The Chinese company contracted in the controversial Morupule B expansion project, China National Electric Equipment Corporation (CNEEC), is reported to be blackmailing Botswana with a threat to pull the plug off the project or abandon it all together if they are not exempted from paying the P600 million they owe the taxman in unpaid value added tax (VAT) ÔÇô Sunday Standard investigations have revealed.
The threat comes after the Botswana Revenue Services (BURS) obtained a garnishee order allowing them to impound the CNEEC payment from the Botswana Power Corporation (BPC).
Sunday Standard investigations have turned up information that the BPC was forced to violate the High Court order and pay CNEEC its money because the Chinese company was threatening to either abandon the project or switch it off.
The Chinese company had initially approached government for a tax exemption. When their proposal was turned down, they then turned to the BPC to masquerade as the importer of construction material from China, thus offloading liability for VAT on the Botswana parastatal. Although the Chinese company has been claiming its VAT refunds from BURS, it has not been paying its share of VAT, which has accumulated to a staggering P600 million.
It has emerged that invoices for the project are generated in China and payments are also made in China where the financing bank is based, and invoices are only presented to the BPC for purposes of issuing certificate to facilitate payments ÔÇô cutting out BURS. It has further emerged that although the project is experiencing failures, which have resulted in frequent power supply disruptions, the BPC has already disbursed more than 90 percent of the payment complete with certificates to back the payments.
Contacted for comments, BURS spokesperson, Refilwe Mogami, told Sunday Standard that “the garnishee order that has been issued only concerns the BURS and the said client” and cannot be discussed with a third party.
Responding to a Sunday Standard questionnaire, BPC spokesperson, Spencer Moreri, on the other hand stated that, “the Corporation is not in a position to divulge any information to third parties as per the contractual obligations of the contract in regard to communication”.
A number of local big names are being whispered as sub contractors in the controversial project and are believed to have been part of the massive tax evasion. Sources close to CNEEC have revealed that as part of its investigation, BURS has been demanding a list of all subcontractors in the project, but the Chinese company is cagey with the information.
BURS is understood to be preparing for a court battle with BPC and the Chinese company, and has already alerted the Commissioner of Immigration to ensure that CNEEC directors do not skip the country. With most of the payments due to CNEEC already disbursed, the cash strapped BPC may end up saddled with the P600 million VAT bill.
Indications are that electricity consumers are going to bear the brunt for Morupule B blunders. Besides frequent power supply disruptions, the corporation has also announced electricity tariff hikes beginning next month, coupled with an undisclosed bailout it received from the government.
The corporation says administration fees, which covers billing costs and payment of commissions to Electricity Vendors, will be increased from P51.17 to P66.53 for Business and Government users, while for Domestic consumers the increment shall be from P19.12 to P21.98.
An analyst close to BPC issues pointed out that beside the failure of the Morupule B, the corporation is faced with losses from a badly structured “financial instruments” at a time when they borrowed money from China.
“BPC does not have any choice but to increase tariffs because they are making losses. They borrowed in United States dollars which is fast appreciating in value against the Pula,” an analyst said. “In the next 10-to- 20 years, its financial problems are expected to be worse than now if you were to take the pula devaluation into consideration. If you look closely at the problem, it is not necessarily that they are buying power at high price, rather it is because of the loan.”
The total cost of the project is P 11 billion, of which P 6 billion or (US $ 850 million) is from China and the rest from government and the World Bank.
The P11 billion project has been a lightning rod of controversy even before it made it out of the drawing room. This followed reports that BPC managers helped the inexperienced Chinese company, CNEEC, clinch the Morupule Power Station contract through questionable means ÔÇô carried exclusively in the Sunday Standard.
Minutes of a BPC board committee meeting, which sat on 12th September 2007, prior to the tender award, state that bidding companies, among them CNEEC, were pre-qualified because of their “technical capacity, financial capacity experience and expertise to undertake the project.”
Sunday Standard can, however, reveal that CNEEC was pre-qualified although it had failed to secure financing to justify their financial capacity and did not have a single completed project of the size of Morupule B Power Station to justify their experience and technical capacity.
Doubts on the capability of CNEEC were further raised by former Chinese Ambassador to Botswana, Ding Xiaowen, who advised Ministers Ponatshego Kedikilwe and Mompati Merafhe that the Chinese state-owned company was not certified to undertake a project of that magnitude.
In an apparent attempt to help CNEEC’s financial capacity, a BPC manager issued a letter to the company confirming that should they be able to secure financing for the project, they would be the preferred bidder. The contractor used the letter to try and secure financing from SINOSURE, an export credit assurance company which the competing contractor, DEC/Zelan, had put forward as their financier. DEC/Zelan was the only bidder who the Chinese ambassador said was certified to undertake a project of the size of Morupule B Power Station.
Although CNEEC failed to secure financing, BPC went ahead and chose them as the preferred bidder over DEC/Zelan, another Chinese company that had been recommended by the Chinese government and had been able to secure financing. Sunday Standard can further reveal that DEC/Zelan wrote a letter to the BPC board complaining of “behind the scenes encouragement of financial institutions to support CNEEC”.
In another curious turn of events, the BPC allegedly gave the bidding companies wrong fuel analysis data while CNEEC were given the correct data. The BPC management then used this to undermine the bid by DEC/Zelan, arguing that the consortium had priced their bid on utilizing a fuel source not in compliance with bid documents. The fuel issue was cited as a major risk and non compliance.
Sunday Standard investigations have further turned up information that some BPC managers and board members undertook a site inspection of manufacturing facilities and completed projects of the bidders in September 2007. CNEEC, who were ultimately given the contract, was not able to show the team equipment, manufacturing facilities or a completed project during the tour.
DEC/Zelan, on the other hand, showed the BPC team multiple and extensive manufacturing facilities, including a 1200Mw completed power station in operation. Although DEC/Zelan lost the bid, they have a history of executing EPC projects, among them the 2,100Mw Tajung Bin coal fired power station in Malaysia, which was completed in August 2007; the 2x500Mw Sultan Abdul Ziz power Plant in Malaysia, which was completed in March 1998; the 2x300Mw Chattissagrh power plant in India; the 2x300Mw power plant in Rambang, Malaysia; the 4x123Mw Tal Quadis Power Station; the 2x300Mw Hai Phong Power Plant in Vietnam, and the 2x600Mw Nagarjuna power plant in India.
CNEEC, on the other hand, had never completed a project of the size of Morupule B Power Station. They were at the time undertaking the 3x330Mw power plant in Indonesia and had in the past ten years competed only one smaller EPC thermal plant of 2x125Mw in China.
CNEEC, which was awarded the plum contract, was also allowed to increase its bid price by 30 percent after bids had closed. The initial bid by CNEEC at tender was US$693 million. When the contract was announced, it had shot up to US$ 970 million.
There are also unconfirmed reports that key members of the BPC technical evaluation team were threatened and forced to change their recommendation from DEC/Zelan to CNEEC.
An investigation by DCEC, commissioned following a series of articles carried exclusively in the Sunday Standard, however, cleared both the BPC and CNEEC.
Vice President Kedikilwe stuck out his finger at the Sunday Standard which was concerned at CNEEC capacity to carry out the project and appealed to potential financers of the Morupule B Power Station to ignore media reports concerning the awarding of a tender for the project.