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Guinea: Steinmetz $9 Billion Fortune at Risk in Soros-Backed Probe
By Matthew Campbell, Jesse Riseborough & Franz Wild - May 9, 2013
Lansana Conte, the former dictator of Guinea, once held sway over an asset that mining companies craved: the world’s largest undeveloped iron ore deposit, valued today at as much as $50 billion.
BSG Resources Ltd., the diamond producer controlled by Israeli billionaire Beny Steinmetz, was among those firms that came calling starting in 2005. The perks allegedly offered: A gift of a $60,000 diamond-studded gold watch and the promise of a $2.5 million commission to Conte’s wife if BSGR got the mining license. In 2008, BSGR was awarded the license.
Today Conte is dead, three people are under arrest and Steinmetz’s $8.9 billion fortune is threatened. U.S. prosecutors are probing whether a man linked to BSGR paid Guinean officials as much as $12 million in bribes for obtaining mining rights to a portion of the site. Citing similar suspicions, the new Guinean government has said it might strip Steinmetz’s company of the license — putting at risk a $2 billion payment he’s due and the reputation of a key figure in the global trade in high-end diamonds.
“As a scion from a notable traditional diamond family, he grew up knowing that what makes a man is his reputation,” said Chaim Even-Zohar, the author of “The Steinmetz Diamond Story,” a book on the billionaire’s business. “My guess would be that he is deeply hurt.”
Payoff Report
The allegations of payoffs are detailed in a 28-page report, obtained by Bloomberg, prepared by U.S. law firm DLA Piper. The firm was hired by Guinea at the recommendation of hedge fund billionaire George Soros, 82, who’s advising the government through his foundations. Soros, who regularly backs young democratic governments in eastern Europe and Africa, funded the initial DLA Piper investigation, said a person familiar with the matter who asked not to be identified discussing a private issue. His aim was to provide legal counsel to the government that could match the resources of big mining companies, the person said.
Steinmetz and BSGR, based in Guernsey, deny wrongdoing in Guinea and describe themselves as victims of a conspiracy by current Guinea President Alpha Conde and Soros to revoke the firm’s mining license.
BSGR “became the victim of numerous extortion attempts by individuals who were seeking economic gains,” it said today in an e-mailed statement. “The modus operandi of these attempts involved at times the use of forged documentation, blackmail and harassment. BSGR is confident that its activities and position in Guinea will be fully vindicated.”
Better Terms
The 57-year-old Steinmetz’s troubles show the high stakes for resource firms as increasingly assertive African countries, backed by Western donors and governments, re-open mining contracts to hunt for past impropriety and win better terms for citizens. The probes have slowed development of the Guinea site, known as Simandou, whose mining rights are also held by companies including Rio Tinto Group (RIO) and Vale SA. The mountain-top site contains an estimated 26.5 billion metric tons of iron ore resources, said Paul Gait, a mining analyst at Sanford C. Bernstein Ltd. in London.
“This is the most prospective, highest-grade deposit of as yet undeveloped iron ore in the world,” Gait said.
Born in Israel, Steinmetz grew up in the family diamond business, Steinmetz Diamond Group, founded by his father in 1940. The closely held company specializes in the largest and most valuable stones, among them the 203-carat Millennium Star Diamond unveiled by De Beers SA to mark the year 2000. New York-based Tiffany & Co. (TIF) loaned BSGR $50 million in 2011 to expand a mine in Sierra Leone. Steinmetz also supplies diamonds to New York-based Sotheby’s Holdings Inc. for the auction house’s product line.
‘Hard-Nosed’
The diamond group is valued at about $3 billion, accounting for the biggest portion of Steinmetz’s wealth, according to the Bloomberg Billionaires Index. The family’s other interests include mining, oil, gas and real estate.
“In business he is very hard-nosed, maybe bordering on the ruthless — but always legitimate and fair,” said Even-Zohar of Steinmetz, whom he counts as a “good friend.”
The Simandou controversy traces back to 1997, when London-based Rio Tinto was granted a government license to explore the iron ore mine. In 2008, a few months before he died, Conte stripped Rio of half its license, claiming that it wasn’t developing the site quickly enough. The government then awarded it to BSGR for free, which is typical in the industry. The company began spending $160 million preparing the remote site for mining.
Vale Stake
After 18 months, in 2010, BSGR agreed to sell 51 percent of the stake to Brazil’s Vale for $2.5 billion. Vale paid $500 million upfront and the two firms set up a joint venture to develop the site. The remaining $2 billion has not been paid.
“It was an extraordinary deal given its scale,” said John Meyer, an analyst with London-based SP Angel Corporate Finance LLP.
Vale has said it’s not implicated in the investigations.
A New York grand jury started its probe earlier this year into whether BSGR violated the Foreign Corrupt Practices Act by delivering bribes, according to prosecutors. The law bars companies with American links from engaging in bribery abroad. A portion of the alleged payments were sent to the U.S., prosecutors said.
On April 25 the grand jury indicted Frederic Cilins, a French citizen, on charges of witness tampering and obstructing the Guinea investigation. Cilins was described by Guinean Justice Minister Christian Sow as an “agent” of BSGR.
Widow Informant
In March he had met in Jacksonville, Florida, with a woman who was wearing a wire, and offered her more than $1 million in exchange for help burning documents related to the BSGR deal, according to the federal complaint.
