Inflated Deals Create Debt Trap For Future Generations: Analysts

UNLESS Lesotho governments refrain from the habit of awarding grossly inflated tenders for various infrastructure projects, future generations will be caught up in a massive debt trap which will only impede the country’s development, analysts have warned.

The warning comes against the background of the Lesotho Times’ recent exposé of a massive scandal in which the previous Thomas Thabane administration allegedly agreed to a grossly inflated M2, 8 billion deal with a Chinese contractor for the construction of a 70-megawatt (MW) solar power generation project at Ramarothole, Mafeteng.

The project has now been inherited by the current Moeketsi Majoro-led government after the collapse of the Thabane administration in May this year.

Well-placed sources in the solar power generation industry told this publication that it only costs US$1 million (about M16, 29 million) for the infrastructure to produce 1MW of solar power yet the government had agreed to an inflated cost of US$2,5 million per 1MW.

This means instead of paying US$70 million (about M1, 1 billion) for the Ramarothole project to produce 70 MW of electricity, the government will in the end pay US$175 million (about M2,8 billion), a humungous rip off of poor Basotho.

According to ‘Mathabo Mahahabisa, the chief accounting officer of the newly formed Lesotho Electricity Generation Company (LEGCO), which is overseeing the project, the government will pay US$70 million for phase 1 of the project which is expected to produce only 30 MW of electricity.

She said the costs of the second phase of the project, which will generate an additional 40 MW, will be determined “taking into consideration current trends in solar generation environments”.

However, the well-placed sources said the government had already agreed to pay M2, 8 billion for the whole project. They said the project has been grossly inflated all because the contractor, Sinoma Tbea Consortium, allegedly made underhand payments to then Energy and Meteorology Minister, Mokoto Hloaele, who allegedly facilitated the deal.

Mr Hloaele has since denied receiving a M400 million bribe along with former First Lady ‘Maesaiah Thabane and others to facilitate the solar power deal with Sinoma Tbea.

He instead challenged Development Planning Minister Selibe Mochoboroane to explain how Lesotho agreed to the deal, saying it was Mr Mochoboroane and not him who signed the cooperation agreement for the project with Sinoma Tbea.

He said the solar power deal was initially agreed with Sinoma Tbea during the tenure of the Pakalitha Mosisili-led seven parties’ government when Mr Mochoboroane was Energy and Meteorology minister in 2016.

Mr Hloaele said a financing agreement for the project was agreed during the time of the previous Thomas Thabane administration when Dr Majoro was still finance minister.

Even though the financing agreement was signed by Dr Majoro, he was merely approving figures which had been suggested by Mr Mochoboroane, he said.

Therefore, Mr Mochoboroane is better placed to explain why the project cost that staggering, he said. He disputed the M2, 8 billion amount, saying to the best of his knowledge, it would only cost M1, 8 billion. He said this could be verified with the energy ministry.

He also said the project was necessary given that Lesotho was importing power at a huge cost.

Although there is a dispute over who actually initiated the solar power deal with the denials and counter-denials, what is not in dispute is that the project is grossly inflated.

Worryingly for Basotho, this is not the only deal which has been grossly inflated by government officials to enable them to receive massive kickbacks.

Another massively inflated is the M300 million tender for the production of electronic national documents awarded to shadowy Israeli company, Nikuv International Projects, by the then Pakalitha Mosisili-led government.

The Israeli firm was controversially awarded the lucrative contract to computerise the country’s border-control system and produce electronic passports, birth and death certificates and national identity documents without going to an open public tender in 2012.

Nikuv was later convicted and fined by the Tel Aviv Magistrate’s Court on 15 December 2016 for bribing Lesotho’s then Home Affairs principal secretary (PS) Retšelisitsoe Khetsi to influence the awarding of the M300 million tender.

As part of a plea deal, the court fined Nikuv NIS 4.5 million (about M16.4 million) for bribing Mr Khetsi.

