China to score in R70bn SA projects

2017-09-10 05:59
Chinese President Xi Jinping walks with South African President Jacob Zuma upon his arrival at the Union Buildings in Pretoria, on Wednesday (December 2 2015). Picture: Sydney Seshibedi/ Reuters

Chinese President Xi Jinping walks with South African President Jacob Zuma upon his arrival at the Union Buildings in Pretoria, on Wednesday (December 2 2015). Picture: Sydney Seshibedi/ Reuters

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Two mega-contracts between government and a Chinese parastatal are set to go ahead, despite neither qualifying for deviation from procurement laws.

The department of water and sanitation and rail agency Prasa seem set to hand two contracts, worth more than R70bn, to a Chinese parastatal with neither a public tender nor permission from Treasury to bypass tender laws.

Confidential documents obtained by City Press indicate that the water department, together with Prasa and Treasury, have entered into funding negotiations with the Export-Import Bank of China (Exim Bank). But the documents also appear to show that Exim will only provide the finance on condition that the construction on both projects is done by another Chinese parastatal, the China Communications Construction Company (CCCC).

The talks centre on the construction of the Moloto Rail Development Corridor, estimated to cost R57bn, and the Mzimvubu Water Project, estimated to cost taxpayers more than R16bn.

Two senior government officials close to the projects said the problem was that Prasa and the water department seemed intent on doing this by way of an intergovernmental agreement which would bypass South African procurement laws. They also did not have permission from Treasury to deviate from procurement regulations.

Treasury also has to issue sovereign guarantees. In his 14-point plan to revive the economy, announced in July, Finance Minister Malusi Gigaba promised to be conservative when issuing sovereign guarantees.

One of the officials said: “Neither of the two projects qualify for a deviation ... For deviation to be granted, a project has to be extremely urgent, or there must be only one supplier. If they claim that the Chinese will bring their own money, it should still go out on tender because there could very well be other companies that could bring their own finance and construction companies, and still do it cheaper.”

The official said the projects had been a long time coming, “and they were just waiting for regime change at Treasury to push them through”.

Moloto Rail tender imminent 

One of the confidential documents is titled Report on the visit of a senior officials’ delegation to Beijing, China, regarding the forum on China-Africa cooperation projects, led by the director-general in the presidency, Dr Cassius Lubisi, from August 13 to 16 2017.

It shows that the Chinese construction parastatal was expecting to sign a contract with Prasa on the sidelines of the Brics summit – involving member states Brazil, Russia, India, China and South Africa – which ended on Thursday in Xiamen, China. The company has already established a team to work on the project. “CCCC intends to sign a commercial contract on the project with Prasa by the time of the Brics summit ... to reflect progress made,” the document reads.

“For the construction of the Moloto project, CCCC will utilise mostly local labour. It will also source most materials and equipment locally. CCCC has set up a team made up of the company’s finance economists, technicians (mostly engineers) and specialists on environmental impact assessment to finalise the evaluation of the project.”

CCCC has sent a team to South Africa on several occasions to assess the viability and profitability of the Moloto corridor, the document states, adding that the company’s president, Chen Fenjian, met with President Jacob Zuma in Pretoria in June.

But another senior government official said: “This is an intergovernmental agreement type of procurement and our Constitution does not allow for it. Another key issue here is that Treasury has not approved any procurement deviation, most likely because there are no grounds for approving deviations.

“We should not allow Exim Bank to push CCCC down our throats. The contracts should go out on tender. You can also see from the documents that Gigaba has to issue guarantees, and he has not done so yet.

“I do not see how they can award CCCC the tender when sovereign guarantees, which will be part of the project, have not been issued.”

The proposed rail project, which is expected to link Pretoria and Siyabuswa in Mpumalanga, includes 13 new train stations over 125km of double-track railway. As part of the development, the treacherous R573 Moloto Road will be converted into a dual carriageway.

The legal hurdles

Documents also show that officials were concerned about the legal hurdles posed by intergovernmental agreements that deviate from procurement regulations. According to one of the documents, “a legal opinion on the need for deviation from section 217 of the Constitution should take into consideration the recent decision of the Supreme Court on the procurement for the nuclear programme”.

In April, the Western Cape High Court ruled that the process leading up to Pretoria signing intergovernmental agreements with Russia was flawed, unconstitutional and not in line with sound decision making. It set the process aside.

That same month, City Press reported that Treasury had blocked former energy minister Tina Joemat-Pettersson from procuring the nuclear build programme through intergovernmental agreements. At the time, her department had signed intergovernmental agreements with Russia, China, France, Japan, the US and Korea.

But South Africa’s constraints about the two projects, in terms of its Constitution and procurement legislation, were conveyed to the Chinese, according the document.

The cooperation agreements 

The documents show that, in December 2015, the Trans-Caledon Tunnel Authority, which implements bulk water infrastructure on behalf of the water department, signed a cooperation agreement with CCCC. In July last year, the department signed its own cooperation agreement with Exim Bank. The objectives of the cooperation with Exim Bank include obtaining a loan from the bank and building the Mzimvubu project.

Water expert Professor Mike Muller said the project initially made sense because, when it was conceived, it would satisfy various needs, including agriculture, tourism, hydropower and water supply.

“However, some of these activities, such as the agriculture and hydropower component, have fallen off. The department of agriculture in the Eastern Cape thinks it is too expensive and Eskom is no longer keen on the hydropower. If you don’t have hydropower and the agriculture element, you are building a massive dam for no reason. If you need water supply, there is water in the river,” he said.

Treasury spokesperson Mayihlome Tshwete said the water department asked for permission for deviation from procurement legislation about 10 days ago. “The application is being considered,” he said, adding that Prasa had not yet submitted its deviation application.

Tshwete said Treasury also received a request for sovereign guarantees from Water and Sanitation Minister Nomvula Mokonyane, and that it was “under consideration”.

Water department spokesperson Sputnik Ratau said Mzimvubu had been identified as one of the projects that could benefit from the $60bn in funding for Africa that was pledged by Chinese President Xi Jinping at a summit of the Forum on China-Africa Cooperation (Focac) in December 2015. He said the conditions of the funding were “still a ... matter of negotiation” between the governments.

Treasury was central to these talks, he added.

Mathabatha Mokonyama, the acting director-general of the transport department, said the Moloto project was part of government’s strategic plan to “unlock” the northern mineral belt. It was a response to the “cancer of apartheid special planning” that denied 720 000 people “economic opportunities”.

He said that there was a memorandum of understanding, which “has no contractual commitments”, and that funding options were being “considered within the confines of the Focac arrangement”, and in compliance with South African laws and regulations.

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Read more on:    prasa  |  malusi ­gigaba  |  jacob zuma  |  china

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