Publication: Engineering News Issued: Date: 2003-01-27 Reporter: Martin Zhuwakinyu

Corruption Busting : Lesotho in Brave Fight Against Graft



Engineering News

Date 2003-01-27


Martin Zhuwakinyu



The multibillion-rand Lesotho Highlands Water Project (LHWP), which transfers huge quantities of water from the rugged peaks of the Mountain Kingdom to the industrial heartland of South Africa, has always fitted the current stereotype of large dams – that they are massive, expensive and, environmental campaigners would say, destructive.

The conviction on bribery charges last year of former Lesotho Highlands Water Authority (LHWA) CEO Masupha Sole and Canadian engineering firm Acres International added another dimension – corruption.

The LHWA is responsible for the construction, operation, maintenance and management of the gigantic project’s components which fall within Lesotho’s borders.

Indeed, Dr Daryl Balia, chairperson of graft watchdog Transparency International (TI) in South Africa, says the potential for bribery is highest in the water, mining, oil, arms and forestry sectors, where contracts tend to be huge and companies with the capacity to implement them are few.

But Balia says the Lesotho government’s decision to prosecute Acres and several other international companies for allegedly greasing Sole’s palms sets a useful precedent for African countries which, he claims, have long been perceived as venal but are, in some cases, the victims of unscrupulous multinational companies.

The LHWP case vindicates our thesis that much of the corruption which takes place in Africa is initiated by the multinationals, especially where the procurement of goods and services is involved.

There is a tendency to infer that Africa is inherently corrupt, but what we have on the continent is petty corruption, while grand-scale corruption is, to a large extent, driven by big corporations from the developed world.

After all, it takes two to tango, and there is no basis for the assertion that Africans are corrupt,” says Balia, whose other gripes against the LHWP are that compensation for displaced Lesotho families has lagged behind and that community-assistance programmes have faltered.

South African Federation of Civil Engineering Contractors (Safcec) export manager Paul Rogers observes that international companies bidding for big infrastructure projects in Africa tend to offer bribes because of their belief that this is how business is done on the continent.

It is not true that we are more corrupt than other continents,” he says.

However, he concedes that countries emerging from armed conflict tend to present the ideal environment for corruption.

He cites the Democratic Republic of Congo (DRC), from which a United Nations investigating team alleges that millions of dollars worth of diamonds and other minerals were spirited off by scheming government officials and military officers from Zimbabwe, Rwanda and Uganda during the last few years.

The three countries were among at least six sucked into the DRC civil war, which broke out in 1998, when rebel leader Laurent Kabila fell out with his Rwandan and Ugandan allies, who had helped him oust veteran dictator Mobutu Sese Seko.

But once the Wild West scenario characterising a strife-torn country dissipates, Africa is no more corrupt than other regions of the world, says Rogers.

The LHWP was designed to be built in phases, with phase 1A – completed at a cost of about R11-billion – comprising the 185-m-high double- curvature Katse dam, a 45-km transfer tunnel, a dam and hydropower station at Muela, a 42-km delivery tunnel and outflow structure.

Phase 1B, which cost an estimated R6,5-billion, comprises the 145-m-high 620-m-long Mohale dam; a 32-km tunnel linking the dam to Katse dam; the 20-m-high 180-m-long Matsoku weir and 6,2-km tunnel, which will deliver up to 10 m3 of water a second into Katse dam.

Phases 1A and 1B yield about 27 m3 of water a second, and this is used in Gauteng and five other South African provinces – Mpumalanga, the Free State, the North West, the Northern Cape and Limpopo – although in smaller quantities.

Three more phases of the massive project could be implemented in the future, if South Africa needs more water and no better alternative sources are found.

The governments of South Africa and Lesotho are joint owners of the water-transfer components of the project, which was funded through credit facilities and loans in the local financial market, while a small proportion was funded by the World Bank and the European Investment Bank.

South Africa’s royalty payments for the fresh water, which an LHWA brochure calls Lesotho’s ‘White Gold’, amount to $20-million a year, about a quarter of the kingdom’s total exports.

Apart from Acres – which is appealing its conviction and $2-million fine – the companies charged with bribing the LHWA’s Sole are France’s Spie Batignolles; Lahmeyer (Germany); Dumez (France); ABB (Sweden); Impreglio (Italy); Cegelec (France); Gibb (UK) and Sogreah (France).

The prosecution has completed its case against Lahmeyer, and the court recently rejected the company’s application for dismissal of the charges.

The proceedings will continue on February 3, when Lahmeyer will start its defence,” says a lawyer familiar with the case.

Also likely to be charged are members of the Highlands Water Venture (HWV) consortium – which built Katse dam and comprised Germany’s Hochtief, Impreglio, Bouygues (France), Stirling International (UK), Kier International (UK), Concor (South Africa) and Group Five (South Africa) – and the Lesotho Highlands Project Contractors, which built the tunnels in Lesotho and was made up of Spie Batinolles, Balfour Beatty (UK), Compenon Bernard (France), LTA (South Africa) and ED Zublin (Germany).