The woman was Mamadie Toure, a widow of former president Conte who turned FBI informant in the hopes of reducing her own charges, according to a person familiar with the investigation.
The DLA Piper report described Cilins as an intermediary for payments from BSGR to Conte’s wives and for “gifts” to members of the president’s family and government officials. Cilins denies wrongdoing. BSGR today said it sought to work with Cilins and two other men, through a company called Pentler Holdings, from 2006 because BSGR lacked a “permanent presence in Guinea.”
Pentler took a 17.7 percent stake in BSGR’s Guinea unit in March 2006 before it was bought out by BSGR two years later, which is when the arrangement with Cilins ended.
In U.S. federal prosecutions, lower-ranking defendants are often offered lighter sentences in exchange for agreeing to testify against figures more central to alleged crimes.
License Review
The Guinean government began reviewing the Simandou license soon after Alpha Conde took office in 2010 as the country’s first freely elected president. Based on the DLA Piper report and its own investigation, the government last month arrested two BSGR employees in connection with the probe: Ibrahima Sory Toure, Mamadie Toure’s brother who was director of external relations, and Issaga Bangoura, a security official. Both men have denied wrongdoing.
BSGR has fought back vigorously. It’s taken aim at Soros, Conde and Rio Tinto, which it says established a “covert special project group dedicated to committing espionage” and harassed its workers by buzzing them with low-flying helicopters.
Public Relations
BSGR has also sued its former public relations adviser, FTI Consulting, accusing it of abetting a “smear campaign” directed by Soros. Soros is “determined to ensure” that the mining license “was withdrawn/canceled” by the government of Guinea, according to the lawsuit. It cited alleged comments by FTI executives that Soros had a “personal obsession” about BSGR.
Soros rejects the claim that he engaged in a smear campaign and that he conspired to strip Steinmetz’s license, a spokesman for Soros Fund Management LLC said in an e-mailed statement.
FTI and Mark Malloch-Brown, its chairman for Europe, the Middle East and Africa, deny working against BSGR and said they will contest the claim. Rio Tinto declined to comment.
Conde, who took office promising to root out corruption, has attracted significant foreign backers. Soros’s Revenue Watch Institute, an offshoot of his Open Society Foundations, advised Conde on a new mining code and anti-corruption measures, the person familiar with his activities said. Global Witness, an anti-corruption group whose advisory board includes Soros’s son Alexander and which he funds, chronicles alleged wrongdoing in Guinea.
‘Personal Relationship’
And former British Prime Minister Tony Blair established a relationship with Conde through his African Governance Initiative, which set up an office in Conakry, Guinea’s capital, to assist his presidency. Conde last year secured $2.1 billion in debt relief from the International Monetary Fund and World Bank, a recognition of his move to civilian rule.
“The personal relationship between Mr. Soros, Mr. Blair, and Mr. Conde is really important, and has an impact in terms of reassuring leaders that we are going in the right direction,” Guinean Finance Minister Kerfalla Yansane said by phone. “At this juncture we need big support to challenge these companies, who can hire lawyers and PR firms and have resources we don’t.”
Guinea isn’t the only African state where deals with middlemen have led to controversy for international mining groups. Eurasian Natural Resources Corp., a London-based, Kazakh-backed mining firm, is being probed by U.K. prosecutors into allegations it paid bribes to win business in Kazakhstan and Africa. The company said on April 25 that it is cooperating with authorities. And countries including Ghana and Zambia are driving a harder bargain with mining firms, reviewing taxation and state-ownership clauses.
High Stakes
The stakes for getting Simandou mined are high for Guinea, whose population is about 11 million. It ranks 178th out of 187 nations on the UN Human Development Index, which measures indicators of poverty and health.
“The economic growth profile of the country is expected to completely be changed” by the mine, Yansane said.
Rio Tinto CEO Sam Walsh has said the company, which says it has spent $2.3 billion at the site, is committed to developing its portion of Simandou. It predicted production would start in 2015.
BSGR has also said it’s committed to developing Simandou, and remaining in Guinea despite the corruption allegations.
The government realizes the Steinmetz controversy may spook the investors it needs to raiseliving standards, Yansane said. For that reason, “We want this problem resolved as quickly as possible,” he said. “We don’t want the name of the country to be on the front page of newspapers all the time.”
To contact the reporters on this story: Matthew Campbell in London atmcampbell39@bloomberg.net; Jesse Riseborough in London at jriseborough@bloomberg.net; Franz Wild in Johannesburg at fwild@bloomberg.net
To contact the editors responsible for this story: Jacqueline Simmons atjackiem@bloomberg.net; John Viljoen at jviljoen@bloomberg.net
Related articles
- Steinmetz $9 Billion Fortune at Risk in Soros-Funded Bribe Probe – Bloomberg (bloomberg.com)
- Guinea Arrests Steinmetz Group Executives as U.S. Probe Widens (bloomberg.com)
- Steinmetz-Linked Probe Seen Spurring Race for $50 Billion Mine – Bloomberg (bloomberg.com)
- Corruption probe raises questions over Guinea mine’s future (uk.reuters.com)
- Labour peer accused of smearing mining magnate’s firm (guardian.co.uk)
- Billionaire Steinmetz sues ex-adviser over Soros link (theglobeandmail.com)
- Guinea detains official from Israeli mining company in corruption probe (haaretz.com)
Fixing Fraud in Public-Private Projects
What’s a cash-tight government to do when it wants to modernize a hospital, build a railway, or expand the power grid to reach underserved areas? It might explore outside, private sources of financing—that’s where public-private partnerships (PPPs) come in. The acronym has a promising ring to it, yet going back to the 1970s, its impact has been mixed. At their best, PPPs can provide rapid injections of cash from private financiers, delivery of quality services, and overall cost-effectiveness the public sector can’t achieve on its own.
