, and let the history of East Africa and Uganda remember my name.”

Slim, bald and vegetarian, Mr. Lü personifies Beijing’s “going out” strategy, which encourages Chinese businesses to establish footholds around the world. After focusing on domestic hydropower projects, Dongsong sought opportunities in mining overseas.

Mr. Lü, 50, a former bank manager who belongs to a political advisory body controlled by the Communist Party, said he ventured to Uganda after a chance meeting with the country’s consul general in Guangzhou. Soon, he got the mine deal. “Every decision is made by heaven,” he said.

That has left some nations at high risk of debt distress, analysts say. In Kenya, for example, a Chinese bank could take over a port if Nairobi defaults on a $3.2 billion loan for a railway project.

Uganda’s debt burden is manageable, analysts say, though the country has increased borrowing. From 2000 to 2014, it received at least $1.24 billion in Chinese loans, AidData said. In 2015, it agreed to borrow an additional $1.9 billion for two dams to be built by Chinese companies, and it now seeks a $2.2 billion loan for a railway.

Still, Mr. Museveni and other officials appear to be rethinking the nation’s reliance on China. While Western energy companies have also been implicated in Ugandan corruption cases, China took a hit in the most recent big scandal: In 2016, officials uncovered shoddy construction at the two dams, which remain unfinished.

And yet, Dongsong enjoyed unique advantages in the refinery competition.

Since 2013, it has retained Abmak Associates as legal counsel in Uganda, according to corporate filings.

The law firm’s chief executive is Henry A. Kaliisa, the son of Fred Kabagambe Kaliisa, who for more than two decades was Uganda’s most powerful energy official. He lost his job in the fallout from the dam scandal but still wields enormous influence.

The Ugandan team put the American consortium on its short list as well and also flew to Washington. Ms. Jandhyala and a financing partner, Ronald Mincy, hosted them in a shared work space. One official asked them, “Do you have money?”

In an internal report afterward, the team gave Dongsong a higher rating but also recommended inviting the Americans and Chinese to Kampala for parallel negotiations. The government set a date in June 2017.

But Mr. Lü asked whether Dongsong was the preferred bidder and declined to attend or send anyone. The Ugandan officials decided to enter final talks with just the Americans after they appeared.

In a letter to the Ugandan energy minister reviewed by The Times, Mr. Lü responded by threatening to challenge the process.

Around that time, the other Chinese bidder, CNOOC, quietly emerged with a late push to build the refinery and take control of additional oil fields. (CNOOC did not respond to written questions on the project.)

Ms. Jandhyala sought help in Washington.

The Overseas Private Investment Corporation, the American government’s development finance agency, could not commit to the kind of billion-dollar financing offered by Chinese banks, but it provided a letter saying it would consider lending $250 million and providing loan insurance.

“That lent confidence to other people,” Ms. Jandhyala said.


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