CONTROVERSIAL CHINESE COMPANY FOR E3BN MPAKENI DAM TENDER

MBABANE – A controversial company that is owned by the government of the People’s Republic of China (Mainland China) is considered front-runner for the multibillion Mpakeni Dam construction project.

Sinohydro is involved in one of only two bids that have been submitted for the nearly E3 billion-worth Mpakeni Dam tender that is under the auspices of Category A public enterprise, Eswatini Water and Agricultural Development Enterprise (ESWADE). Both joint ventures that have submitted the sealed bids are foreign companies, which means that there is no chance of a local entity being the main contractor of the multibillion project, whose loan will be repaid through taxpayers’ money.

The Times SUNDAY has been reliably informed that Sinohydro is in a joint venture known as Sakhalive and they are competing for the dam project with another joint venture of Stefanutti Stocks and WBHO. Sinohydro was once blacklisted by the African Development Bank (AfDB), which is the main funder of the Mpakeni Dam project, for having engaged in fraudulent practices in a project in Uganda that was financed by the bank. Also, it was at one point debarred by the World Bank under an internal sanction known as Early Temporary Suspension.

According to the  British daily business newspaper, Financial Times, Sinohydro is a descendant of China’s now-defunct Hydropower ministry and its most important State role is overseas, where it represents the face of China in hydroelectric power and infrastructure projects. Along with other state-owned enterprises, Sinohydro has reportedly followed Beijing’s directive to ‘go out’ - a policy begun designed to encourage state-owned groups to expand overseas to improve business practices, generate revenue and capture resources.

Its projects are reportedly financed largely by loans from Chinese state-owned banks such as China Exim Bank and are often linked to diplomatic initiatives by Beijing. In 2013, an investigation conducted by the AfDB’s Office of Integrity and Anti-Corruption established that Sinohydro engaged in a fraudulent practice in bidding for works contracts in the context of the AfDB -financed Road Sector Support Project in Uganda.

On June 15, 2017, the AfDB announced the conclusion of a settlement agreement with the Chinese company. As part of the settlement, the AfDB imposes a conditional non-debarment for a period of three years, subject to the company enhancing its global corporate compliance programme within that period to the institution’s full satisfaction.

The AfDB said it would verify the adequacy of Sinohydro’s compliance framework and the robustness of its implementation prior to any release decision. In addition, Sinohydro committed to cooperate with the Office of Integrity and Anti-Corruption in its investigations of unrelated cases of misconduct in AfDB-financed projects.
The period of conditional non-debarment was to be reduced to 24 months if Sinohydro complied with all conditions of the agreement early. 

“The purpose of the bank’s sanctions regime is in equal measures the deterrence of sanctionable practices such as fraud and corruption and the rehabilitation of entities found to have engaged in such,” said Anna Bossman, Director of the Office of Integrity and Anti-Corruption, who added: “Engaging with companies and ensuring the implementation of robust corporate compliance safeguards is key to avoid recidivism.”

Termination

Sinohydro was also fired as Botswana’s primary contractor on Gaborone’s Sir Seretse Khama International Airport (SSKIA) Expansion Project Phase 2. At the time of termination of the contract, Sinohydro had reportedly completed approximately 90 per cent of the project.  The Sinohydro contract was also terminated because the ministry was reportedly dissatisfied with the contractor’s overall performance.  This led to the Chinese company filing a case with the London-based International Chamber of Commerce (ICC) but this was later abandoned.

ESWADE Communications Manager Nokwazi Hlophe was asked whether they were aware of Sinohydro’s previous blacklisting by AfDB, the financier of the Mpakeni project. “This is one question which can be answered after the evaluation has been completed. The evaluation process looks into such questions,” she responded. The track record of Sinohydro is one of a number of controversies that have emerged in the ongoing bid process for the project.

Another of these controversies, this publication has it in authority, is that the requirements for one to bid for the project were changed from the prequalification stage and set too high for any local companies to stand a chance of being considered. One of these was that cash flow requirements were increased from US$15 million from prequalification stage to US$19 million during the tender stage, which is a variance of US$4 million.

The other alteration was that the average turnover requirements were increased from US$83 million from prequalification stage to US$95 million during the tender stage. Also, the general construction experience was changed from 2007 from prequalification stage to 2008 during the tender stage. Responding to these changes, Hlophe said the Mpakeni works were planned to be procured in two stages; the first stage being prequalification, and the second stage being the actual tendering for works.

She said these were two different processes with different requirements, and the prequalification was nullified and the second stage of procurement, which is the bidding or tendering process, was engaged. “The requirements of the bidding process are a function and result of the infrastructure to be built. They are not subject to alteration to favour any particular contractor (local or international). This analogous trying to tow a four tonne load (or semi trailer) using a van. The only way to lower the requirements is to prepare a design for a much smaller dam which would not suffice for the project/water needs,” she said.

Amounts

Adding to the controversies is the huge variance in the amounts that the two joint ventures have submitted. The joint venture in which Sinohydro is part of has submitted a bid of E2.6 billion, while the WBO/Stefanutti joint venture’s bid is at E5.6 billion. There are concerns that the bid amounts are too far apart from each other to represent competition between the two joint ventures, yet these are experienced entities who are not expected to be far off each other in evaluating the same project.

ESWADE’s Hlophe confirmed these two figures and said the tenders were now being subjected to a tender evaluation procedure to be carried out by a competent team of officials duly appointed for the task. “If you will allow the process to complete. It is only then that we can offer an explanation for the price variation. It is unprocedural and unprofessional to comment on a tender procedure after the closing deadline. This is a confidential process until such a time the procuring entity/procurement agency publishes an intention to award,” she said.

On the subject of local companies being ousted from the bidding process by setting the standards too high, Hlophe said locals would benefit through subcontracting opportunities and also by providing construction material required for the permanent works. “This practice has worked well for the country since the construction of the Maguga Dam and throughout the implementation of the LUSIP,” Hlophe said.

Last year, serious concerns and questions on prioritisation of local firms in expenditure of public funds were raised over ESWADE’s decision to pre-qualify only foreign companies in the first phase of Mpakeni Dam construction tender. This led to Parliament ordering that the process be started afresh and all processes followed after the Eswatini Public Procurement Regulatory Agency (ESPPRA) also revealed that it had been sidelined by ESWADE. Hlophe said the nullification of the prequalification stage and engaging in the second stage of the procurement process had allowed for everyone to bid, and basically gave all contractors a second chance to tender.

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