But at their worst, PPPs can also drive up costs, under-deliver services, harm the public interest, and introduce new opportunities for fraud, collusion, and corruption. Our experience at the World Bank Integrity Vice Presidency is that because PPPs most often are geared toward providing essential public services in infrastructure, health and education, the integrity risks inherent in these sectors also transfer to PPPs.
On April 17, the Integrity Vice Presidency convened a public discussion on corruption in PPPs (pdf) bringing together finance, energy, and fairness-monitoring perspectives. Looking at the landscape, in the last eight years, 134 developing countries have implemented PPPs in infrastructure, and in the last decade the World Bank has approved some $23 billion lending and risk guarantee operations in support of PPPs.
Opening the event, World Bank Managing Director Sri Mulyani recounted examples from her previous life as Indonesia’s Minister of Finance. She reminded the audience that while fraud in PPPs can seem abstract, the quality, safety, and human costs are very real—such as when a bridge crumbles after only five years, though it was supposedly built to last 15.
CBS News State Department correspondent, Margaret Brennan, moderated the discussion and did not let panelists get away with being too polite. She tried to pinpanelists (pdf) down on which countries consistently faced the biggest corruption problem, and how we can fix it. As my colleague Rashad Kaldany, Vice President and COO at IFC said, “This happens everywhere in the world, all countries, bar none.” The problem is global, which is why the solutions also should be similarly global and applicable in diverse situations.
If there was a theme to the discussion, it was the desire to level the playing field with global standards on PPP transparency. Roger Bridges, president of Knowles Consulting in Canada, suggested the World Bank design a certification system for transparency and governance. Receiving that certification would be completely voluntary, but also demonstrate a credible commitment and capacity for internal governance. Roger said that ultimately the certification could be rolled into an overall grading system for PPP participants. Participants might, for example, receive 10 out of a possible total of 100 points for being certified. A carrot—not a stick.
Rashad suggested an initiative in the integrity area modeled on the Equator Principles. Start with a few, major international players who agree to standardized practices and principles in PPPs. Once established, media and civil society groups can help mobilize others to sign on, gradually expanding adherence to the principles until they become a broadly accepted norm of conduct.
Establishing new norms sounds like it could take forever, but attitudes and norms can change faster than you think—Paul Clifford said in the past 8 to 10 years he has seen “difficult conversations” with clients about conforming to the Equator principles’ environmental and social standards become accepted as “automatic.”
Corruption is deliberate, serious and bad business. Based on the discussion yesterday, I believe there would be broad support for what I like to call Global Integrity Principles. PPPs are inherently opaque and risky because they are often long-term, complex financial arrangements. Those risks can be reduced if the terms, costs, and benefits are made more understandable and accessible to governments, private parties, and consumers.
The questions we want to address at the World Bank are, specifically: How should integrity due diligence be adapted for PPPs? What do integrity principles in national PPP laws look like? What should regulators do to review concession and other related arrangements for red flags? Are additional disclosure requirements needed to flush out politically exposed persons? And finally, how do we obtain more effective public scrutiny of PPP deals throughout the PPP project cycle?
No doubt, we have a number of difficult and complex issues to sort out. The way forward is to embrace optimism, even though in 1911 Ambrose Bierce described it as an intellectual disorder.
Related articles
- Public to bear costs of state-guaranteed profits in LRT privatization (bulatlat.com)
- Public-private partnerships a winning strategy (miamiherald.com)
- PPP Law Panel: ‘The state needs the investor and not the other way round’ (dailynewsegypt.com)
- Corruption, time and indispensability (kaieteurnewsonline.com)
- Ministry of Finance promotes PPP agreements (dailynewsegypt.com)
- Japan bank targets PPP acceleration (vietnamnews.vn)
- Stephen King: PPPs need better ways to handle risk (nzherald.co.nz)
All South Africa construction majors ‘involved’ in collusion, price-fixing – Patel
By: Natalie Greve
Economic Development Minister Ebrahim Patel has said that all the major South African civil engineering and construction companies currently active in the sector have been involved in infrastructure-related collusion and price-fixing.
“This problem is huge and pervasive in the infrastructure space,” he said at the inaugural Project and Construction Management Professions Conference on Thursday.
The State reportedly lost billions of rands through large-scale collusion and price-fixing by private sector companies during several past infrastructure projects, which instigated investigations by the Competition Commission into several completed public build projects.
These enquiries, which included investigations into the Gautrain project and several stadium developments, uncovered substantial evidence of collusion and price fixing by private sector participants, the Minister noted.
In cases involving critical projects, a number of companies came forward to acknowledge their involvement in the unlawful practises, Patel added.
“We have received about 400 admissions of incidents of collusion by companies in the sector,” he commented.
