THE AWARDING OF THE NDOLA-LUSAKA DUAL CARRIAGEWAY PROJECT TO AVIC IS BAD FOR ZAMBIA AND THE FUTURE AND SHOULD BE STOPPED OR REDONE (PART 2)
By Shalala Oliver Sepiso
MY STANCE ON THE AWARD OF THE ROAD
Yesterday I asserted that the award by the Road Development Agency and the PPP Council for the Ndola-Lusaka Dual Carriageway Project has already been given to AVIC Consortium, which is officially called Macro-Ocean Investment Consortium (Messrs AVIC International Project Engineering Company, Zhejiang Communications Construction Group Co Limited and China Railway Seventh Group Co Limited) or the MOIC Consortium. I indicated that the announcement has delayed because a lot of wrong things were being done around the whole tender awarding process. I made my submission and I am making this one because we need the tender either redone so when AVIC gets the concession Zambia does not lose our or it is given to Velos Consortium, who are a Zambian entity and have followed the tender guidelines. I have no problem with AVIC getting this done if the right things are done. Right now we are in trouble!
As expected, our friends from the PF party attacked me and called me names for stating the obvious. Now Let me reiterate what I have saying for the last 5 months or so. As a proud praise singer, I always remained constant and consistent on these matters. I believe the best bidder for this project was and remains the Velos Consortium. This is mostly because they are local. Local is Lekker. Secondly, the companies in the Velos Consortium have been successful in their PPP projects thus far in Zambia and have the money to do the road. But I believe RDA, Ministry of Infrastructure and others have been biased, wrongly, towards AVIC. This, in the long run, won’t help us as a nation at all. Underline, I believe. So don’t sue me or attack me for my personal beliefs. When I started writing these development topics, I knew I would create enemies and could even be violently attacked for it but I soldier on for a better Zambia.
And have you noticed how our PF friends, who always sing songs that UPND are puppets of the West and of other foreigners and so give business for foreigners, have switched to singing that on this Ndola Dual carriageway, this Zambian consortium should not get the business? They are not singing their usual anthem of supporting local suppliers so we can keep all the money within the country. They have been advocating for contracts to be given to Zambians that are capable. When this looks possible on this road, they are now complaining. Why? Their benefactor AVIC getting this project favours PF. I believe that AVIC International is too close to PF to be treated with kid gloves. The same soft approach of leaving enemies behind has always come back to hit UPND hard. Government is simply funding PF by giving this project to AVIC. Lessons should be learnt.
Personally I don’t have a problem with AVIC having the tender. What matters is whether the award is free from blame and the deal is good for the country. But will a Chinese entity be willing to play the long term game of waiting for 25 years to get back its investment? Will the Chinese entity treat Zambians well as employees in toll gates and during construction and later rehabilitation works? Won’t AVIC hold this road for ransom seeing that it is owed more than USD 500m by the government from deals done during the PF era? Isnt AVIC proposing to lay off half the current toll-gate workforce and force government to pay redunduncy packages?
If we have to give AVIC the contract, let us not do it because we have to please China for helping us restructure debt in order to get the IMF deal. Lets give it to them because they are the best concessionaires. Otherwise we are better off giving it to the Velos Consortium, which is by Zambians and will benefit more Zambians in the process.
I have always said, remember that strategic decisions should always override everything else when doing such projects. This is President HH’s flagship project for his first term. RDA, PPP Council and Ministry of Infrastructure should not mess this up.
RDA, the PPP Council and the Ministry of Infrastructure have not done enough to give locals an advantage especially allowing tendering to be a clean game with no hidden incentives. The fact that funding is coming from within Zambia and not entirely from china makes it possible a local consortium to do the job. On this project, despite the local bid looking more attractive, the government evaluators seem to have had their minds were made up way before and broke all rules and also lost their sense of shame to award AVIC.
Detailed confidential reports have been submitted to the PPP council by the RDA on the proceedings of the ongoing negotiations. These reports have been compromised and have found their way in the hands of the MOIC consortium, who have been compromising some members of the PPP Council as well as within members of NRFA to accept their proposal which includes a Reduction in the Scope of Works, and the transfer of Design, Specifications, Operations and Maintenance Risks to the government.
