Desperate PPPs could prove costly for Zimbabwe

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Zimbabwe’s economy is in need of investments

As the cash-strapped Government of Zimbabwe desperately scrounges around for local and foreign investors to help it fund the upgrading of the country’s decrepit infrastructure as well as develop new ones through the Public Private Partnership (PPP) development model, experts warn that the resultant cost could be so huge that future generations might wonder if the whole effort was worthwhile.
The country is desperate to upgrade its thoroughly dilapidated infrastructure — be it in the transport sector, power generation, agriculture and other social services such as health and education — and the government has identified PPPs as a possible route for it to be seen to be doing something.
However, development experts who spoke to the Financial Gazette this week, warned that because the government is desperately courting partners from a very weak position, chances are that it would end up accepting even the most of extortionist terms offered by the deep-pocketed loan sharks scouting for opportunities that can give them a harvest of jaw-dropping returns on minimal investments.
They said the country’s plight is worsened by the endemic corruption that exists in Zimbabwe.
The experts pointed out that for starters, the fact that the country is negotiating these deals from a hopelessly weak position out of desperation, this gives it less muscle to bargain for better deals. They indicated that more often than not, the benefactors would present patently unfavourable terms on a take-it-or-leave-it basis, with the country having no other option than to accept, resulting in the country having an albatross around its neck, something that would continue to haunt its citizens for several decades to come.
The Government of Zimbabwe is currently surviving on a hand-to-mouth basis, struggling to meet its financial commitments such as salaries for its bloated civil service; it is struggling to pay its pensioners who gobble about 10 percent of its annual budget; it is unable to meet its ballooning domestic and foreign debts obligations, among other basic expectations. Media reports suggest that creditors that have gone unpaid for extended periods of time are hotly pursuing several of the country’s diplomatic missions, with the diplomats themselves being paid irregularly. The situation leaves the government with no money to invest in infrastructure projects, hence its resort to the now fashionable PPP development model.
Martha Ndoro, a senior official in the ministry of Transport and Infrastructure Development, last year told delegates to a building contractors’ meeting that the government is aware that it is being ripped-off, but it has very limited room to manoeuvre when these deals are negotiated.
However, the deals for most of these projects are negotiated and signed in a shroud of total secrecy, without the tax (and rate) payers being consulted, giving room for corrupt members of the officialdom to wantonly sign deals that could be detrimental to the country’s long-term developmental goals.
Infrastructure development consultant, Phinias Tafa, said for as long as partners in these PPPs come on their own terms, the country stands to loose.
“Some of the projects are a rip off and there are multi reasons to that,” Tafa told the Financial Gazette in an interview.
“First as a poor country we negotiate from a weaker position. Our politicians are in a fix and they know they are letting the citizenry down. Under pressure to impress, they have become so gullible to the extent of ignoring expert advice, even from their technocrats. The rich private sector, local or foreign is well aware of this.
“Another reason lies in our lack of a national PPP framework and regulation. We also have little knowledge of PPP structures and mechanisms. The corruption factor is present in high magnitude. To avoid being ripped off we must have a national framework on PPPs, a national policy on infrastructure, an empowered regulator as well as up our PPP skills and knowledge. We should also deal with the corruption element whose stakes becomes high especially in mega infrastructure deals.”
Tafa, who is the head consultant of the African Centre for Real Estate and Land Economics, blamed the problem on politicians who have no scruples at all when it comes to sacrificing long-term national goals for their immediate short-term gains.
“Don’t forget that politicians are more interested in the now more than the future. This becomes worse if they are threatened. So we need a PPP framework or toolkit.”
According to comprehensive needs document prepared in April 2015 by Eric Gumbie, a principal director in the Ministry of Transport and Infrastructure Development, the country’s transport infrastructure is in a state of poor repair, with even some key bridges that were washed away by floods more than a decade ago yet to be repaired.
“The state of the Zimbabwe’s transport infrastructure has deteriorated over the years, the country has a huge accumulated requirement for infrastructure rehabilitation and development,” Gumbie said in the report.
“Currently road, rail and airport rehabilitation and development is severely underfunded. Future project financing will largely be through road user charges. PPPs are possible and the private sector has a role to play,” he pointed out.
According to the report, the country’s 97 000 kilometre road network needs to be attended to. Of these, 17 400 tarred roads which fall under the national government and urban authorities need to be upgraded and or maintained, while about 77 000 km of gravel and earth roads that largely fall under the government, rural district authorities and the District Development Fund are also in urgent need of attention.
There are also several new bridges that need to be constructed while others that were damaged or wiped away by floods — some of them more than a decade ago — that also need to be repaired or rebuild altogether.