In addition to the fine and forfeiture of assets, the company was ordered to cooperate with law enforcement authorities in Lesotho investigating the case, as well as revise its internal policies in order to prevent future cases of bribery.

Mr Khetsi was arraigned before the Lesotho High Court in 2016 for allegedly receiving a M5 million bribe from Nikuv and the case still has not been concluded.

According to an economic analyst, Letsatsi Sephepha from TKM Consultancy, the Nikuv and Sinoma Tbea tenders are just two out of several examples of inflated projects entered into by different Lesotho governments without any regard to the consequences for this and future generations.

Mr Sephepha said corruption in the awarding of public projects is “a cancer that is causing all sorts of problems for the country”.

“Corruption can cause serious delays in completing the projects as the government officials and investor often take time haggling over the size of bribes to be paid to government officials to facilitate the tenders,” Mr Sephepha said.

“The project can even be abandoned where government officials are not happy about the size of the bribe.

“The agreement for the Mafeteng solar energy project was signed in 2012 but eight years later the construction work hasn’t even started. My suspicion is that the project has been delayed due disagreements over the size of the bribe.”

Mr Sephepha said corruption also burdens the country with debts that will have to be paid back over many years by future generations.

“Inflating project costs also burdens the country with a heavy debt. An M15 million debt can rise to M25 million as a result of add-ons to cater for briberies. This can lead to a situation where future generations in the country will be at the mercy of the creditor as they will have to pay back loans advanced for the project over many years. The repayments will also include interest for the inflated costs of the project.

Another analyst, Thabo Qhesi, the chief executive officer of the Private Sector Foundation of Lesotho (PSFL), concurred. He added that inflated project costs also compromised the country’s ability to raise critical loans for other projects in future.

“Incurring massive debts due to inflated costs will cause the country to pay back its debts. When it is saddled with huge debts, the country’s creditworthiness will be negatively affected and therefore it will struggle to get loans from multi-lateral funding institutions and other countries to fund future projects.

“The state of Lesotho’s debt portfolio is already a cause for concern. We have already been warned by the International Monetary Fund (IMF) about reckless borrowing,” Mr Qhesi said.

The analysts are not the only ones who are skeptical of the solar power generation deal with Sinoma Tbea.

Even Development Planning Minister Mochoboroane has spoken out against it saying it was one of the projects which were “ill-conceived and politically motivated”, hence the delays in implementing them.

“The Maseru Hospital and Eye Clinic and Ramarothole solar projects have been included in the last three financial budgets. But I have realised that some of these projects were politically motivated hence they are taking longer to be implemented because of their top-down approach.

“Funding was sourced prematurely without following the proper procedures. These two are some of the many overdue projects but I hope they will soon be implemented,” Mr Mochoboroane said last month.

Another analyst, Sello Sello, said government officials to agree massive deals with dubious companies like Nikuv was a clear sign that they preferred to deal with shadowy companies who could always pay them massive bribes unlike “credible entities with untainted reputations”.

“There are no prizes for guessing why government officials would choose to do business with dubious companies like Nikuv. Such companies will always be willing to pay officials to get contracts. You only have to look at Nikuv’s record in various African countries to see that they have always been followed by scandal.

“while striking deals with them may fatten the pockets of corrupt government officials, this, unfortunately, leaves behind huge debts which future generations will have to deal with,” Mr Sello said.

He certainly has a point concerning Nikuv as the following summary of its track record in various African countries will show.

Other dodgy deals involving Nikuv on the continent

A 2013 investigation by top South African investigative journalism centre, Amabhungane, discovered that Nikuv had been awarded several questionable tenders in several African countries.

In all instances, there were no records of the tenders having been awarded through an open bidding system but rather through a questionable selective tendering system. Without accountability, the selective tendering system allowed the company to bribe senior government officials as it did in Lesotho or simply make other unquestionable payments to state enterprises which could also have been bribes for government officials in Zimbabwe.

