Wednesday, October 27, 2021

IMF waves redflag on P1 billion Okavango bridge

The International Monetary Fund (IMF) has raised a red flag over the construction of the P1 billion bridge across Okavango River in Mohembo village citing lack of financial appraisals which could result in bungling of such mega projects. 

This comes amid concerns that a series of government projects have failed resulting in loss of billions of Pula. Among the failed projects are the Sir Seretse Khama International Airport (SSKIA), Francistown Stadium, Shakawe Senior Secondary School and the Botswana Development Corporation’s Glass project in Palapye and the Morupule B Power station.

In a document titled “Technical Assistant Report-Public Investment Management Assessment” released this month, IMF slams Botswana for not following appraisal guidelines in large projects such as Mohembo Bridge.  

It says the Planning Officers’ Manual contains detailed guidance on project appraisal, but lacks criteria on project selection.

“The Pula 1.4 billion Mohembo bridge construction does not appear to have been subjected to rigorous cost-benefit analysis according to the authorities. Inadequate appraisals have contributed to inaccurate costing, sometime understating costs by as much as 60 percent, which can have significant implications for the medium-term fiscal framework,”  says the report.

It notes that poor costing and appraisal also undermine project selectionÔÇöand could lead to funding projects that are not financially viableÔÇöa significant risk for large or mega projects.

The report further observes that project appraisals include some elements of financial and exchange rate risks, but do not address risks related to engineering complexity.

According to the report, the Planning Officer’s Manual provides guidelines for conducting cost-benefit analysis, but these are not always undertaken rigorously.

“Even a large project, such as the P 1.4 billion Mohembo Bridget Construction, does not appear to have been subjected to rigorous cost-benefit analysis, as described in the Planning Officer’s  Manual, although such analyses have been conducted for other large projects in the past,” reads the report.

It says that some appraisals have been conducted by consultants. Project memoranda are reviewed by Development Programs staff in the Ministry of Finance and Development Planning, but  the staff does not commonly provide central support to line ministries when project memoranda are being prepared.

“Neither project memoranda nor cost-benefit analyses are published. The PO Manual addresses risk, but generally focuses on financial risk, such as exchange rate risk. It does not address extensively non-financial risks such as engineering complexity and benefits derived from the project being less than expected. The PO Manual does not define a project,” says the report.

The report says inadequate project management often undermines project implementation.

“The current project development management system, which is meant to track progress in implementing projects, is not functional and reports are generated manuallyÔÇösometimes with significant delay,” says the report.

It notes that project managers for mega projects are not identified at the design stage, which could contribute to implementation delays and possibly cost overruns during implementation.

The IMF mission revealed that it “has learnt that in some line ministries, recently qualified and inexperienced engineers are managing large projects that require significant skills and knowledge.”

It says the lack of experienced engineers could put government at risk of developing infrastructure which needs to be replaced or repaired at significant cost.

“ A number of agencies are responsible for monitoring project implementation, but their roles are not clearly identified in policy documentsÔÇöleading to duplication and uncertainty,” the report found.

It says there is currently no definition of mega projects and it is not clear how the MFED plays a role in monitoring the financial aspects of large or mega projects.

The IMF officials recommended that Botswana should establish thresholds to define large and mega projects saying Large and mega projects require sophisticated appraisal, and selection should not be made until the projects have been properly appraised.

“Consequently, projects classified as large and mega should be subject to different procedures and higher standards to ensure that the spending is efficient and fiscal risk is minimized,” it says.

They also recommended that Botswana should define large and mega projects in terms of costs. For example, any project costing more than P 1 billion might be considered a mega project and build appraisal, selection, and project management procedures based on this classification.

Botswana was also urged to clarify roles and responsibilities of all public entities involved in large and mega projects.

“Several organizations are currently, or planning to, participate in the planning, monitoring, management, and coordination of large and mega projects. These include the National Strategy Office, Government Implementation Coordination Office GICA, implementing agencies, and Ministry of Finance and Development Planning. Overlapping roles and responsibilities have the potential to create confusion and diffuse accountability,” the report says.

Therefore, the report recommended that the role of the MFED in evaluating budget affordability for large projects regardless of how they are procured should be strengthened (e.g. traditional procurement or PPPs) or which public 37 entity procures them (e.g. central, government sub-national governments, or parastatals).

 

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