South African Council for the Project and Construction Management Professions (SACPCMP) president Professor Raymond Nkado said he was “shocked” that registered members of the SACPCMP had been found to have been involved.
“As a council, we have decided that we might take additional disciplinary action against these [companies],” he said.
Fast-Track Process
Based on the evidence gleaned from the commission’s investigations, which indicated the pervasiveness of the involvement by private companies, it was decided to introduce a “fast-track settlement process”, which would avoid lengthy legal processes that could persist for up to eight years, and which Patel said could potentially distract the project management process.
“We approached the industry and said we were prepared to put a voluntary disclosure process on the table, which would bring this to a conclusion expeditiously. In return, what is required is full disclosure, a commitment to end the cartels and an acceptance that the law must take its course,” he explained.
Once the disclosure process had been completed and admission of guilt received, the commission would then determine appropriate fines or penalties related to the value of the project.
Several such processes between the Competition Commission and private companies were currently under way, with most in the final stages, where the extent of the penalty was being determined in cases where organisations were “improperly enriched”.
Patel added that the first company to come forward and admit collusion would receive preferential treatment in terms of the penalty levied.
“We also take into account the extent of cooperation, so that there is an incentive to come clean. However, these companies will still have to pay substantial penalties as prescribed by the Competition Act,” he cautioned.
In cases where investigations implicated public servants, this information would be referred to law enforcement agencies.
There would be public disclosure once settlements had been reached.
Incentivisation
Public Works Minister Thulas Nxesi added that the findings of the investigation challenged the common perception that corruption and malgovernance was only pervasive in the public sector.
“The opinion that only government has such problems has been proved incorrect. There are huge problems in the private sector and we must expose them,” he said, encouraging the private sector to engage in “self reflection”.
Nxesi noted that key to the prevention of corruption in infrastructure projects was the establishment of a strong financial system, transparent procurement processes and incentivisation.
Moreover, Patel advised that the competition authorities had used the findings of the investigations to identify networks and channels used by companies in collusive practises and had identified the lead players and managers.
This would be used to develop internal preventive controls to reduce the opportunity for future collusion.
In addition, Patel said the CEO of any company awarded an infrastructure tender would be required to sign an “integrity pact” that committed them to competitive and noncorrupt practises and to create a culture in their organisation in which anticompetitive behaviour was discouraged.
“This will require executives to commit personal responsibility and liability,” he said.
The integrity pact was currently being piloted in a number of infrastructure tenders and would be fully implemented throughout the course of this year.
Patel said it was critical that the new phase of national infrastructure development not be characterised by similar high levels of collusion and price-fixing.
“Companies will have to make an important calculation. In the past, they thought collusion was a no-brainer; that they would secure the contract and walk away with the money. Now they see that we have developed the investigatory capacity to track the evidence down and to bring companies to book. That is the most important breakthough for us,” he said.
CORRUPTION WATCH:Procurement law must be simplified
Is our government just really bad at procurement, or is there a deeper problem with the law that applies to tendering?
IT SEEMS that every other week there is a different scandal involving procurement. Most tenders seem to land up in court, with service providers squabbling over the spoils of government spending. Is our government just really bad at procurement, or is there a deeper problem with the law that applies to tendering? - Perplexed
Dear Perplexed
We believe that it is a bit of both. While there is no denying that some of the bureaucrats responsible for procurement are corrupt (as are some of the private companies that bid for contracts), the law governing public procurement has become increasingly complicated.
In our view, procurement law has now become so complicated that it may be undermining service delivery. For example, many organs of state are unable to spend their budgets and infrastructure grants. The complexity of procurement law contributes to this problem by paralysing civil servants who become hyper-cautious in their desire to avoid infringing the law.
Part of the problem is that there are so many different levels of procurement law.
A well-intentioned and honest administrator will find that the following layers of law govern procurement:
Section 217 of the constitution expressly deals with government procurement. It provides that when an organ of state contracts for goods or services, it must do so “in accordance with a system which is fair, equitable, transparent, competitive and cost-effective”.
The award of a tender constitutes administrative action in terms of the constitution. As such, the award of tenders is subject to review under the Promotion of Administrative Justice Act.
Various pieces of legislation govern the budgeting process, internal controls and the requirement that people historically disadvantaged by unfair discrimination be favoured.
Each organ of state has its own supply chain management policy, which must be followed by its bureaucrats when engaging in procurement.
Any information held by an organ of state relating to the tender process is potentially affected by the Promotion of Access to Information Act, and may be the subject of requests for information by other affected parties.
The contract between the relevant organ of state and the service provider is governed by the common law of contract.
As a result, innumerable pitfalls await even the most well-intentioned administrator.
The competitive nature of tender processes and the enormous financial benefits to be gained from contracts for government procurement are a powerful incentive for unsuccessful parties to litigate, which they often do.
Their lawyers scrutinise every step in the process for compliance with the various laws and procedures, and pounce on every real or perceived irregularity. Very few administrative processes are entirely free from any misstep, and when one is found, litigation soon follows.
In addition, bureaucrats are required to account to government oversight bodies in respect of expenditure, including internal accounting officers and the Treasury. The procurement process may also be subjected to scrutiny by the auditor-general and the public protector.
Even where litigation by disgruntled parties fails, or investigations by other organs of state result in a clean bill of health, the effect of such litigation and investigation is to delay the provision of the service in question.
