Wednesday, September 30, 2020

BDC comedy of errors

Botswana Development Corporation (BDC) executive managers are probably thanking their lucky stars that the Fengyue Glass project, which was due to be completed this month, is running behind schedule.

If the multi-million Pula project had met the completion deadline, Fengyue Glass Company Botswana would be a white elephant saddled with glass panes and nowhere to sell them. A forensic audit commission by the BDC board has revealed that Fengyue Glass Company Botswana does not have a market strategy and, at the time of reporting, it had not completed its market study.

The same concern was raised by the BDC audit committee of August 2010, which lists “various issues of concern”, among them that “the market study was not complete, the negotiation fee had not been paid and the marketing agreement was not concluded between Shanghai Fengyue and Botswana Fengyue. It also emerged that the project was allowed to go ahead without an off-take agreement. This would be an agreement between Fengyue Glass Company Botswana. as a producer of glass. and a potential buyer.

An off take agreement is normally negotiated prior to the construction of a facility such as a glass manufacturing plant in order to secure a market for the future output of the facility. If lenders can see the company will have a purchaser of its production, it makes it easier to obtain financing to construct a facility.

And this is the best case scenario. At worst, the company would not even be able to produce glass. For starters, the company has used up the money budgeted for working capital during the construction phase. Earlier this year, the BDC reallocated P46 million from the P100 million project working capital to the construction phase. BDC has made another application to reallocate part of the remaining working capital

into the construction phase. Even if Fengyue Glass Company Botswana had working capital, it would find itself without raw material for the production of glass.

The audit report revealed that Fengyue Glass Company Botswana has not even secured a mining licence to mine sand and silica, which would be used for the production of glass. A mining licence should have been a precondition before financing the project.

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