STRATEGIC OIL RESERVE PROJECT

THIS has got to be by far one of the biggest capital projects that we have embarked on as a country. This has to be the single biggest contract that we have ever had to sign as a country. In as much as a strategic oil reserve project is critical to the country and the needs of the economy, I am worried about the cost overruns that will be associated with the project. Just recently, we read that the FISH costs the taxpayer E10million per month due to delays. It is frightening to even envisage how much the cost overruns on this project will amount. It is imperative that before we engage nor embark on this project, we put structures in place that will ensure that the project starts in time and is completed in time or before time. Today I will weigh in on the important steps that we need to put in place before we embark on the strategic oil reserve project.

Fund the project

It is important to ensure that funds for the project have been secured and committed to the project. We need to minimise disruptions to the projects timeline due to lack of funds to execute the project. It is imperative to ensure that the funds for the project are mobilised and committed apriori, as this gives financial assurances to contractors; engenders credibility and trust among stakeholders. Ensuring effective planning and potential crunching of project timelines reduces the risk of cost overruns. Lastly, funding commitments ensure for economic stability as it provides for clear commitment and avoiding the negative impacts of unfinished projects on the economy. Also, we call on government to establish separate accounts from projects, independent of the consolidated accounts.

Separate project account

Governments having separate project accounts, apart from the consolidated fund, cultivates transparency and accountability as separate accounts allow for clear tracking of funds allocated to specific projects, making it easier to monitor expenditures and ensure that money is spent as intended. Furthermore, separate accounts contribute to improved financial management by providing detailed insights into the costs and revenues associated with individual projects. Ultimately, resulting in enhanced oversight over the project as independent external audits can be easily done on separate accounts. Having a separate account for each project reduces the risk of corruption. Lastly, having separate project accounts enhances resource allocation. Through separate accounts it is easier to make informed decisions on resource allocation, ensuring that funds are directed to projects that deliver most value. Once we get these two components in place we need to work on the contract. Sadly, at this point the contract has been signed and there is virtually nothing that can be done about it to this point. However, we need to structure the contracts to ensure that taxpayer funds are protected from negligence on the side of the contractor and that the project is finished within the timelines and costs.
The contract
The contract should be designed in a manner that ensures timely and cost-effective completion of the project. Our main problem as a country at present is the issue of cost overruns, a large proportion of our projects often carry a hefty cost over-run penalty and that is what we need to guard against. A proper contract in our context must include the following elements: clear scope and specifications, fixed price contracts, milestone payments, performance bonds, penalty and incentive clauses, regular monitoring and reporting, risk management, contractor qualifications, detailed project schedules and change management procedures. These elements enhance transparency, accountability, financial stability and effective planning, while mitigating risks and avoiding cost overruns and delays. By incorporating these aspects, governments can build trust with stakeholders and ensure the successful completion of projects. We also need to deal with corruption directly and decisively! Mega projects, result in mega corruption, there is a E5.2 billion scope for corruption and all these costs of the corruption are borne by the taxpayer.

Combat corruption

Eswatini loses a significant amount of money to corruption daily. According to a report by the Public Accounts Committee, E7.4 billion (approximately USD 404.3 million) in public funds were lost through unauthorised expenditures by government ministries between 2018 and 2022. This equates to about E20 million (approximately USD 1.1 million) per day on average. It’s a substantial drain on the country’s resources and highlights the urgent need for effective anti-corruption measures. Essentially, over the year period, we have lost an equivalent of this year’s capital expenditure project, plus another FISH & ICC, we could have built two more LUSIP’s. We could have funded the FPE, elderly grants, our hospitals, schools and quite a lot. Actually, we could have built the strategic oil reserve facility and still have a couple of billions to spare. I worry that we are now embarking on mega projects and this only increases the scope for mega corruption. Given our trends on cost overruns on average our projects end up costing 3x more than the contract value and this will set at E15.6 billion, around a third to half our budget. This will be disastrous if we do nothing about corruption.

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