[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.]
By
Edward Wong
 |
|
An access tunnel in the
Karuma hydroelectric power station project, which is under
construction on the Nile
in northern Uganda. A Chinese contractor is building
the power station, the
first of its kind in Africa. Credit Joao Silva/
The New York Times
|
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.
China’s investments in Africa are central to
President Xi Jinping’s signature Belt and Road Initiative, a trillion-dollar
program to build infrastructure and extend Beijing’s influence around the
globe.
The Trump administration has accused China of
engaging in predatory lending aimed at trapping countries in debt, acquiring
strategic assets like ports, and spreading corruption and authoritarian values.
In response, the United States has announced an effort to help American
businesses compete.
“We’re streamlining international development
and finance programs, giving foreign nations a just and transparent alternative
to China’s debt-trap diplomacy,” Vice President Mike Pence said in a speech in
October. The White House has also unveiled an Africa strategy aimed at China.
The idea is to challenge China’s
infrastructure program while also pushing back against its trade practices,
cybertheft and expanding military facilities and presence in the Pacific and
Indian Oceans. But the threat posed by the Belt and Road Initiative to American
interests is debatable, and it is unclear how far the United States should — or
can — go to compete. The funds set aside by the Trump administration amount to
just a fraction of Beijing’s commitment.
In Africa, American businesses have been
largely absent while Chinese companies have put down roots, nurturing powerful
allies through both legitimate and illegal means. Some target individual
African officials and their family members with cash bribes or deals for
services, like legal representation or insurance.
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.
Scramble
for a Prize
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.
Ms. Jandhyala, 53, heard about the plans on a
scouting trip to Uganda in 2016, her first visit since working for the Ugandan
prime minister’s office a decade earlier as an adviser on a peace process to
end an insurgency.
From a shared work space in Washington, she
recruited partners for what she hoped would be the first project for Yaatra
Ventures, which she founded in 2015 to invest in African infrastructure.
“With G.E., here was an American company that
could bring capabilities,” she said.
She was not alone in sensing the opportunity.
Uganda received more than 40 proposals to build the refinery.
Leading one bid was Dongsong, a private
hydropower and mining company in the southern Chinese city of Guangzhou. A
proposal made outside formal channels came from the China National Offshore Oil
Corporation, or CNOOC, the country’s third-largest state oil company.
Both companies had offices in Kampala, the
capital of Uganda, and had worked closely for years with the Ministry of Energy
and Mineral Development. Dongsong was building a $620 million phosphate mine
and fertilizer factory in eastern Uganda. CNOOC was one of three foreign
companies that had struck deals to extract oil.
But their proposals included tough terms,
according to interviews and an internal government assessment reviewed by The
Times.
Dongsong wanted a sovereign loan guarantee —
making the Ugandan government responsible for the project’s debt if it failed —
and insisted that 60 percent of labor and materials come from China. CNOOC,
meanwhile, wanted greater access to the oil fields themselves.
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.”
‘Remember
My Name’
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.
But Dongsong’s presence in Uganda has been
laced with controversy.
In 2016, the Ugandan inspector general’s
office concluded that its mining license had been acquired through fraud and
recommended it be revoked, according to the inspector general’s report.
(Officials never did.)
Dongsong has also been accused of fraud in a
lawsuit by one of Mr. Lü’s early partners in Uganda, and it is mired in
property disputes around the mine. In 2017, two finance ministry officials were
arrested on suspicion of demanding and accepting bribes from Dongsong.
The company has faced problems in China as
well. A court in Hebei Province said last year that Mr. Lü had set up a shell
company to pay bribes to two state bank officials who were convicted on
corruption charges.
Mr. Lü denies any wrongdoing, and his legal
problems do not appear to have bothered Ugandan officials. They put Dongsong’s
refinery proposal on their short list and traveled to Guangzhou in 2017 to
conduct due diligence interviews.
Mr. Lü impressed the team with slick
presentations and punctual shuttle buses, an official on the trip said. The
team noted that Dongsong’s consortium included a Chinese state company with experience
building refineries in Africa.
Dongsong also secured a promise of financing
from one of China’s largest state banks — as long as Uganda guaranteed the
loan.
The model is common across Africa, where
loans from Chinese state banks have financed a construction boom, largely by
Chinese companies and workers. These loans generally have tougher terms than
World Bank aid packages. Though interest rates can be low, recipients must
repay the loans much faster, according to AidData, a research center at William
and Mary, a university in Williamsburg, Va.
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.
Americans
in the Arena
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.
The Commerce Department also determined the
project was in the “national interest,” giving the United States Embassy in
Uganda permission to lobby for it.
The United States ambassador, Deborah Malac,
said she made the case for the American consortium with the energy minister,
Irene Muloni, whom she described as resistant. She also spoke to Mr. Museveni a
dozen times, she said. Commerce Secretary Wilbur Ross sent two letters and
called.
“There were a lot of interested parties
beholden to the Chinese who tried to derail the process,” Ms. Malac said.
Among the skeptics was Sam Kutesa, the foreign
minister, she said.
Last December, a New York court convicted a
representative of a Chinese energy company of paying bribes to African
officials, including $500,000 to Mr. Kutesa. In an interview, Mr. Kutesa
described the payment as a donation to his foundation and said he did not have
a strong view on who should win the refinery project.
In Uganda, all major decisions end up before
Mr. Museveni. Officials jockey for his ear, and the president is adept at
playing them off one another.
That gave the Americans an opening. Despite
naysaying by energy officials, Mr. Museveni liked the idea of balancing the
Americans and Chinese in the oil industry, and he was intrigued by G.E.’s
involvement, Ugandan officials said.
Last January, he called the meeting at Lake
Victoria and forced energy officials to sit down with Ms. Jandhyala and her
partners. He then got cabinet approval. The deal was signed in April.
“I think the big lesson is that we have to be
aggressive,” Ms. Malac said. “We have to be willing, as the U.S. government, to
find our opportunities to advocate on behalf of our companies.”
Abigail Grace, a researcher at the Center for
a New American Society who worked on the White House National Security Council,
said American diplomats around the globe should be trained to deal with China
issues.
“This example shows that despite the idea
that China might prevail, we can win if we get our act together,” she said.
In October, President Trump signed a bill
creating a new agency to replace the Overseas Private Investment Corporation
and give out $60 billion in financing — double the previous amount, though
still a fraction of what China has pledged to spend.
Meanwhile, G.E. has begun selling its stake
in the oil field services company in Ms. Jandhyala’s consortium. Its exit could
weaken Ugandan confidence in the deal, and there is still uncertainty about the
group’s ability to secure financing.
The Chinese appear to have moved on. Mr. Lü
said he planned to open a mine in Mozambique. And in September, CNOOC got what
it really wanted: Uganda agreed to give it a new parcel to explore at Lake
Albert.
At the Beijing signing, Mr. Museveni and Mr.
Kutesa smiled as they shook hands with Chinese executives.
Lydia Namubiru contributed reporting from
Kampala, and Keith Bradsher from Guangzhou, China. Research was contributed by
Ailin Tang from Guangzhou and Shanghai, Luz Ding from Beijing, and Kitty
Bennett from Washington.