Procurement processes are often suspended while disputes are resolved, which can mean delays of years in service delivery.
We are therefore of the view that legal reforms to simplify and speed up procurement are justified. Any reform would have to ensure that accountability mechanisms remain in place, and that the law retains proper safeguards for detecting corruption and maladministration.
That would require careful balancing between swift, effective service provision and a functioning oversight mechanism.
* This article was first published in Sunday Times: Business Times
Kenya: Minutes reveal how IEBC bought pollbooks
By Moses Michira and Paul Wafula
March 26, 2013
NAIROBI, KENYA: The electoral commission, which conducted the March 4 General Election, bought voter identification gadgets without testing their technical capability.
Face Technology, the South African firm that supplied the equipment also known as poll books, won the tender before a technical evaluation was conducted among the five prequalified bidders.
A review of the tendering procedure by the public procurement regulator found out the tender to supply poll books was awarded to the South African firm, which participated in the Anglo Leasing scandal, on September 29 last year, three weeks before the technical evaluation among the shortlisted bidders.
This major procurement breach ensured firms that were to later demonstrate their capabilities for the task, like America’s Avante and France’s Safran Morpho were left out.
The public procurement regulator, however, found out IEBC had actually made its decision to award the tender to Face Technology more than three weeks before the October 22 demonstration of technical capabilities.
Minutes from the Independent Electoral and Boundaries Commission (IEBC and presented by Avante to the regulator indicated that the tender was actually awarded on September 29.
“…bidder number 3 M/S Face Technology be considered for the award of the contract at a total cost of Sh1.397724925 ($16651139.13),” reads part of the official information from IEBC’s September 29 meeting.
The regulator says since a decision had been made, the exercise of proof of concept was meaningless becauseFace Technology, whose devise had failed, had been shockingly declared the winner. The revelation now provides the critical answers to the billion-dollar question, what exactly went wrong in the voter identification during the last General Election conducted by IEBC?
The public procurement regulator fell short of cancelling IEBC’s tender, only allowing it to proceed in the greater public interest considering the time left, on its December 3, last year, terse ruling. IEBC’s defence was that Face Technology had the lowest quote at Sh1.39 billion disregarding its inability to produce the required equipment, compared to Safran Morpho’s Sh1.6 billion and Avante’s Sh2.1 billion.
Questionable tendering
IEBC’s motivation in awarding the tender to Face Technology was questioned by the regulator who established an uneven playing ground in the procurement process. Face Technology had presented a prototype that never worked at the tendering stage, but the IEBC inexplicably offered the firm another chance to demonstrate its technical capability.
A meeting between IEBC and the three prequalified bidders held on October 10, last year indicated Safran Morpho declined to parade its prototype, while Face Technology’s equipment fell short of the requirements in the tender document.
“(Avante’s prototype) can satisfactorily meet the specifications provided in the tender document for voter identification device,” further reads the report. “( Face Technology) did not demonstrate a prototype that met the proof of concept requirements as stipulated in the tender document.”
IEBC invited Face Technology and Safran Morpho in a subsequent demonstration, leaving out Avante, which had demonstrated its technical capacity, in a meeting held on October 22. Minutes of the meeting show Face Technology presented a different device from that submitted during the close of the tender, a major procurement breach, which the IEBC turned a blind eye to.
During the evaluation,Face Technologyprovided a prototype device, which lacked a spare power back-up of 12 hours that was marked as critical. It also did not have an original battery attached to the laptops that would last for 12 hours.
The device it supplied at this stage did not meet the requirement that its start-up and recovery time would last less than 30 seconds. This means the prototype ofFace Technology was taking longer to start than required. None of the companies that qualified for the second round of evaluation also provided gadgets that had unique identification numbers assigned by the manufacturers. Lack of this detail exposes the gadgets to difficulties in tracing the user and location in case they are used to hack into the system. The Board accuses the IEBC of being cosy with Face Technologyand finding small excuses with the other companies to disqualify them.
“It (IEBC) appears to have adopted in the processing of this tender, a scheme of nit-picking, when it came to the tenders of the bidders it did not favour, and one of cosiness when it came with the successful bidder (Face Technologies),” a report, critical of the process, reads in part.
The revelations come at a time when it emerged the electronic voting and transmission system could have been attacked at least twice before it finally crashed at 8pm on Election Day.
World Bank Advised Ethiopia to Audit Large Telecom Agreements
Reporter
January 11, 2013
The World Bank (WB) in its report on the status of corruption in Ethiopia advised the government to audit Ethio Telecom’s large agreements.
According to the report launched this morning at the Hilton Addis, focusing on the level of corruption in the country in different sector sectors, the government needs to apply standards to Ethio Telecom that are in line with Ethiopia’s Public Procurement Proclamation.
The report, “Diagnosing Corruption in Ethiopia”, in its subtopic that assessed the level of corruption in the telecom sector also stated that absence of uniform procurement standards is one of the major causes of corruption, among others.
The report highlighted that the vendor financing contract entered into by the then ETC (Ethiopian Telecommunications Corporation now named Ethio Telecom) in 2006 appears to be highly unusual. “…This brief study should not be seen as an investigation or interpreted as alleging in itself that corruption has necessarily occurred. However, the circumstances as perceived both by stakeholders and by independent observers do raise serious questions about the control of risks in this sector.”
