Corruption: A social disease – What’s in it for me? Fraud and corruption in public procurement (Part 2)
Johan Coetzee
Poor planning, scheduling, and cost overruns can be linked to corruption when it comes to development projects.
The following discussion will deal with the causes of these problems with megaprojects in the energy sector in South Africa, one of the largest economies in Africa. Then the focus will shift to Namibian projects.
Namibia is consistently rated by Transparency International on corruption and governance as one of the top six least corrupt countries in Africa. If the current situation in procurement in Namibia is illustrative of some of the better procurement practices, one must deduce that in most other African countries, procurement practices are much worse.
A SOUTH AFRICAN EXAMPLE
Medupi-Kusile, two coal-fired power plants, are being built in South Africa under the auspices of ESKOM, the public power utility. The initial planned completion date of these projects was 2014/15; then moved to 2023 (Nathan).
The initial project cost for Medupi Kusile was R81 billion. However, the project cost in March 2021 had risen to R300 billion: R145 billion for Medupi and R161,4 billion for Kusile (Thanduxolo & Skiti).
The difference equates to a cost overrun of 370%. Because the project has not been completed, this percentage may increase.
Reasons for schedule and cost overruns include: “slow decision making, shortages of skilled labour, inaccurate material estimating, unforeseen ground conditions, poor material planning, changes in the scope of on-site work, contractual claims, variation orders and poor site management” (Tshidavhu & Khateli).
The top five challenges include “poor site management, inadequate managerial skills, poor monitoring and control, unstable management structure, and lack of experience together with poor organisation structures”. All these findings are management- and organisationally-related.
Tshidavhu and Khateli deduced that that “there is not enough local management and organisational expertise in South Africa to ensure the proper planning and effective implementation of energy megaprojects”(Tshidavhu & Khateli). However, neither their literature nor their survey questions included an investigation into possible political influence.
Due to cadre deployment by the ruling party (the African National Congress / ANC), several professionals, including engineers, have left ESKOM since 1994. The political contributor to cost and schedule overruns could be relevant here because of cadre deployment (Gumede).
From an analysis of all sources cited, the following key contributors to the cost overruns at Medupi Kusile emerge: dysfunctional internal and external auditors, inadequate managerial skills, unstable management, lack of experience, design flaws in the boilers, poor site management, high turnover of project and site managers, corruption in contract amendments, years of extensive delays, ESKOM staff resignations due to alleged corruption not being investigated, poor monitoring and control of projects, and finally, the mismanagement of funds.
IN NAMIBIA
South Africa’s neighbour, Namibia, is dealing with related challenges in water and energy projects.
The planned cost of the Neckartal dam increased from N$900 million to N$3,5 billion. The cost of the Walvis Bay Petroleum facility increased from N$950 million to more than N$3 billion.
The project cost overrun of the Neckartal dam is 389% and the petroleum facility 316%. Against the backdrop of a Namibian government budget of less than N$60 billion, these overruns do have huge opportunity cost implications.
As in energy and water, road construction in Namibia is also tainted with schedule and cost overruns. Kruger, a Namibian consulting civil engineer who specialises in road construction projects and has executed projects in the Democratic Republic of Congo, Angola, Kuwait, and Saudi Arabia, has stated that in Namibia, schedule and cost overruns since Independence in 1990 have become the norm (Kruger).
Checks and balances for completing projects on time and within budget have been watered down since 1990. Project Control Engineers (PCE) appointed in charge of large road construction projects were appointed without adequate experience, and often without experience in road construction. For example, the Windhoek-Okahandja double lane highway of 70km is being built at a cost of N$78 million/km. The going rate for a single lane road is N$8/km (Kruger). The amount of traffic on this road does not justify the cost of what can be called a ‘dream road’.
Currently, all public road construction projects have schedule and cost overruns running into hundreds of percentages.
If one analyses the bidding and tendering processes of road construction projects, the problem starts with specifications written in such broad terms that they are open to manipulation. The weighting attached to technical specifications vs other specifications, for example financials, are often changed to favour a specific tenderer with connections to a public official in charge of a specific tender.
After the technical evaluation and during the bidding process when cost estimation is requested from bidders, information about costing of a specific tenderer is often leaked to competitors by a public official in a tender office in exchange for undue benefits.
For project funding, external loans are generally secured from the Export-Import (EXIM) Bank of China. Conditions of such loans include the fact that Chinese State-Owned Enterprises (SOEs) must be allowed to tender.
Such Chinese SOEs are controlled by a holding company. These companies collude in price fixing and EXIM Bank does not have strict control measures for releasing funds at different project stages, because the more a borrower is indebted, the more advantageous it is for China.
In contrast, the African Development Bank (ADB) that is seldom used for the funding of Namibian road construction, has strict control measures such as processes for verification of project progress before releasing funds as well as for auditing before they release money directly to contractors and not to governments; thereby limiting cost overruns and corruption (Kruger).
References:
Melani Nathan, Falling short: Medupi and Kusile an ESKOM plan designed to fail – Chris Yelland, biznews.com.
Thanduxolo Jika, & Sabelo Skiti, More woes for Medupi Kusile, Mail and Guardian.
(accessed on19 March 2020).
Fhumulani Tshidavhu, & Nthatisi Khateli, “An assessment of the causes of schedule and cost overruns in South African megaprojects: A case of the critical energy sector projects of Medupi and Kusile”, Acta Structilia (June 2020).
William Gumede, Cadre Deployment: Building or breaking a capable state? Catholic Parliamentary Liaison Office (CPLO) South Africa, Webinar series, 22 September 2021.
Hendrik Kruger, Road construction projects, retired and formerly from Namibia Project Managers & Consultants, (Windhoek), interview, 22 September 2021.
