16 March 2017

Zimbabwe: Anxiety, Tension Over the U.S.$400 Million Highway Stake

Photo: The Herald
Some of the accidents between Harare-Beitbridge highway.

TENSION and anxiety are rising within the country's construction industry over how and when the 40 percent share earmarked for local players on the lucrative US$1 billion project to dualise the Beitbridge-Harare highway would be apportioned, amid fears that the Chinese contractor who was given the contract may sideline them.

Work on the first phase of the US$2,7 billion 900-kilometre Beitbridge-Harare-Chirundu highway dualisation project (the Beitbridge Harare portion valued at US$984 million) is expected to commence this month and players in the local construction industry have started jostling for their 40 percent share.

When, in December last year, government signed a 25-year Build-Operate-Transfer contract for the project with the financier, Geiger International -- an Austrian firm -- it was announced that 40 percent of the project's value was reserved for local contractors and material suppliers.

The financier came onto the project with China Harbour Engineering (CHEC), a Chinese parastatal, as the contractor to do the actual construction work.

It is this 40 percent share of the first phase of the project, valued at about US$400 million, that has caused excitement, anxiety and animosity among the local players.

This is the same emotive project that was subject of a ferocious 12-year legal wrangle between government and a consortium of local contractors calling itself ZimHighways that had won the tender to construct the road before it was inexplicably withdrawn.

In 2003, government awarded ZimHighways -- a consortium of 14 construction firms that included Murray & Roberts Zimbabwe (now Masimba Holdings), Costain Africa (now ZCL Holdings which is under judicial management), Kuchi Building Construction, Tarcon, Bitumen Construction Services (Bitcon), Joina Development Company and Southland Engineers -- a tender to dualise the 900-km highway at a cost of US$883 million.

The project could not take off amid accusations and counter-accusations between government and the consortium.

Government claimed the consortium had failed to prove it had the financial muscle to execute the project of this magnitude, while the consortium claimed some senior government officials were demanding huge bribes for them to facilitate the project.

The wrangle only ended in September 2015 when the Ministry of Finance struck a deal with the consortium, under which it withdrew the case that it had been winning in the courts in order for its members to be considered as subcontractors on the project.

At the time of the withdrawal of the court case, ZimHighways issued an incoherent statement in which it announced that it had come into an agreement with government.

"ZimHighways and the Government of Zimbabwe, through the Minister of Finance have agreed as follows: ZimHighways undertakes to withdraw the matter," the consortium announced in a press statement co-signed by Finance Minister Patrick Chinamasa.

"The withdrawal of litigation by ZimHighways is to allow the Minister, both scope and free hand, to initiate and undertake negotiations for an appropriate financing model for, inter alia, the upgrading and dualisation of the Beitbridge/Harare road, free from litigation."

The consortium said in return, government had agreed to ensure local contractors, including ZimHighways, would be sub-contracted in the project.

It has remained a mystery why ZimHighways had to cut a deal with the Ministry of Finance, instead of the Ministry of Transport and Infrastructure Development with which it was brawling in courts.

However, it could not have been mere coincidence that the so-called agreement came less than a month after the then transport minister, Obert Mpofu, had invited local and foreign firms to submit bids for the project, in disregard of the then on-going court process.

This followed a threat Mpofu had made in November 2014, when he told stakeholders in Victoria Falls attending a familiarisation tour of the Victoria Falls International Airport that his ministry had decided to go ahead and engage new players to work on the road regardless of what the outcome of the court challenge would be.

"We have decided to say no, we cannot wait for the court case. We need to start doing something and we have already approached a number of financiers to come on board. This is our busiest road and can't be held back forever by a court case," Mpofu had said.

This led to speculation that some government mandarins, with financial interests in the project, had arm-twisted ZimHighways into withdrawing the court case.

Fears are now abound that the same government officials could be out to connive with the contractor on the project to elbow the local players out of the lucrative contract whose cost has more than trebled from the US$883 previously quoted by ZimHighways.

Construction Industry Federation of Zimbabwe (CIFOZ) chief executive officer, Martin Chingaira said they had no information as to the finer details of the package.

"We have no information at all on the project. Everything is being done at the Ministry (of Transport)," Chingaira told the Financial Gazette. "We understand that our colleagues at ZBCA have had a meeting with ministry officials on the matter (so) you can talk to them."

Zimbabwe Building Contractors Association (ZBCA) president, Ransom Nherera, confirmed that they met Transport and Infrastructure Development Minister, Joram Gumbo and senior ministry officials to check on the details of the much-awaited contract as part of their mandate from the association's congress held late last year that required the association's leadership to keep members updated on this project.