The stakeholders of the then 1.5 billion US dollars vendor financing argue that ETC’s financial requirements were not provided in detail to those suppliers (other than possibly the winning supplier –China’s ZTE) that had been approached to consider providing such financing. The report also stated that there is no evidence of a formal tender procedure for the finance package.
“The supplier selected by the ETC to supply the finance package that suited the ETC’s purposes. The equipment supply element of the vendor financing contract was not put out to competitive tender.”
The report stated that generally the contract was not in accordance with the ETC’s procurement procedure and no competitive tender for the contract and subcontracts.
“Difficulty in measuring technical compliance: By appointing one supplier without competitive tender, the ETC has no opportunity to assess the degree of technical compliance of the supplier’s equipment. The contract was also inappropriate and went through unclear procedures for ensuring technical quality and competitive pricing,” according to the report.
In addition, the report further mentioned that Ethio Telecom is vulnerable to corruption because it is under government monopoly.
Health, education, water, justice, construction, land and mining are also the sectors surveyed by the report sponsored by the World Bank, Canada International Development Agency, UK Aid and the government of the Netherlands.
“Some of the recommendations of the report are under implementation,” said Ali Suleman, Commissioner of the Federal Ethics and Anti-Corruption Commission (FEACC). While the report also recalled that in January 2008, the FEACC 2008 brought charges against a former ETC CEO and 26 former ETC executives for allegedly “procuring low-quality equipment from companies that were supposed to be rejected on the basis of procurement regulations.”
World Bank country Director, Guang Zhe Chen, on his part stressed that the purpose of the study is conducted to support evidence-based policy formation.
Related articles
- Ethiopia: Is ECX at it again? ECX’s upcoming procurement bid (apperi.org)
- Ethiopia: Anti-Corruption Commission Launches New Web Portal (africapotashblog.wordpress.com)
- Ethiopian Hydro-dam Performance Attracting Global Financiers (africapotashblog.wordpress.com)
- Ethiopia Economic Digest: A Post-Meles 2012 Review (africapotashblog.wordpress.com)
Rethinking the Fight Against Corruption
Fighting corruption requires a new understanding of how the global problem has evolved, for it is bigger and broader than petty bribery or crooked deals in developing countries. Merely adopting a new anti-corruption law, creating another commission, or launching another ‘campaign’ will not get the job done. We can no longer fight corruption by simply fighting corruption alone.
Corruption is a symptom of a larger disease — the failure of institutions and governance, resulting in poor management of revenues and resources and an absence of delivery of public goods and services. We must think beyond anti-corruption rhetoric and traditional tactics. We need to be more strategic and rigorous, identifying and addressing corruption’s underlying causes and examining the weaknesses in key institutions and government policies and practices. We have to focus our efforts on the broader context of governance and accountability. Only then can we see the many other shapes and forms corruption can take and address this epidemic.
Of its many guises, legal corruption is a particularly pernicious one that gets insufficient attention. Legal corruption refers to efforts by companies and individuals to shape law or policies to their advantage, often done quasi-legally, via campaign finance, lobbying or exchange of favors to politicians, regulators and other government officials. It is dealings between venal politicians and powerful financial and industrial executives. In its more extreme form, legal corruption can lead to control of entire states, through the phenomenon dubbed ‘state capture,’ and result in enormous losses for societies.
In many developing countries, legal and illegal corruption coexists, and it has become commonplace for multinational oil and mining companies to collude with elite politicians to deprive citizens of the benefits of their natural resources. Nigeria lost $35 billion over the last 10 years through corruption and mismanagement of its oil industry. The evidence suggests — and the people of these developing countries attest — growth cannot sustain where corruption thrives.
The reach of legal corruption, however, is not limited to countries with weak governments. It has also enabled Wall Street investment banks to unduly influence financial oversight institutions, bringing the U.S. and the global economy to the brink four years ago, and in recent months allowed collusion between U.K. and possibly U.S. banks to fix the global interest rate for their benefit.
This kind of corruption is a complex, multidimensional problem that needs to be confronted at every level. If we, as an international community, are going to get at its core, we need to recognize that improving governmental institutions is key. Good governance only starts with elections and higher levels of transparency. Elections cannot be effective unless they are free, fair and clean, and complemented by real freedom of expression. Transparency with impunity will not bring forth justice or make governments accountable. Broader governance reforms require serious progress in rule of law to make any real, lasting impact. Equally important is a free press. While we have seen progress towards democracy in many parts of the world, roughly two-thirds does not have a fully free media and, in some countries, the movement is backwards.
As crucial is the management of the world’s natural resources. Today, 700 million people, in about 60 countries, live in poverty though they sit atop billions of dollars in oil, gas and minerals. Such abject poverty in the midst of abundance is a call for action. The overwhelming majority of these citizens live in poorly governed countries — those that rate low in corruption control, transparency and accountability. The governance of these resources and the wealth they generate will make or break the development of these nations, and the social, economic, political and security implications will be far and wide.
The future of these resource-rich countries no longer rests mainly on foreign aid but on the extent and effective use of the country’s own resources and how they use them. For that to occur, a focused and concrete approach to improve governance and accountability is critical. Reshaping the fight against corruption into a smarter strategy that integrates the challenge of improving governance and institutions in both the public and private sphere is the way forward.