Delivering his judgment in the case against Sole, Justice Cullinan noted that the accused companies channelled the equivalent of R4 956 139 at December 1996 exchange rates into the former LHWA boss’s Swiss bank accounts through intermediaries.

Department of Water Affairs and Forestry (Dwaf) international projects chief director Willie Croucamp, tells Engineering News that the bidding processes for the various contracts were above board.

I am commenting on the water-transfer aspects of the project, but cannot talk about the Muela hydropower project, because this is solely the responsibility of the Lesotho government,” he elaborates.

The contracts were awarded on merit, and all the bribery that occurred took place after the winning bidders were identified,” says Croucamp, a former member of the Lesotho Highlands Water Commission, the binational board which oversees the project.

Apparently, after a company was named the winning contractor or service provider, the local agents employed by these companies would approach them for a bribe.

It would appear easy for a firm to refuse to pay a bribe after it has clinched a contract, but Croucamp points out that “if there is no good relationship, a client can make life very difficult for a contractor or service provider during the implementation of a project, which, in this case, could take up to six years”.

The agents were employed by the overseas companies to, ostensibly, advise and act for their principals, using their intimate knowledge of local conditions.

Croucamp says the conviction of Sole and Acres has far-reaching implications for the international construction industry.

In particular, the use of so-called representation agreements with local companies or individuals to conceal acts of bribery have been exposed.

The court found that the representation agreement was a sham and the representative merely acted as a conduit for the payment of bribes,” he says.

The Lesotho case highlights the difficulties involved in exposing corruption in mega construction projects, says Croucamp.

For example, it took the prosecuting authorities years to gain access to Sole’s bank accounts in Switzerland.

But for Balia, the most important lesson from the scandal is that, given the will, poor countries can help fight corruption, even if powerful multi- nationals are implicated.

We commend the government of Lesotho for the step it took to punish corruption, and we hope that this will be a good precedent for the rest of the continent.

This move sends the right signals, and it will also deter the petty corruption that may be taking place in Lesotho,” says Balia, adding that the integrity pacts that TI wants con- tractors and service providers to sign before implementing major projects will go a long way towards curbing corruption.

For Safcec’s Rogers, the message for multinationals which bribe their way to lucrative contracts is: stop it – your deed will backfire sooner or later.

The fact that, so far, no South African contractor or service provider has been charged in its own right is proof that the continent is not as corrupt as is believed, says Rogers.

African companies are familiar with African conditions, and do not need to grease palms to win contracts,” he states.

Croucamp concurs, adding that he knows of several local firms which were approached by the Lesotho agents but refused to part with their hard-earned cash.

Statistics provided by Safcec seem to corroborate the assertion that local companies are making inroads into Africa thanks to their knowledge of the situation on the ground.

Between 1990 and 1994, South African contractors’ yearly revenue from north of the Limpopo averaged R800-million to R1-billion, climbing to R3,8-billion in 2001 and about R5-billion last year.

Safcec calculates that turnover from the rest of the continent, now constituting about a third of total earnings, is poised to grow substantially over the next five to ten years.

A significant proportion of the growth in earnings from the rest of the continent – which used to be dominated by European civil contractors – is a result of African countries’ increasing preference for South African firms.

Recently, the World Bank published a list of corrupt and blacklisted companies, and not one was South African,” says Rogers.

This is so fundamental to the success of our companies, and I want to state this for the whole continent, ‘The perception of corruption is greater than the reality’,” he adds.

Croucamp and Rogers say the fight against corruption in big construction projects has intensified in the aftermath of the LHWP scandal.

For example, the World Bank has installed a hotline which callers can use to blow the whistle on companies paying bribes to win contracts.

If a company is proved to be guilty of this practice, it may be banned from tendering for World Bank-supported work for a period.

This will be damaging to the reputation of any company,” says Rogers.

He tells Engineering News that, following a tip-off which came through on the hotline, the bank is investigating a Nordic contractor alleged to have splashed out $10 000 to win a contract on the Bujangalli dam project, in Uganda.

Edmond Motseki, an operations officer at the World Bank’s Maseru office, says the Bretton Woods institution is awaiting the outcome of Acres’ appeal before deciding on the action it will take against the Canadian company.

But Croucamp says the case against Acres is so watertight that, in his view, the chances of the appeal succeeding are slim.

He stresses that the Lesotho bribery scandal will not dissuade the South African government from implementing major infrastructure projects with other African governments in the future.

The government is committed to the New Partnership for Africa’s Development,” he says, referring to the blueprint for Africa’s renaissance which, among other things, calls for closer cooperation among African states.

We are going to be more alert, watching out for traps and pitfalls, but we will never be negative about participating in joint projects,” he says.

With acknowledgement to Martin Zhuwakinyu and Engineering News.