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What you need to know about the construction of the International Specialized Hospital of Uganda at Lubowa

Published 4 months ago -


On March 12th, Parliament passed a proposal to issue promissory notes to FINANSI/ ROKO SPV (Special Purpose Vehicle) Limited and this has sparked a number of controversies from the media, activists, some members of the opposition, Civil Society Organisations and public outcry in general. The Government of Uganda had approved the construction of the International Specialized Hospital (ISH) of Uganda in October 2014[1]. The approval followed the negotiations and agreements between Government and FINANSI/ ROKO Construction SPV Limited. The construction of the World-class hospital, according to the Ministry of Health, is meant to reduce expenses by the government on sending people abroad for medical treatment.

The Sequence of the Events

On 29th October, 20l4 a concept plan to finance, design, construct, equip and operate the hospital was submitted to Government and was accepted.

In November 2014, the project framework agreement was signed to guide the negotiation of the final Project Agreements.

In May 2015, the project works investment agreement (PWIA) was signed for the design, finance, and construction and equipping of a 240-bed hospital and staff training. It was agreed that construction would cost US$ 249.9 million and the financing cost of US$ 99.5 million.

In December 2015, the project services agreement was signed for the operation and maintenance of the hospital for a period of eight (8) years. It was agreed that Ministry of Health among others shall pay the hospital operations remunerations (management services remunerations) of US$ 5 million per quarter during the first year and USD 6 million per quarter in the following years. In addition, the Ministry shall pay annual operations services remuneration to be agreed upon by the Ministry of health and the Hospital.

On 27th January, 2016 Government entered into a Project Services Agreement (PSA) with the International Specialized Hospital of Uganda Limited to undertake the operations and facilities management of the hospital for a period of 8 years from the date of completion of the construction of the hospital from the date of completion of the construction of the hospital.

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In December 2018, the Direct Agreement was signed with the Project’s Promissory Note Funders.

On 12th February 2019, Hon Bahati, State Minister for Finance, presented the proposal to issue Promissory Notes not exceeding USD 379.71 Million to FINASI/ ROKO Construction Special Purpose Vehicle (SPV) Limited to Parliament which was referred to the Committee of national Economy for consideration.

On 12th March 2019, Parliament approved the proposal to issue the Promissory notes to FINASI/ ROKO after adopting the report by the Committee on National Economy.

Key things to note about contract between Government and FINASI/ ROKO

A Promissory Note commits government to pay an amount equivalent to its face value when its maturity period comes due.

Government has an obligation to issue a promissory note(s) to the company at every stage of implementation upon certified approved completion of each milestone. Consequently, a Milestone Completion Certificate shall be issued by Government within 2 days after receipt of the approved certificate.

The promissory notes shall be redeemable after the first two (2) years (after project completion) in line with the Promissory Note Redemption Profile Schedule-3 contained in the Direct Agreement (DA).

The Ministry of Health, which will be the owner of the hospital, will pay the SPV, through its annual budget, during the 8 years of operations.

The hospital shall be constructed on Block 269 at Lubowa Plot No.2772 which is owned by Uganda Land Commission (Ministry of Health), and it has no encumbrances.

The SPV is constituted by FINASI, as the Lender and the Ugandan construction company ROKO Construction Limited and will be incorporated in Ugandan law. ROKO will exit the SPV after termination of the civil construction.

The project model is based on a project financing plan, where the selected private bank (African Export-import Bank) will finance the total amount of the project to the SPV for a period of 2 years of grace and will be repaid through the following 6 years. The interest on the principal amount will be repaid starting from the second year.

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As a condition to the achievement of the construction effective date, the Ministry of Health and Ministry Finance upon request by the FINASI enter into Lenders Direct Agreement with finance parties, that is, African Export-Import Bank and Barclays Bank of Uganda.

The project financing plan includes; payment period of 6 years, grace period of 2 years, effective interest rate 6.49% and the borrower is SPV (FINANSI/ ROKO).[2]

The patient revenues generated by the hospital shall be paid into a revenue collection account, which shall be opened by the hospital under the instruction of the Ministry of Finance, Planning and Economic Development (MoFPED). The hospital revenues account shall be operated by MoFPED and the proceeds from that account sha11 be paid into the Uganda Consolidated Fund.

Conclusion

The construction of the International Specialized Hospital of Uganda is a very interesting project idea which has got its outstanding benefits that include; reducing government’s expenses on sending people for treatment abroad and promoting medical tourism. That notwithstanding, it remains unclear why Government made a contract with ROKO/FINASI before getting approval from Parliament. It is also uncertain why FINASI would run the operation and maintenance of the hospital for a period of about 8 years yet the project is expected to be completed in two years.

Although the proposal by Government was approved by the Parliament, some members of the National Economy Committee did not support it. They wrote a minority report and noted that there is no allusion or reference to on open bidding or competitive process from which FINANSI/ ROKO was evaluated for the job at hand. They also indicated that there was no Public Private Partnership arrangement towards the project.

References

[1] National Economy Committee Report, March 2019

[2] MoFPED, February 2019

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