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* Chinese companies winning many large infrastructure contracts
* Possible deal dismays western diplomats
By Elias Biryabarema
KAMPALA, July 29 (Reuters) - The Ugandan parliament is in talks with a Chinese company on buying out the debts of legislators facing high repayment fees on loans taken against their salaries, a member of parliament said on Monday.
The arrangement has been criticised by diplomats and rights groups, who say Uganda is giving too much leverage to China as its companies secure many infrastructure and oil contracts.
Emmanuel Dombo, an MP who is a member of the parliamentary commission which administers the house, said some legislators were in financial distress from high-interest loans contracted from banks and money lenders.
"We're discussing with a Chinese company which has access to cheap money from Chinese banks so that they can come in then buy and restructure these loans," Dombo told Reuters.
He declined to name the company in question.
China is the biggest financier of major government infrastructure projects in Uganda. Several large contracts have recently been handed to Chinese state-owned companies, with almost all the deals sweetened with cheap but conditional credit.
Rights groups say China bailing out MPs would compromise lawmakers who have to approve the terms of all loans the government of Uganda contracts from China.
Western diplomats have also voiced concerns about the deal.
"It's clear this makes a mockery of Uganda's independence and may not serve the long-term economic interests of the country," said one senior western diplomat in Kampala.
A Ugandan legislator earns a gross salary of about 20 million shillings ($7,700) every month, roughly 50 times higher than the average wage but dozens are reportedly struggling with their finances after taking loans linked to their salary.
Local media reports suggest about 40 MPs were taking home nothing at the end of every month after loan repayment deductions from their salaries while another 50 were receiving less than one million Ugandan shillings.
Dombo refused to disclose how many legislators in the country's 383-member House were indebted but local papers have reported that most MPs took on loans tied to their salary at the start of their five-year terms.
Dombo said the burden of payback overwhelmed most legislators when banks increased their interest rates on the back of soaring inflation in 2011, the same year they were elected into the parliament.
"Members have become indebted because our electorate are poor, they expect a lot from us, so members take on these loans to help these people but end up overwhelmed," Dombo said.
Godbar Tumushabe, executive director of Advocates Coalition for Development, a Kampala-based economic think-tank, said Ugandan MPs would not be able to vet Chinese loans objectively if they have been bailed out by China themselves.
"It is absurd", Tumushabe said. "These are the same people who are supposed to guard the economic interests of the country."
Chinese oil explorer China National Offshore Oil Corporation (CNOOC), along with Britain's Tullow Oil and France's Total, is currently negotiating with Uganda the terms of a project involving a refinery and a pipeline.
China has also given Uganda $500 million worth of credit each to two hydropower dams to be developed on the River Nile and both projects have been given to Chinese state-owned firms.