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- New Study Shows Path for Fighting Corruption in Guinea (voanews.com)
- African media challenged to push for ‘zero tolerance to corruption’ on continent (ghanabusinessnews.com)
Analysis: New law fails to ease oil concerns in Uganda
KAMPALA/NAIROBI, 13 December 2012 (IRIN) – Uganda’s parliament recently passed a law to govern the exploration, development and production of the country’s estimated three billion barrels of oil, a resource whose extraction will directly affect the livelihoods of tens of thousands of people.
While the law streamlines the burgeoning industry, analysts have raised concerns over transparency and over who controls the sector.
“The new law helps set clear guidelines under which the oil sector is to be run and managed, and makes clear who is in charge of what roles,” said Tony Otoa, director of Great Lakes Public Affairs (GLPA), a Uganda-based think tank focusing on oil and governance. “However, there are some concerns about transparency and too much power within the oil industry in the hands of the president.”
The bill was passed on 7 December after weeks of wrangling over its controversial Clause 9, which gives the energy minister wide-ranging powers, including authority over the granting and revoking of oil licenses, negotiating and endorsing petroleum agreements, and promoting and sustaining transparency in the petroleum sector. Many members of parliament (MPs) felt these powers should be held by an independent national oil authority.
“Essentially, the standoff, which has ended, was about the withdrawal of trust from a government that is battered by corruption scandals. Also the way the cabinet operates is that, in the past, the feeling has been that some key ministries, like finance, are effectively run by the presidency after being stuffed by yes-men or -women. The pushback against Clause 9 also comes as the Central Bank opened its vaults to a large withdrawal in 2010 [US$740 million to buy six fighter jets] only for approvals to be sought retrospectively,” said Angelo Izama, a Ugandan journalist and oil sector analyst.
“Loss of trust”
“This loss of trust is behind the resistance to greater control by the executive,” he added. “The executive has not been a bad shepherd of the process so far. Uganda’s negotiating position has been tougher with the oil companies, ironically, without the oversight of parliament. However, public scandals elsewhere have negatively affected the ability of the president to convince lawmakers – especially of his party – that he means well.”
A number of donors – including the UK and Ireland – recently suspended aid to Uganda following allegations of deep-rooted corruption in the Office of the Prime Minister. The prime minister, the former energy minister and the foreign affairs minister were all accused of taking kick-backs from oil companies in 2011, charges that remain unproven but that nevertheless damage the reputation of the government.
“The country lacks trust in the state… Institutions and officials have lost legitimacy, and for such an important bill to vest too much power into a political appointee is a recipe for disaster,” said Stephen Oola, a transitional justice and governance analyst at Uganda’s Makerere University Refugee Law Project.
“Granting and revoking licenses and negotiations are technical in nature. We need an independent commission or authority made up of people of good competence, technical ability and experience, and good morals to guard our oil,” said Frank Gashumba, a local businessman and social activist.
Proponents of Clause 9 say licensing powers are safer in the hands of the cabinet than under an oil authority. “The authority is open, easy to bribe and manipulate. Cabinet is bigger than the authority – members of the executive are answerable to Ugandans because they are elected leaders,” said Kenneth Omona, a ruling party MP.
Those opposed to it say they will challenge the law, which was passed with 149 votes in favour and 39 against; some 198 MPs did not turn up to vote.
“The fight is not complete; the passing of the bill is liable to be challenged in courts of law,” said Theodore Ssekikubo, ruling party MP and chair of the parliamentary forum on oil and gas. “If we fail to go to court, we shall subject the matter to a referendum for all Ugandans to pronounce themselves on this strategic resource. We want to ensure transparency and accountability in the oil sector.”
Transparency
There are also concerns about the law’s confidentiality clause, which limits the amount of information accessible by the public.
“The law is lacking transparency – it imposes confidentiality on officials working within the sector, even after they leave office, so there is no opportunity for whistle-blowing or for the public to have access to information on, say, production-sharing agreements,” GLPA’s Otoa said.
He noted that Uganda still hasn’t joined the Extractive Industries Transparency Initiative (EITI), an international scheme that attempts to set a global standard for transparency in oil, gas and mining, further compounding the sector’s lack of transparency. As a member of the EITI, Uganda and oil companies involved in the country would be required to publish all payments and revenues from the industry.
While Total and the China National Offshore Oil Corporation (CNOOC), two of Uganda’s major oil partners, are listed on Wall Street and are therefore subject to the Dodd-Frank Wall Street Reform and Consumer Protection Act - which requires disclosure of payments relating to the acquisition of licenses for exploration and production of oil, gas and minerals – the Irish firm Tullow Oil, another of Uganda’s main oil partners, is not under any similar obligations.
“I am worried we [legislators] and the public can’t access and scrutinize these agreements. You can imagine the recently negotiated and signed oil agreements have not been accessed by the public, not even by members of parliament,” Beatrice Anywar, former shadow energy minister, told IRIN.
The impact of the oil sector has so far been most acutely felt by communities around Lake Albert, thousands of whom have had to move – some willingly and some forcefully – to make room for an oil refinery, which is expected to take up 29sqkm and displace some 8,000 people.