[email protected]
Poor planning, scheduling, and cost overruns can be linked to corruption when it comes to development projects.
The following discussion will deal with the causes of these problems with megaprojects in the energy sector in South Africa, one of the largest economies in Africa. Then the focus will shift to Namibian projects.
Namibia is consistently rated by Transparency International on corruption and governance as one of the top six least corrupt countries in Africa. If the current situation in procurement in Namibia is illustrative of some of the better procurement practices, one must deduce that in most other African countries, procurement practices are much worse.
A SOUTH AFRICAN EXAMPLE
Medupi-Kusile, two coal-fired power plants, are being built in South Africa under the auspices of ESKOM, the public power utility. The initial planned completion date of these projects was 2014/15; then moved to 2023 (Nathan).
The initial project cost for Medupi Kusile was R81 billion. However, the project cost in March 2021 had risen to R300 billion: R145 billion for Medupi and R161,4 billion for Kusile (Thanduxolo & Skiti).
The difference equates to a cost overrun of 370%. Because the project has not been completed, this percentage may increase.
Reasons for schedule and cost overruns include: “slow decision making, shortages of skilled labour, inaccurate material estimating, unforeseen ground conditions, poor material planning, changes in the scope of on-site work, contractual claims, variation orders and poor site management” (Tshidavhu & Khateli).
The top five challenges include “poor site management, inadequate managerial skills, poor monitoring and control, unstable management structure, and lack of experience together with poor organisation structures”. All these findings are management- and organisationally-related.
Tshidavhu and Khateli deduced that that “there is not enough local management and organisational expertise in South Africa to ensure the proper planning and effective implementation of energy megaprojects”(Tshidavhu & Khateli). However, neither their literature nor their survey questions included an investigation into possible political influence.
Due to cadre deployment by the ruling party (the African National Congress / ANC), several professionals, including engineers, have left ESKOM since 1994. The political contributor to cost and schedule overruns could be relevant here because of cadre deployment (Gumede).
From an analysis of all sources cited, the following key contributors to the cost overruns at Medupi Kusile emerge: dysfunctional internal and external auditors, inadequate managerial skills, unstable management, lack of experience, design flaws in the boilers, poor site management, high turnover of project and site managers, corruption in contract amendments, years of extensive delays, ESKOM staff resignations due to alleged corruption not being investigated, poor monitoring and control of projects, and finally, the mismanagement of funds.
IN NAMIBIA
South Africa’s neighbour, Namibia, is dealing with related challenges in water and energy projects.
The planned cost of the Neckartal dam increased from N$900 million to N$3,5 billion. The cost of the Walvis Bay Petroleum facility increased from N$950 million to more than N$3 billion.
The project cost overrun of the Neckartal dam is 389% and the petroleum facility 316%. Against the backdrop of a Namibian government budget of less than N$60 billion, these overruns do have huge opportunity cost implications.
As in energy and water, road construction in Namibia is also tainted with schedule and cost overruns. Kruger, a Namibian consulting civil engineer who specialises in road construction projects and has executed projects in the Democratic Republic of Congo, Angola, Kuwait, and Saudi Arabia, has stated that in Namibia, schedule and cost overruns since Independence in 1990 have become the norm (Kruger).
Checks and balances for completing projects on time and within budget have been watered down since 1990. Project Control Engineers (PCE) appointed in charge of large road construction projects were appointed without adequate experience, and often without experience in road construction. For example, the Windhoek-Okahandja double lane highway of 70km is being built at a cost of N$78 million/km. The going rate for a single lane road is N$8/km (Kruger). The amount of traffic on this road does not justify the cost of what can be called a ‘dream road’.
Currently, all public road construction projects have schedule and cost overruns running into hundreds of percentages.
If one analyses the bidding and tendering processes of road construction projects, the problem starts with specifications written in such broad terms that they are open to manipulation. The weighting attached to technical specifications vs other specifications, for example financials, are often changed to favour a specific tenderer with connections to a public official in charge of a specific tender.
After the technical evaluation and during the bidding process when cost estimation is requested from bidders, information about costing of a specific tenderer is often leaked to competitors by a public official in a tender office in exchange for undue benefits.
For project funding, external loans are generally secured from the Export-Import (EXIM) Bank of China. Conditions of such loans include the fact that Chinese State-Owned Enterprises (SOEs) must be allowed to tender.
Such Chinese SOEs are controlled by a holding company. These companies collude in price fixing and EXIM Bank does not have strict control measures for releasing funds at different project stages, because the more a borrower is indebted, the more advantageous it is for China.
In contrast, the African Development Bank (ADB) that is seldom used for the funding of Namibian road construction, has strict control measures such as processes for verification of project progress before releasing funds as well as for auditing before they release money directly to contractors and not to governments; thereby limiting cost overruns and corruption (Kruger).
References:
Melani Nathan, Falling short: Medupi and Kusile an ESKOM plan designed to fail – Chris Yelland, biznews.com.
Thanduxolo Jika, & Sabelo Skiti, More woes for Medupi Kusile, Mail and Guardian.
(accessed on19 March 2020).
Fhumulani Tshidavhu, & Nthatisi Khateli, “An assessment of the causes of schedule and cost overruns in South African megaprojects: A case of the critical energy sector projects of Medupi and Kusile”, Acta Structilia (June 2020).
William Gumede, Cadre Deployment: Building or breaking a capable state? Catholic Parliamentary Liaison Office (CPLO) South Africa, Webinar series, 22 September 2021.
Hendrik Kruger, Road construction projects, retired and formerly from Namibia Project Managers & Consultants, (Windhoek), interview, 22 September 2021.
[email protected]
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