Probe into US$144m council loan opens can of worms

via Probe into US$144m council loan opens can of worms | The Herald July 19, 2014 by Innocent Ruwende

HARARE City Council officials did not create project bank accounts for the US$144,4 million loan facility obtained from China’s Eximbank for the rehabilitation of waterworks, making alleged corruption surrounding the funds difficult to trace, an investigation has revealed.
The probe was done by a committee chaired by councillor Stewart Mutizwa and appointed by council recently to look into the implementation of the Harare water and rehabilitation project .

“Council does not have a project bank account for this project,” said the committee in its report that was presented to a special council meeting yesterday.
“All payments for this project are made offshore by CMEC (China Machinery and Equipment Corporation).

“The investigation failed to inspect project bank accounts and payment documents to enable it to establish whether there was any abuse of the project funds.
“If, for example, the contract prices were fixed and agreed upon with criminal and corrupt minds, no one can track payments towards kickbacks.”

The committee said it was difficult for the city to audit the project and trace payments made to date since there were no bank accounts.
It said the city officials failed to provide project accounting reports and there were no internal audit reports either.

“These reports are key when tracking budgeted costs and actual costs, variance analysis reports, project cash flows, fixed assests tracking, errors of commission and ommission, project deliverables, negiligent and wilful misstatements, among other things,” said the committee.

“These are the kinds of reports the finance committee should be receiving on a periodical basis.”
The committee showed that the deal favoured the contractor, CMEC, while council failed to assert ownership of the project as there was lack of information sharing between the project team and council.

“In the overall, the contract prices are on the high side if regard is taken to comparatives that are eloquent in the World Bank report,” said the committee. “However, the prices can be reviewed and varied by mutual consent.

“In the contrast, contract prices and terms have been signed off by the outgoing mayor (Muchadeyi Masunda) and the town clerk (Dr Tendai Mahachi). There is no guarantee on whether City of Harare is able to claim the balances back, especially if CMEC argues that the prices were negotiated and agreed upon.”

The committee said the possibility of kickbacks around the deal were both reasonable and likely.
The investigation team noted that there was no documented price comparisons to ensure that materials and equipment being sourced from CMEC and its Chinese manufacturers were competitively priced.

It was discovered that the city or its parent ministry, the Ministry of Local Government, Public Works and Nationl Housing, had no direct control of the cash movements from China Eximbank to CMEC and finally to the supplier or service provider.

“Particular note should be taken of the fact that the labour charge in the contract is US$28 million being 38 percent of the value of the fitted equipment,” said the committee. “This is a factor of three times the industry norm for a refurbishment contract.

“In the absence of any justification for the magnitude of this cost, there is an implication of an over charge in the region of US$20 million.”
On the procurement of 21 top-of-the-range vehicles by city officials using part of the money, the committee said the cost, make, type and model of the vehicles bought should have been responsive to nature of the project.

“For example, of what use is a Discovery 4 to the water project?” said the committee. “The evidence led by the project procurement manager and the project finance manager was to the effect that project team members were asked by the project executive to choose vehicles of their choice and procure quotations and pro-forma invoices for prompt purchases and payments.
“The project executive and his team did not follow City of Harare procurement procedures and regulations in the acquisition of items worth US$8 million.”

The 21 vehicles purchased surpass the number of the project team members, which stands at 15.
The committee concluded that council should take practical and effective ownership of the project as its knowledge and involvement was limited or not visible.

The loan amount approved was US$144 425 947,20 and goods worth US$5 487 524 have been delivered.
The loan attracts an interest rate of three percent per annum and the loan repayment period is nine years.

The anomaly in the actual prices of the equipment ordered and those tendered in the contract was also discovered following an assessment of the deal by consulting engineer Peter Morris in December last year.