Covid-19: Potential Issues For Project Finance Transactions In Uganda
30 April 2020

Project finance transactions are built around an intricate web of rights, duties and obligations that spring from a suite of agreements cutting across diverse parties. The parties usually include the project company, project sponsors, lenders, contractors, suppliers, off-takers, insurers and government bodies, among others. In this review, we explore a number of issues that may take center stage for major parties in project finance transactions, due to circumstances arising from the COVID-19 pandemic.

Information Rights & Reporting Obligations

The major project finance documents usually contain information and reporting covenants. This is common in financing agreements, concession agreements, construction contracts and material permits / licenses. Such covenants may require a party to supply various periodic information such as audited financial statements, project activity reports, among others. A project company may consider examining the extent to which it may face constraints in meeting any such obligations that may fall due during this period. In some cases, the discharge of such obligations may be dependent on the work of third-parties such as external auditors and project technical advisors. A project company may have to closely engage such parties to remain on top of any potential constraints that could encumber the execution of activities required of them during this time.

In addition, project parties may have to take extra vigilance in identifying potential developments that may trigger adhoc obligations to issue timely notifications and reports to other project parties.

Potential Project Delays

Disruptions to travel and transportation chains as well as the imposition of mandatory quarantine requirements on travelers into Uganda may lead to delays in the implementation of certain projects. Project companies may assess the extent to which any delays may in due course affect its achievement of key milestones within any deadlines prescribed under any concessions, licenses or other project documentation. Particular attention may also be given to potential consequences including any risk of loss and obligations or rights to payment of damages or penalties.

Project companies and sponsors may also examine any risk of exposure to delayed issuance of permits. In some sectors the process for issuance, renewal or variation of permits by regulatory authorities may involve the conduct of public consultations. Delays could arise where this involves the scheduling of public meetings, which may be difficult to execute under the prevailing circumstances.

Project companies will have to monitor the situation and determine whether the impact of any delays may (in addition to any other remedies) trigger a consequential request for waivers or variation of terms of any licenses, financing agreements or other project documents.

Loan Disbursement

Projects in the midst of loan disbursement may have to assess if the prevailing circumstances could affect any conditions for disbursement of the loan. The project company’s right to disbursement of the loan is often pegged to conditions that may include the absence of potential events of default or breach of material representations or warranties. A lender may also consider the extent to which it is entitled to exercise draw-stop rights in case of any material concerns on its part. A lender could also consider the extent to which it is entitled to require a project company to provide information on its plans for the management of risks associated with the COVID-19 pandemic.

Liquidity & Increased Costs

Some project companies and / or contractors may face increased costs and liquidity risk as a result of the impact of the COVID-19 pandemic, depending on the nature and duration of any hardship that may be encountered. The party to which such risk is allocated may envisage having to tap into contingency funds where available. A project company may on its part also assess the extent to which a remedy may lie in adjustments within the project budget or design. However, such variations may be subject to restrictions including the prior approval of other project parties.

In extreme cases, project companies may also explore the extent to which supplementary financing may be considered to cover cost overruns. Where such option is available, any existing financing documents would need to be examined for potential restrictions to additional indebtedness. It is however worth noting that in most projects the mitigation of risk associated with cost overruns would be through mechanisms structured into the project sponsor support documentation.

Force Majeure & Change in Law

Project companies and other project parties may have to consider the extent to which contractual force majeure provisions can be legitimately applied on account of challenges a project company or contractor may encounter in meeting certain contractual obligations during this time. Force majeure events would generally apply to events whose occurrence is unforeseeable and outside the control of the party seeking to have its obligations excused or suspended, as a result of constraints created by such event. Whereas force majeure clauses are common in project documents, their applicability in the current circumstances will largely depend on the wording of the contractual provisions and any interpretation accorded under law applicable. This would (inter-alia) determine the extent to which the scope of a particular provision extends to pandemics and similar circumstances. Parties may also have to ascertain the extent to which any relief under force majeure is subject to stipulated timelines and any obligations for the affected party to nonetheless take mitigation steps.

Further to the above, the government’s response to the pandemic, has seen the institution of mandatory legislative and administrative measures. In a number of projects, project developers may be contractually entitled to relief often from governmental counterparties, if exposed to loss occasioned by a change in law event. To that end, project parties may have to examine the extent to which this may apply to any circumstances encountered. Where some of the restrictions may have taken the form of de facto administrative orders imposed by any authorities, the parties may further examine the extent this could trigger similar relief for the project.

On the part of government, due consideration could be given to the extent to which any restrictive administrative directives and legislation could include curve outs aimed at minimizing any impact on the operations of key projects.

Perfection of Security

Most project finance transactions involve the creation and perfection of security granted to the lenders. This often includes security over project land and other assets, whose perfection in Uganda may involve travel to registries to attend to the submission of hard copies of documentation and further follow up. Parties seeking to perfect security may be hindered by directives restricting travel and limitations to the range of services offered at public registries. This may in turn lead to delays that may extend to the immediate aftermath of the lifting of restrictions, in the event that public registries resume full activity in the midst of a backlog of work.

Project Site Access

Lenders and other key stakeholders often undertake visits to the project site to assess the performance of the project and to appraise any circumstances over which a material decision may be required of the lenders. Any restrictions to domestic and international travel as well any potential public health concerns may have an effect on such activities. This could mostly affect projects that are internationally funded, which may have key decisions due from lenders, whose outcome was incumbent on such appraisal missions taking place during this period.

Government Support & Intervention

The structure of several project finance transactions includes contractual arrangements with government pursuant to which the latter assumes obligations to provide various forms of support during the life of the project. This may be set out in concession agreements, implementation agreements, government support agreements or other similar documentation. Project companies may consider the extent to which such provisions may be a source of special intervention and relief. This may include projects exposed to delayed issuance or renewal of permits and consents from governmental authorities during this period.


The potential issues for consideration by projects on account of the COVID-19 pandemic go beyond those highlighted in this review. On the whole, these may vary on a project-by-project basis. Concerted proactiveness by project companies, lenders and other parties will be required to effectively deal with issues that may arise from the crisis. However, some of our general recommendations are as follows:

    • Project parties should maintain a proactive approach in ensuring that they continue to comply with their obligations under transaction documents.
    • Project parties should examine project documentation and be kept advised not only on their potential obligations but rather any rights and potential relief or remedy they may be entitled to in relation to any developments and actions they may wish to take in the current circumstances and the immediate aftermath.
    • Lenders to projects whose activities may for any reason be evidently exposed to the impact of COVID-19 should consider the extent to which they require project companies to provide risk management plans adopted in response to such risks.
    • Regular communication should be maintained between major project parties including regulatory authorities in order to gauge and preemptively deal with the potential issues that may affect a project party’s ability to fulfill its contractual obligations.
    • Project companies may examine the extent to which any insurances in place may be helpful in providing redress for business interruption or other risks occasioned by a pandemic.

The information contained in this review is for general guidance and not a substitute for the need to get appropriate professional advice. If you require further information, please write to your usual contact person or either of:
Julius M. Musoke, Partner or Prisca Nagujja, Senior Associate