20 April 2014

Mozambique: Italian Rail Company Seeking to Sue Mozambique

Maputo — The Italian rail company Salcef Construzioni Edili e Ferrioviarie is suing the Mozambican state over the cancellation of a deal between the government and Salcef to build an overground metro in Maputo and Matola, although the government retorts that the deal as proposed by Salcef would have damaged the interests of the Mozambican state.

According to an investigative report by the Mozambican anti-corruption NGO, the Centre for Public Integrity (CIP), the Italian company is seeking compensation of 100 million euros (138 million US dollars).

The arrangement between Salcef and the government never reached the stage of a formal contract, under which the Italian company would build and operate a metro system.

But on 21 March 2011, the then Transport Minister, Paulo Zucula, did sign a memorandum of understanding with Salcef for viability studies into what was called “an integrated transport system” between Maputo and Matola, involving the construction of two overground metro lines.

CIP notes that this followed a 2010 visit by Zucula to Italy, and that there was no public debate about the overground metro, and no tender. Instead the government negotiated directly with Salcef.

In July 2011 Salcef presented the government with its feasibility study, covering the construction and operation of the overground metro and electric trams.

It also looked at the installation of a multimodal system, where commuters would leave their personal vehicles in car parks and catch either electric buses or metro trains to their destinations.

According to the feasibility study, the whole system would be fully operational by 2026. However, in the first phase there would be a network of buses and trains linking Matola, Maputo and the district of Marracuene.

According to SALCEF, the implementation of the first phase was budgeted at 955 million dollars, of which 40 per cent would cover the cost of purchasing rolling stock, traffic management systems and safety equipment. There were even optimistic forecasts that parts of the system could be operation by 2013.

The government seemed happy with the feasibility study. A letter from the Transport Ministry, dated 27 July 2011, and cited by CIP, said that the study “corresponds perfectly with the terms of the memorandum and meets all of Mozambique's expectations”.

Salcef was thus given the green light to push ahead and raise funds for the project. Over a year passed, during which Salcef set up a subsidiary in Mozambique.

Then a government resolution of 1 August 2012 authorised “negotiation of the terms and conditions for the development of the undertaking, in the form of a Public Private Partnership” with Salcef.

The same resolution authorized Zucula to set up a technical team to draw up a contract leasing the new transport system to Salcef, Zucula was to present the draft contract to the full government within 60 days.

The leaseholder would not be Salcef itself, but the Public Private consortium.

The contract was conditional on the formation of a Special Purpose Company that would be set up between Salcef, the Mozambican publicly owned ports and rail company CFM, and the Maputo and Matola municipal councils.

In September 2012, as requested, Salcef submitted to the Interministerial Technical Committee set up by the government its proposal for the shareholders in the Public Private Partnership. But on 26 September, the Technical Committee told Salcef that the contract could not be signed, and there would be no implementation contract before approval of a detailed project.

On 10 October, the Committee submitted a proposal from the Finance Ministry under which the costs of resettling the people who would have to move when the metro lines were built would be borne by the leaseholder and not the government.

In February 2013, the government informed Salcef that a decision on the nature of state funding for the project was dependent on Zucula's opinion.

Salcef asked Zucula to set up a meeting between the Italian company and Prime Minister Alberto Vaquina or President Armando Guebuza. Zucula replied that the final decision would be taken by the Council of Ministers (Cabinet) on 13 August.

A fortnight after that meeting, the government informed Salgef that it would not extend negotiations, since the 60 day deadline given in the 1 August 2012 resolution had long expired, and would not be extended. The financing model proposed by Salcef in its detailed project, it said, was “incompatible with the interests of Maputo and Matola”.

Salcef responded by taking the government to the International Arbitration Tribunal in Paris. In a letter to the Tribunal Secretariat, is said the government had cancelled the project without giving its reasons, and blamed the government for the lengthy delays.

The government, Salcef said, had stopped responding to its proposals and then rejected them without any justification. It also claimed that the government had submitted price proposals contrary to those practiced in the market of Public Private Partnerships.

Salcef claims that the whole affair caused it losses of 100 million euros, and it is demanding that money back as well as all documents, designs, and other data supplied since the signing of the memorandum of understanding.

The government has a very different line on this affair. A member of the Interministerial Technical Committee told CIP that the real problem was that ”Salcef didn't have any money”.

The government has asked Salcef for financial guarantees, but none were forthcoming. For its part, Salcef demanded as a guarantee the existing Maputo-Matola railway, which CFM immediately rejected.

CIP's source on the Technical Committee said that draft of the lease contract “damaged the interests of the state”, and clearly threatened “to repeat the mistakes of the past”, when the state has assumed all the risks of public private partmerships.

“That was the problem we faced with the Italians”, the source said. “They wanted us to take the risks. I should also say there were unclear interests of someone at the top of the Ministry involved”.

Salcef is also irritated that the government went on to negotiate a Master Transport Plan for Maputo with the Japanese International Cooperation Agency (JICA). This plan is based on s system of dedicated bus lanes, which Salcef claims is plagiarised from its proposal.

This seems questionable, in that the proposal, as publicly presented earlier this year, said nothing about an overground metro. The dedicated bus lanes are constrained by the geography of the city, and so it would hardly be surprising if there was some overlap between the Salcef and JICA proposals.

CIP argues that the key problem is the government's decision to work with a single preferred partner, rather than hold a public tender, and points out that the law on public private partnerships states that the general rule is the holding of public tenders, with direct negotiations and awards of contract as the exception.

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