Friday, December 3, 2021

Chinese company under scrutiny over defective BIH project

The Auditor General has turned the heat on a Chinese company that constructed the Botswana Innovation Hub (BIH) iconic building.

This also follows exclusive reports that there “is delayed completion of the BIH icon building arising from some design defects that affected the unique suspended part of the building.

Our sister publication Sunday Standard reported at the time that the main contractor for the project was Zhengtai Botswana and some sub contractors were citizen-owned companies.

Last week the company came under intense scrutiny. The Minister of Finance and Development Cooperation Peggy Serame told Parliament last week that the Chinese construction company has won tenders worth over P4 billion from the government of Botswana in the last 10 years. 

Responding to Selebi Phikwe West legislator, Dithapelo Koorapetse’s question regarding tenders awarded to Zhengtai over the last decade, Serame revealed that the company had won four tenders, including joint ventures amounting to P3.37 billion during the said period.
 
“Mr. Speaker, four (4) tenders were awarded to Zhengtai Group Botswana, including joint ventures, in the last ten (10) years amounting to three billion three hundred and seventy million five hundred and seventy four thousand and sixty Pula, seventy thebe (P3 370 574 060.70),” she said. 

In her latest report, the Auditor General Pulane Letebele confirmed investigations by Sunday Standard saying  auditors have observed that during the financial year ending 31 March 2017, the Icon building, which was under decreased construction had developed cracks and defects in one of its parts (Block F), thus causing delay in obtaining necessary licenses from the Government to operate the entire building. 

She said to determine the cause of the cracks and remedy the situation, engineering experts were engaged.
 
“Over the 2 years, the experts after assessing various factors had concluded that the defects were due to structural design and that the costs of remedying these defects would amount to P24.10 million. Subsequent to the year-end, the Company had obtained the necessary funding for these remediation works and the construction activities towards completion was ongoing,” Letebele said in her report.
 
She said BIH continued to engage with legal experts to pursue the reimbursement of the above remedial costs from the service providers who were considered to be potentially at fault for these cracks and defects.
 
“Due to the technical complexities and the administrative impracticalities surrounding the defects, it was not possible to determine if the additional costs would increase the value of the building significantly after the remedial measures and associated costs. As at the reporting period the remedial works had been completed, with a total additional cost towards the Icon building adding up to P35.65 million,” said Letebele.

She revealed that until the time the construction of the building is completed, the building would be carried at cost, which would include any expenses necessary to put the building to use and become a Cash Generating Unit.

“Until the building is completed, which was likely to happen in the next financial year, it was presumed that the fair value of the investment property could be reliably measured and the Company would effect any changes to the value including any impairment as would be necessary after a valuation exercise is undertaken,” said Letebele.
 
Consequently, Letebele said in her report, the auditors proposed an unqualified audit report with an emphasis of matter referring to the development of structural defects remedied subsequent to the period end.

In response, the BIH management stated that the remediation of the section that was determined to be structurally defective was concluded in November 2019.

The remediation was carried out on budget as per the P24.1 million provision. The completion of the building was underway with completion programmed for July 2021. BIH approached the Board of Directors for approval of the instigation of the proposed Damages Recovery Strategy in September 2020. This would be carried out through a structured approach, which would involve calling on the professional indemnity of the Engineer responsible, assessing the possibility of a settlement out of court and lastly litigation.

On a related matter regarding the Government Integrated Data Centre Project-(Repeat Finding) Letebele’s report says that the auditors noted that stage 3 (Design stage) of the Government Integrated Data Centre (GIDC) had been completed with total management fees calculated at P7.69 million since inception of the project. Management fees were calculated based on the Memorandum of Agreement between the two parties (BIH and the Ministry of Transport and Communications ( MTC).
 
“A total of P5 million had been received and accounted for in the prior years with a balance of P2.69 million (receivable) still outstanding from the Ministry. They had also noted that certification of the project was received from Uptime Institute in June 2019,” the report says. 
Based on further reviews and discussion with Management, the auditors noted that the Ministry had already indicated that they would not settle the balance and the matter had since been communicated to legal personnel to advice on the way forward. A journal had been processed to account for impairment of the balance receivable in the previous year.

The auditors also noted that Management had resolved to use an amount of P1.5 million being cash available from the bank account set up for this project (GIDC) for use in the business of BIH to manage cash flow challenges without prior approval from the Ministry.

An amount of P658 239 was reimbursed during the year under review with the remaining P841 761 payable to Government recorded by Management in the books. A letter dated 03 August 2020 was written to the Ministry informing them of the use of funds and Management was yet to receive a response.
In response, Letebele’s report says, BIH Management stated that BIH had complied with all its contractual obligations and had completed all deliverables.
 
“Despite numerous engagements and interventions since March 2019, MTC had not responded to the BIH request for conclusion of the matter and settlement of outstanding fees. In order to mitigate against the loss caused by the delays in being paid and closing some of the cash flow challenges partly caused by this matter, BIH proceeded to partly recover the debt from the available project funds,” Letebele noted. 

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