Additionally, legal opinions have been provided to the PPP Council in the Negotiation Reports concerning the consequences of accepting the adjusted Concession Agreement provided by the MOIC Consortium, but the PPP Council seems to think otherwise.
It is not surprising therefore that the MOIC consortium has been stating that the Lusaka – Ndola Dual Carriageway Project has already been given to them by the Government of Zambia, even before the Negotiation procedures have been concluded. This means that they have influenced some members of the PPP Council, who have been compromised.
The MOIC Consortium also seems to be taking advantage of Government’s hurry to start rehabilitation works on the road and are holding them to Ransom. They are adamant on the Variant Bid, which they have submitted and are standing their ground on the deleted provisions of the Concession Agreement and Schedules whose risks they are forcing the Government to assume. Some senior members of the Government Negotiation Team have been threatened with dismissal by their superiors if they do not move to conclude the negotiations in favour of the MOIC Consortium. The fact that these team members are working under duress will definitely pave way for a Concession Agreement, which will disadvantage the Government and in future cause Zambia to suffer financial losses and suffer serious financial claims from MOIC, who would have put no Foreign Direct Investment in the project.
There are many problems with this project set-up apart from no FDI being involved and other issues I raised yesterday.
MORE ISSUES WITH THE AVIC BID
Yesterday I had a lot to write but that would have meant a longer article and less readers. So let me continue in this part 2. We have highlighted some of the concerns which make me uncomfortable with this proposed PPP project. I will continue with more so we all have a healthy discussion on this
1. AVIC BID IS NOT COMPLIANT: Yesterday I demonstrated that the AVIC bid was non-compliant because it did not respond to the specific terms of reference as outlined in the Request for Proposals (RfP). AVIC submitted a variant proposal which was still allowed surprisingly. Normally, alternative proposals, if permitted, should only be considered if the bidder has first submitted a compliant bid, which satisfies all the requirements of the RfP. If their compliant bid is the best evaluated, then the alternative bid can be considered. In this case, the AVIC bid just ignored what we Zambians want and they have arrogantly stuck tot heir plan and still insist on getting the job and deny government of revenue for many years.
2. UNDERPLAYING PROJECTIONS: Yesterday I highlighted that AVIC had underplayed figures in projections. This is dangerous as it will leave us a a poor road which can even survive the 25 years of the concessionaire and worse wont give us anything to use beyond the concession. For example, with regard to the Projected Equivalent Standard Axles (ESAs), the Lusaka-Ndola Dual Carriageway should be designed to probably carry between 60 to 80 million Standard Axles over the 25 year concession period. But AVIC says 20 million is adequate over 25 years! How? The other risk which should ordinarily be allocated to the private sector is traffic volumes over the concession period. The Chinese do not want to take this risk and so they have decided to downplay the figures to be on the safer side but we end up losing a lot in reality as they will mint as a result. And someone within government will sign off this, retire to their farm and leave the rest of us carrying this tab for the next 25 years!
3. THE CHINESE DO NOT WANT A PROPER PPP: I already explained yesterday that the Chinese don’t want going into a PPP proper i.e. a Build Operate and Transfer (BOT) model. Meanwhile we as Zambians want a PPP to save the country from more debt. The Chinese are used to Engineering, Procurement and Construction Contracts (EPC Contracts), occasionally known as a “Turnkey Contracts”, where they make their money and walk away after 4 or 5 years. In an EPC Contract, the contractor (“EPC Contractor”) holds the responsibility towards the design, procurement, construction, commissioning and handover of a project. This, the Chinese love because they are then in charge of procurement, supervision etc and use their materials from Chinese, their staff etc and little of local materials and staff get engaged as a result. The risk of operating the Ndola-Lusaka Dual Carriageway road project for 25 years is too high for the Chinese to get into such a long-term deal. This is why you see them trying hard to transfer the risks onto the Zambian government. And we have touched on some of the risks which are inherent to PPP projects in the Road Sector.
