The role of procurement contracts in financing infrastructure projects

THE ROLE OF PROCUREMENT CONTRACTS IN FINANCING INFRASTRUCTURE PROJECTS

THE PASSENGER RAIL AGENCY OF SOUTH AFRICA (PRASA)

INTRODUCTION This is an article written to the National Newspaper and National Broadcaster on a corruption case against officials for the procurement of locomotive trains.

The World Bank and other multilateral agencies have articulated that more than 3 to 4 trillion of infrastructure investment is needed in developing markets on an annual basis to stimulate economic growth for developing countries. None of those investments will be achievable if enough measures are not taken to develop and capacitate affected countries in regulating the procurement processes and procedures in implementing infrastructure projects. A typical case study is the South African railway company, PRASA which procured trains in an effort to upgrade and develop their passenger railway lines across the country.

THE CASE STUDY PRASA entered into a procurement contract with a Spanish company to provide locomotive trains called the Afro 4000 in 2013. The contract caused the biggest ever tender debacle involving billions of Rands in the African continent. The deal attracted international headlines when it was discovered earlier in 2015 that the trains were too tall for South Africa’s railways. It has also emerged that PRASA executives involved in the deal could face criminal charges for their part in the scandal. Court papers filed by the company claim blatant collusion in the tender process, designed to favour certain individuals from the start. The chairman approached the High Court in Johannesburg to ask it to have the R4.8 billion ($344 million) locomotive deal scraped, and to request the Spanish Company to take back its stock and refund the R2, 65 billion ($200 million) already paid to it. PRASA wants

the matter to be heard in open court, and has also begun legal proceedings to recover R20 million ($1,4 million) in remuneration, bonuses and travel expenses paid to its bogus former Chief Engineer Dr Daniel Mtimkulu, whose engineering qualifications proved to be false but was central to the deal. Investigations are also underway into Mtimkulu and Prasa’s former group CEO Lucky Montana, for corruption relating to the alleged rigging of the tender process.

It is alleged that a former senior government official named Auswell Mashaba entered into a partnership with the Spanish company Vossloh Espana which built the locomotives. Mashaba established a company called Swifambo specifically for the multibillion rand deal.

According to reports by Prasa, Swifambo was assessed on the experience and technical capabilities of Vossloh Espana, even though the two had no joint venture or any legal agreement in place during the bid process. No documents were provided in Swifambo’s bid to confirm that it had entered into a joint venture with Vossloh Espana.

During the evaluation process, Swifambo was not disqualified despite submitting a tax clearance certificate that had not VAT number, and no tax clearance certificate at all for Vossloh “as part of a joint venture or subcontractor” agreement. Swifambo had no financial history which was difficult to assess its financial viability; it also failed to produce previous experience of supply and leasing of locomotives, including attaching letters of referral from at least three clients for which it had done work. The company could not have had any experience in rail because it had been formally established just four months before awarding of the contract. The attached two videos articulate the launching of the locomotives as well as interview clips with the executives (Dr. Mtimkulu) disputing the claims against him and his colleagues.

Quiet a substantial amount of funds were spent on the deal which was all taxpayers’ money; however the required infrastructure has not been delivered, instead allegations of irregularities would reveal the entire deal as dead.

THE ROLE OF PROCUREMENT a. Legislation, jurisdictions

regulations

and

Stricter rules and regulations with regard to procurement practices for infrastructure projects is very important. The infrastructure backlog is not only in the financing, but also in the capacity to deliver on those projects. b. Public Private Partnerships

PPP ‘s have emerged as an important tool to bridge the infrastructure deficit

because they provide better value for money, and that the certainty of outcomes is increased both in terms of time “on time” delivery of projects, innovation through combining both the private and public sector skills through a competitive process for contract award. By involving the private sector in financing PPP’s provides financing that is different from both public finance and corporate finance.

https://www.youtube.com/watch? v=shCsuwz_EUI&feature=player_detailpage

https://www.youtube.com/watch? v=d2MZZllNNpo&feature=player_detailpage

References:

SADC Regional Framework: Recommendations, March 2010 UN Economic Commission of Europe: Guidebook on Promoting Good Governance in PPP’s, January 2006