The same urgent attention is also needed towards the country’s 2 700 km railway network system as well as about a dozen airports and other aviation infrastructure.
Last week, the Financial Gazette reported that the investment needed to upgrade the country’s road network was US$24 billion. For a country that is struggling to fund its shoestring annual national budget of just over US$4 billion, the figure only serves to highlight just a portion of the magnitude of the burden the country faces. In the transport sector, there is also the country’s obsolete railway network as well as the aviation infrastructure that needs to be attended to, in addition to several other national social services infrastructure such as schools, universities, hospitals, clinics, dams in addition to a whole catalogue of other desperately needed projects.
The Ministry of Primary and Secondary Education is in urgent need of 2 056 new schools. Through this PPPs initiative, the Ministry has started inviting private players to come into joint venture partnerships where they would build schools and hand them over to the government and be paid for their investment over an agreed period of time from money levied on pupils attending these schools.
If negotiated unwisely, and out of desperation, this could result in a situation where children who are yet to be born, their children and even their grandchildren, would end up contributing towards the eventual repayment of the debts.
After teething power problems, Zimbabwe has just started upgrading infrastructure in its power-generation sector — a sector that has been neglected for nearly three decades — largely with funding from China. The deals with China were, and continue to be negotiated by government mandarins under a thick veil of secrecy.
Retlaw Matorwa, a regional communication development expert, told the Financial Gazette that as long as deals for PPP projects are done in secret, chances are that the country would be ripped off.
He said the absence of a transparent process when the deals are negotiated and signed results in limited competition, a situation that leads to cases where even the least competent — but expensive — players end up being engaged.
“The absence of a clear bidding process for Build Operate and Transfer (BOT) and other PPP concessions is not good for the country,” Matorwa said.
“The process is shrouded in secrecy and that hinders participation of equally competitive players and therefore, reduces competition and an opportunity to choose the most favourable partner.”
He cited as an example a deal that the City of Harare entered with a South African firm, Easy Park, as one such example of deals that raise more question than answers.
“Take for example Easy Park and city of Harare, how much did Easy Park invest in the project that is worth mortgaging the capital city’s parking bays for five years?”
“Such BOT deals are more political than business, due to high levels of corruption in government ministries at times technocrats have little influence. Some partners come as fronts of powerful individuals. They reduce competition and bring a partner whose bill includes bribes to corrupt decision makers.”
Matorwa also raised eyebrows on the deal in which the government hand-picked Bureau Veritas, a French company, to provide the country with Consignment Based Conformity Assessment services, a programme intended to reduce hazardous and substandard imported products and improve customs duty collection.
“The only way to ensure we are not ripped off is to leave technocrats do their job, adequate research on cost benefit analysis must guide such negotiations. There must be transparency in soliciting for partners in these deals, the bigger the pond of bidders the less costly it may become, competition is healthy for BOT projects,” Matorwa added.
In the area of BOTs, private players are invited to build infrastructure projects that they construct and operate for an agreed period of time, during which time they recover their costs and a profit, before they hand over the infrastructure to government.
Zimbabwe’s first successful BOT project is the New Limpopo Bridge, which was constructed by private investors on a 20-year concession that ran from 1994 to 2014 when it was handed over to the government. This concession also involved South Africa.
The Beitbridge-Bulawayo Railway is running an inordinate 30-year railway concession (1998-2028) while the newly completed Plumtree-Harare-Mutare highway upgrade project will run on a 10-year concession (2015-2025).
After successfully arm-twisting, ZimHighways — a consortium of local construction firms that had successfully negotiated a US$883 million loan with a foreign bank for the dualisation of the 900 km Beitbridge-Masvingo-Harare-Chirundu highway, which loan was to be repaid through toll fees paid by the road’s users — into giving up the project, the government is currently holding secret talks with faceless and nameless contractors and funders amid indications that the project cost has mysteriously ballooned to more than US$2 billion, up from nearly US$900 million.
What makes the situation worse is that most leading international and regional construction firms that undertake these infrastructure development projects are past masters when it comes to the art of corruption.
About a dozen international construction firms were sucked into the vortex of a huge bribery scandal on the Lesotho Highlands Water Project, including Salini Impregilo, the Italian firm currently working on the controversial Tokwe-Murkosi dam in Masvingo. In December last year, the Government of Zimbabwe — which is on the verge of a financial heart-attack — curiously waivered corporate tax on the company retroactively, a waiver that also extends to employment tax on the firm’s expatriate staff.
In 2013, about 15 largest South African firms — including Group Five, which was trusted with the US$206 million Plumtree-Harare-Mutare highway — were fined a collective US$140 million by the South African government after being found guilty of corruption during the construction of the infrastructure for the Soccer World Cup that the country hosted in 2010.