4. ABUSE OF NAPSA AND WORKERS’ COMPENSATION FUND MONEY: Taking of risks and risk taking, we have to remember that a PPP is fundamentally an allocation (or sharing) of risks between the private sector as well as the public sector. The rule of the thumb dictates that each risk is best allocated to the entity which is best suited to handle it. Messrs AVIC international coming into this partnership as a private entity should be allocated the financial risk. They should bring capital with them and not access NAPSA funds which are already a public sector funds. Using NAPSA and Workers Compensation Fund funds is as good as government or the public funding this project. And why should we use public funds and not allow government to get any share of the revenue due to some cunning projections made in the contract? Those in the government negotiating team must protect the government the public. Note further that road tolls are generally exempt of taxes so GRZ would only impose taxes on profits. Imposing taxes on road tolls would be double taxation for motorists. So does it make sense then for AVIC to be getting toll-gate fees without taxes for many years despite not giving us the design of the road we want because they want to save funds and take less risks?
5. THIS IS NOT A GREENFIELD PROJECT: This is not a greenfield project as there is an already an existing carriageway, albeit not in a very good condition, This carriageway is sufficient to be added as equity for the public entity (government). This existing thoroughfare already has tool gates on it and is already making money. Therefore, those negotiating should question the Financial Proposal by AVIC and demand that the projected toll revenues are shared between the public and private entity, The sharing can even be as low as a 10-90 percent as the ballpark figure for consideration as this is a brownfield PPP road project. The next day after inheriting the road, the concessionaire will be making money from toll-gate without having done anything yet. A revenue share is therefore not negotiable. Those signing this deal must make sure there is revenue sharing from day one.
6. LACKING LOCAL CONTENT AND WILLINGNESS TO PAY TOLL GATE FEES: As you I highlighted in my previous analysis, any local private proponents should have been given priority points against foreign concessionaires as part of affirmative action. PPP projects tend to carry sociopolitical risks which later affect Acceptability and Willingness to Pay (WTP). We may have heard last week on social media sentiments that GRZ had “sold” the Toll gates. This can be negative if the ownership of the project is not properly handled. People will end up shying away from paying and this will dismally affect the viability of the project. Such sentiments and willingness to pay are what led to the collapse of the Zamtel Lapgreen PPP and the RTSA Speed cameras with Austrian firm Kapsch. When Lapgreen came in as a foreign concessionaire without any local content, the agreement was marred with resentment and socio-political antagonism. Same with Kapsch PPP despite Kapsch being a renowned firm which handles highly technologically advanced PPP road projects in the USA and in Europe. They partnered with Lamasat who were not regarded as professionally local. It is very important that the proposed concessionaire has the following attributes: local content and representation in shareholding and if they’re foreign, they should bring their own foreign capital through an escrow account to be regulated through the central bank. These two points will always increase acceptance of PPP projects and WTP not only in Zambia but also in other jurisdictions. Anything else will not help the situation.
7. AVIC MAY NOT BE FLEXIBLE TO OTHER ROADS TO CB: AVIC has proposed doing the road in phases, Shockingly they are also proposing to doing components on certain conditions coming into play. These proposed variations remove from the picture by-pass roads and fly-over bridges at the beginning. The challenge is for the negotiating teams to marry the need for the investor to recover the investment within the period of the concession as advertised while also there is flexibility everyone to gain. AVIC may not allow flexibility should we try to open up new road connections along the same route. PPP projects is not properly handled end up locking investment in other areas the way the Kasumbalesa concession had stopped the development of Mukambo and Sakanya borders. We need the flexibility whereby GRZ is not locked in the deal, so that if need arises for another road network to easy movements, the concessionaire consortium should be compensated for the loss in revenue and the new development should go ahead. We don’t want to go the Kasumbalesa border way where we agreed not to develop Mukambo and Sakanya borders. We can’t develop these two borders until the Kasumbalesa concessionaire has recouped its investment as agreed.
8. NO SUBCONTRACTING BENEFIT: Experience of working with AVIC, which is the lead member of the MOIC Consortium, shows that they never give away sub-contracts to Zambian Contractors. So no benefit will come to any small contractor even though the law indicates at least 20% sub-contracting. In fact from my intel, they want to only have 5% for sub-contracting locals and even then they will not give anything to anyone and little will be done to them.
NOTE: I end here for this morning. I think we should be done with this topic by the time we hit part 4 or 5. In the next article I will bring out more technical comparisons of the two bids. For now, enjoy your day and Happy Independence Day. Its a free nation. Lets debate and not fight. Is there any day better than today to talk about being patriotic and supporting local consortiums? We are one, Whether PF or UPND.