In Zambia, where Nikuv was brought in to manage and computerise the voter registration exercise, the opposition United National Independence Party (Unip) accused then ruling Movement for Multiparty Democracy (MMD) of trying to rig the 1996 election with the company’s help. Unip eventually boycotted the poll.

The Zambian opposition also accused Nikuv of landing the contract without proper tender procedures. The process was allegedly managed by the office of then Vice-President Godfrey Miyanda rather than the electoral commission.

The Zambian High Court found that the registration process was flawed but that there was no evidence that a majority was built in for the ruling MMD. Nevertheless, the Nikuv voters’ roll was later scrapped.

Nikuv’s first Zimbabwean contract appears to have been a Z$15 million deal signed in November 1994, reportedly to computerise the ministry of home affairs, the census office and the election system.

Years later, Nikuv was accused of manipulating the 31 July 2013 general elections in favour of then President Robert Mugabe and his Zanu PF party.

At the time, this reporter’s investigations revealed that Nikuv was paid at least US$10 million by then Zimbabwe Registrar-General Tobaiwa Mudede’s office in a blitz of mysterious deposits between February and the day before the July 2013 polls.

Sources in Mr Mudede’s office said the payments were for Nikuv’s role in manipulating the voters’ roll in favour of Zanu PF.

Similar dodgy power deals that Lesotho could learn from.

A 2016 investigation by this reporter on Zimbabwe’s power generation projects revealed that the costs of building the projects had been inflated by a staggering US$500 million.

This raised suspicions that senior government officials and top managers in that country’s power utility, the Zimbabwe Electricity Supply Authority (Zesa), could have corruptly benefitted through the price escalations.

To this date, Zesa is still rocked by massive tender scandals in which government has entrusted the country’s critical multi-billion-dollar energy projects to dodgy businessmen.

For several years, Zimbabwe has been planning to construct three solar plants, each generating 100 megawatts. The initial cost, as of 2014, was US$183 million for each of the projects bringing the total cost to US$549 million.

The solar tenders were won by China Jiangxi Corporation (CJC), ZTE Corporation and Intratrek Zimbabwe (Pvt) Ltd owned by controversial Harare businessman Wicknell Chivayo.

Soon after winning the tenders, the companies demanded price escalations, resulting in the projects being pegged at US$240 million each, bringing the total costs to US$720 million. This meant a variation of US$171 million from the initial costs.

At the time, Zimbabwean government officials said the country initially planned to have one, 100MW project, which was won by CJC. But for unexplained reasons, Intratrek and ZTE, who had lost in the initial bids, were brought back into the picture and subsequently awarded tenders.

Zimbabwe is also working on the Kariba South Power Expansion project and the Gairezi Hydro Project. Former Energy minister Elton Mangoma, who negotiated the deals, later revealed the projects costs were also heavily inflated by his successors in the Zanu PF government.

Mr Mangoma said the inflation of costs was clearly done to cater for bribery and kickbacks for corrupt officials.

The Gairezi Project was awarded to a consortium led by Chivhayo’s Intratrek. Mangoma said the Gairezi project cost had shot up to US$248 million, up from the initial US$90 million. This created a variance of US$158 million.

The Kariba South Power Extension project, which was officially commissioned by President Robert Mugabe in September 2014, was initially pegged at US$355 million, but shot up to US$533 million. The cost escalation was US$178 million.

The inflated costs in total amount to US$507 million.

The costs for the solar projects were adjusted in 2014 when former Energy minister Dzikamai Mavhaire was at the helm of the ministry. The prices were escalated despite some experts in ZPC arguing it would make more economic sense to fund reputable alternatives, including the Hwange Thermal project which required US$400 million to produce an additional 300 megawatts.

The solar projects at current costs require US$720 million to generate 300MW, meaning ZPC could have saved US$320 million.

Despite being agreed way back in 2014, none of the projects have been completed. Lesotho could go the same way of serious delays and massive add-ons if government does not change tack and start dealing with reputable companies.