"As an association, we have taken it upon ourselves to agitate for the implementation of that 40 percent so we sought an audience with the Minister (Gumbo) and we were assured that 40 percent of the work reserved for local players would indeed be made available," Nherera told the Financial Gazette.

Shortly after the meeting with Gumbo, ZBCA started inviting its member firms to register all the resources they have at their disposal -- both technical and human -- as it gets ready to establish consortiums through which its members would be bidding when the contractor starts inviting local players to participate on the project.

Gumbo has told the Parliamentary Portfolio Committee of Transport and Infrastructure Development that the project was expected to kick off this month.

At the ZBCA congress held in November last year in Nyanga, Vice President Emmerson Mnangagwa warned local contractors to be always vigilant when dealing with the Chinese, saying the country's Oriental bosom friends could not be entirely trusted.

"The Chinese are our very good friends... all-weather friends, but if you give them a contract and you blink, they will bring in all the labour, all the sand to make mortar... everything, so you must always be awake to remind them that labour is available locally, water is available locally, sand is available locally otherwise they will bring everything from their country like what has happened before," Mnangagwa warned the building contractors.

There have been strident complaints from local contractors and suppliers that the only thing that the Chinese, who are working on government's "mega deal" projects buy locally is drinking water, while everything from cement to nails, to toilet paper is imported from China.

It is this behaviour by the Chinese that the local contractors are wary of.

What makes the project dicier is that CHEC, the Chinese government-owned firm that is the main contractor on the project, has been blacklisted by the World Bank from tendering for projects funded by the Breton Woods body because of tender rigging and fraud allegations.

There are also fears that the project could see a repeat of the corruption and shoddy workmanship that characterised the Joshua Mqabuko Nkomo Expressway (Airport Road) dualisation project, which was completed after inordinate delays amid allegations of inflated cost structures, shoddy workmanship, unprofessional conduct and gross incompetence by the local contractors, among other things.

Given the history of this latest project, there is a real possibility that some politically connected firms without any real road construction experience could end up being hired, resulting in poor workmanship, as was exposed by the Office of the Auditor General on the Airport Road.

While there are many reputable players in the local construction sector, it is not unusual in Zimbabwe for tenders to be corruptly awarded to accommodate the personal financial interests of some government officials and their cronies.

Asked what back-up strategy the local contractors have in case the 40 percent stake does not come to them, Nherera said they believed that everything was being done is good faith.

He said it was a matter of contractual obligation on the part of the financier and the contractor to deliver on their side of the bargain and Gumbo had assured them that this would be done.

Gumbo and other senior government officials have repeatedly assured local players that the engagement of sub-contractors would be done in a transparent manner by Geiger International and the main contractor through a tender process flighted in the local media.

The Chinese contractors working on the multi-million dollar Kariba South Hydro hydropower expansion project made a show of engaging local partners at the start of the project, but these were later dropped off one after the other, leaving it to do the bulk of the work by itself, resulting in very little, if anything, of the money from the loan that the Chinese government extended to the Zimbabwean government on this project leaving Beijing.

It appears like the first hurdle for the local players is to get the 40 percent share from the contractor, and the next hurdle would be sharing the cake among themselves, which could turn out to be a cut-throat affair. This impending sharing process is not being helped by the us-and-them attitude being displayed by the former members of ZimHighways who somehow appear to be taking it for granted that the 40 percent share should be exclusively theirs by virtue of the deal that resulted in them withdrawing their court challenge.

"Our understanding is that they are just like us in that they are part of the 40 percent although in their case they could be having a head-start over the other players," Nherera said.

This has not been made easier by the schism existing between the country's two main bodies representing players in the industry--CIFOZ and ZBCA--whose merger talks have been protracted for several years.

If the contractor and the financier could honour their side of the bargain, US$400 million is such a huge boost to the country's moribund construction sector that has not seen any meaningful investment in a long time.

Nherera said while he was confident that the 40 percent share would be delivered, their main fear was on the pricing structure that the main contractor could give on a take-it-or-leave-it basis, resulting in some desperate contractors accepting contracts that they may not be able to execute.

He said this had been the case on the US$206 million Plumtree-Harare-Mutare highway project where the main contractor, Group Five of South Africa, offered a costing model that was uneconomic for local players resulting in some of the firms sub-contracted to do the work failing to deliver.

Because of various distortions in the Zimbabweans economy, the costing models for local players in virtually all sectors usually tend to be on the higher side, making them uncompetitive when compared to foreign competition.

This is the reason why ZBCA has started forming consortiums to work of the project because if it is left to become a free-for-all affair between players, it would be difficult for individual players to negotiate viable costing structures and this would present an opportunity for some fly-by-night companies with political connections to sneak in.

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