Wednesday, July 6, 2022

Inside the BDC corruption money trail

A Forensic Audit report, which has been passed to the Sunday Standard, details how corruption in the Fengyue Glass Project in Palapye may have leaked close to P100 million into the wrong pockets.

The paper trail reveals how the Botswana Development Corporation paid Shanghai Fengyue US $2.5 million (about P16 million) as costs for the technology licence and royalties for the Luoyang technology although Shanghai Fengyue does not own the intellectual property rights to the technology.

Forensic auditors were able to establish that Shanghai Fengyue China lied to BDC that it owned the intellectual property rights while, in fact, the rights belonged to China Luoyang Float Glass Group.

In a startling revelation, China Luoyang Float Glass Group approached BDC to build the Palapye plant as a turn-key project for US $34.2 million while Shanghai Fengyue China charged BDC US $73.9 million, and this excludes additional items that Shanghai Fengyue China is now asking the BDC to pay for.

Curiously, BDC executive managers responsible for the project kept the China Luoyang bid away from the board.

Indications are that Shanghai Fengyue inflated its BDC bid to raise money for Shanghai Fengyue Virgin Island’s equity in its partnership with BDC.

It emerged in the Forensic Audit Report that a joint director in Shanghai Fengyue China and Shanghai Fengyue Virgin Islands lied to BDC that the Chinese company had agreed to go into a joint venture with BDC.

As it turned out Shanghai Fengyue China had indicated that it had no interest in partnering with BDC for the glass project. In an apparent attempt to save the deal, a briefcase company – Shanghai Fengyue British Virgin Islands – was quickly put together to go into partnership with BDC.

The forensic audit report states: “from a review of the records in the possession of the BDC, we have found no evidence that any due diligence was completed by the BDC managers on Shanghai Fengyue BVI. At the stage that BDC’s representatives signed the shareholders agreement between BDC and Shanghai Fengyue BVI, Shanghai Fengyue BVI was a new company with no track record or experience in the manufacture of glass and it had no proven financial resources.”

The report details how the briefcase company failed to raise money for its equity contribution. It was only after Fengyue Glass Company Botswana a joint company with BDC drew US$10 million from a credit line wholly secured by BDC with Standard Chartered Bank and deposited it into the Shanghai Fengyue China account that less than 20 days later the money was deposited back into the Botswana joint venture company as Shanghai Fengyue BVI equity contribution.

At the time of the forensic audit, the glass manufacturing plant project was behind schedule. Although it was only at 48 percent completion, the BDC contributions had been exhausted because disbursement had been made in advance of progress. The audit found that contractors were overpaid and, in some instances, paid for supplies not delivered. The BDC was left with only P100 million working capital, which was to be used once the project had been commissioned. It is believed that part of the money may have been diverted to raise equity for Shanghai Fengyue.

At the time of the audit, Shanghai Fengyue BVI, which is the majority shareholder in the project, had only made US$16 million as equity, falling short of the required US$ 20 million.

Earlier this year, the BDC reallocated P46 million from the P100 million project working capital to the construction phase despite the fact that Shanghai Fengyue quoted the glass manufacturing plant as a turn-key project. Some of the board members who have been fired are understood to have earlier this year voted against the re-allocation of P 46 million of the working capital into the project construction phase. The three directors were however outvoted.

Last month, BDC management made another application to the board for authority to “inject additional equity of P23 360 118.73 into Fengyue Glass Manufacturing Botswana. P 9 000 841.73 of which is to reimburse Shanghai Fengyue for expenditure already incurred for geological and finance charges. Some of the funds were required to partly finance the provision of power step-down transformers and diesel power plant”.

The BDC management further proposed that should Shanghai Fengyue fail to contribute their portion of P19 034 392.69 to its shareholding to also part finance power stepÔÇôdown and their transformers, BDC should inject the entire additional funds required of P 33 393 669.69 as preference shares in Fengyue Botswana Glass Manufacturing. That the BDC be allowed to convert the above Preference Shares of P33 393 669.69 into equity in 12 months in the event that Shanghai Fengyue completely fails to contribute its pro rata share of P19 034 392.69.

BDC management also approached the BDC board to approve re-allocation of P 28 227 899.00 in the form of preference shares to cover scope variation.

BDC management is further asking that the corporation absorb the adverse exchange rate movement of P62 999 617.00.


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