Land issues
“The government is prosecuting the refinery resettlement by the book. However, managing public expectations and the process of multiple decision makers in Uganda’s complex land legal system [Uganda has multiple land systems, including customary, leasehold and freehold] has contributed some volatility to the process… What is adequate compensation? And who determines that? Is it the market or should this be done by the government?” said journalist Izama.
“As a partner to the oil companies, it’s questionable too if the government can make the best decisions for the affected people as it would look to keep project costs fairly low,” he continued. “It is still a dilemma which is jurisprudential as well as political.”
He noted that much of the oil is in game reserves and a sensitive basin with lakes, rivers and a rare biodiversity, and borders the Democratic Republic of Congo, which could also pose challenges for peaceful production; there has already been some tension between the two countries over their boundaries within Lake Albert.
“The process of consensus-building is still weak, and regardless of how it’s arrived at, displacements will create uncomfortable realities, including land and job pressure.”
According to Otoa, Uganda’s lack of a comprehensive land policy makes compensation issues more complex. “We need clear land policies to ensure people are properly compensated – there is a Resettlement Action Plan in place, but it has not been implemented, and a draft land policy has not been actualized, leaving these communities vulnerable,” he said.
He noted that the lack of education among the local population, both in the oil-rich areas and the rest of the country, had contributed to the continued problems in the sector.
“We have focused too much on educating MPs on the implications and importance of good oil governance. We need to move to people-centred approaches and encourage dialogue in the public sphere, which will lead to people demanding accountability from their MPs and the government,” he added.
Ultimately, Izama said, responsible actions by the government will be the difference between Uganda’s oil making a significant impact on the country’s economy or causing conflict and greater poverty.
“Pressure on public institutions prior to commercial oil production is an effective way of counteracting the resource curse. If this public engagement falters, if the transition [from President Museveni to his successor] is volatile, some of the scenarios of the so-called oil curse are possible,” he said. “Overall the tensions are high, but responsible actions by public and political institutions like the past debate show progress is possible.”
Related articles
- Uganda President Says Foreigners Sabotaging Oil Sector (voanews.com)
- EU donors freeze aid to Uganda over corruption (apperi.org)
Senegal’s reforms and red carpets
November 27, 2012
Senegal’s President Macky Sall has slashed government spending to finance new infrastructure projects.
Faced with an audit of Wade-era projects, the opposition says he is playing political games. Dakar has been rolling out the red carpet in recent weeks.
Elected in March on a reform ticket, President Macky Sall is in demand as an interlocutor – whether it is by the World Bank, the UN or France’s President François Hollande, who stopped in Dakar on 12 October en route to his more controversial landing in Kinshasa for the Francophonie summit.
This month, the Mo Ibrahim Foundation is holding its annual development conference in Dakar to salute Senegal’s political achievements.
Dakar’s National Assembly gave Hollande the chance to set out his Africa policy, which he insisted was non-interventionist and non-paternalistic.
Hollande seized the chance for a tête à tête with Sall, seeking his help for the regional effort to tackle the worsening in- security in Mali.
Senegal’s troops, alongside Ghana’s, are regarded as the most professional in the region.
But Sall has plenty of local problems to tackle – such as the perennial rainy-season flooding.
The government’s failure to invest in flood defences was one of the reasons for voters turning against former President Abdoulaye Wade.
In September, Macky Sall pushed through a bill to abolish the Senate, the second chamber in the National Assembly.
He promised that the 767bn CFA francs ($1.5bn) would be used to finance a 10-year plan for effective flood defences, storm drainage and sanitation.
Opponents to Sall’s plan accuse him of partisan plotting.
The Senate was dominated by members of Wade’s [I]Parti Démocratique Sénégalais[/I].
But Sall’s supporters insist the plan reflects the need to cut ballooning government overheads inherited from the Wade era.
The Sall government aims to cut the budget deficit from current levels of 7.4% of gross domestic product down to 4% by 2015.
So far, Sall has closed 59 moribund state institutions, banned first-class travel for civil servants and is selling a presidential jet.
To promote accountability, Sall has published details of all official salaries, declared his own assets and promised to cut salaries at state-run companies to below 5m CFA francs per month.
“Humility, sobriety and rigour should govern our politics,” Sall told The Africa Report’s sister magazine Jeune Afrique after his election.
“I assure you that there will be a profound break from the practices that were in force under my predecessor.”
The new government has quickly launched audits of government departments and projects for evidence of illicit disbursements.
This includes projects run by Wade’s son Karim, such as the 650bn CFA franc energy crisis programme, Plan Takkal.
Britain, France and the United States have pledged cooperation in tracking down stolen money.
Sall rejects claims of political vindictiveness: “The only thing that interests us is that the errors of the past don’t repeat themselves,” he said.
The courts will take cases identified by the audit.
His promise to cut the presidential term from seven to five years with immediate effect won local and international plaudits, as did his agreement with the African Union to set up a special tribunal for Chad’s ex-leader Hissène Habré, in exile in Senegal since 1990.
Related articles
- Son of Ex-Senegal President Faces Police Queries in Wealth Probe – Bloomberg (bloomberg.com)
- Senegal Sells Power Surplus to Neighbors as Output Rises – Bloomberg (bloomberg.com)
- Senegal police question ex-leader’s son over graft claims (capitalfm.co.ke)
- Senegal trial of Chad dictator operational soon (seattletimes.com)
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