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The billions reasons behind Botswana’s defiance

July 17, 2017 4:00 AM
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Any day now, the Ministry of Mineral Resources, Green Technology and Energy Security will send a Request for Tender exclusively to China Machinery Engineering Corporation (CMEC), laying out terms and conditions for the purchase of the Morupule B power station. The Chinese firm, a subsidiary of a state-owned entity, will assess the proposal and make an offer to buy out government.

That offer will go to Cabinet and if approved, the troubled 600-megawatt power station will pass from government’s hands into an entity owned indirectly by the Chinese government, for a price many expect to be well below the P15 billion it has cost to build the plant.

The power station had an initial budget of P11 billion, but due largely to construction faults by another Chinese state-linked contractor, China National Electric Engineering Corporation, these costs rose by P4 billion, with billions more lost across the economy in opportunity costs linked to power cuts and costly power imports.

The Industrial and Commercial Bank of China (ICBC) lent Botswana $825 million towards Morupule B, repayable over 20 years and the BPC is repaying at a rate of close to P500 million a year, while also spending P2 billion last year in power imports. ICBC, another Chinese state-controlled entity, is the world’s largest bank by assets.

Experts expect CMEC, which currently has the exclusive rights to the sale, to offer a low figure for the station owing to the repairs that need to be done to bring it to full operation.

Therefore, essentially, government borrowed from the Chinese to pay the Chinese to build a power station that did not work and is now selling it back to the Chinese for a song, to then buy the power back at a premium.

Kebonang says the negotiations with CMEC are all about divesting with as little damage as possible.

“Right now, from where we stand, it’s (about) the loans from the Chinese government and the World Bank,” he says.

“When they make an offer, what we want realistically is to walk out of this without any debts. One of the reasons BPC has a problem is that power is produced at 40 US cents and sold at 20 US cents. Whatever money BPC makes has been fixing Morupule B and we want them to be able to walk out without having to spend money on this and just buy the power.”

High-level sources believe the Office of the President point to Morupule B as one of the straws that have broken the camels’ back in the relations between Botswana and China.

Others over the years have been the P231 million cost overruns that were incurred with the expansion of the Sir Seretse Khama International Airport, the P500 million embarrassment involving the BDC and a glass manufacturing plant in Palapye, as well as shambles at major secondary schools and other public works.

While Chinese contractors first set foot in Botswana in 1985, their presence in public works increased in the last years of former President Festus Mogae’s tenure and ballooned between the 2009 and 2011 budgets, where government ran deficits totalling P16.01 billion on major public works including Morupule B, major water works and road construction.

Analysts who spoke to Mmegi said the deficits, financed in part by external financiers such as the African Development Bank as well as heavy dipping into local reserves, were essentially a gamble by government on the ability of Chinese contractors to deliver.And many did not.

Chinese contractors, nearly all of them state-owned, approach public tenders with an offer of rock-bottom bids sweetened by concessional Chinese loans and further enhanced by offers to build social infrastructure such as schools and clinics for “free”. Few African governments have been able to resist, and Botswana did not, to take on the contractors en masse for several mega projects.

“Government’s challenge in 2009 was the recession, which tightened mineral revenues, while at the same time it had to embark on the massive Morupule B project, dam construction and others, which were needed for the economy,” one public finance expert told Mmegi.

“There was no better time for the Chinese to come in. They offered ridiculously low prices for projects and had the added benefit of offering government loans from their banks at very concessional rates.

“Government thus believed she could cut costs in a recession, reduce the cost of borrowing and still deliver quality projects on time. For many projects, this simply did not happen and the costs actually spiralled.”

Another arrow in the quiver carried by Chinese contractors in their pursuit of local public projects was the diplomatic guarantee offered by virtue of their status as China state-owned entities. Botswana engaged the firms with the promise that project failure could be ameliorated through diplomatic means, over and above the clauses in the contracts.

In June 2015, at the height of Morupule B’s troubles, a deadlock having developed between the BPC and its contractor, Foreign Affairs Minister, Pelonomi Venson-Moitoi jetted to Beijing for diplomatic discussions whose results would ultimately be unsatisfactory for government.

Analysts who spoke to Mmegi said the fault for failed projects over the years did not lie only with Chinese contractors, but largely with poor project supervision and management by government and the consultants it engaged.

In addition, the Chinese firms often partner with other contractors, or sub-contract certain aspects of the public works tenders they win.

part of his legacy, instead found himself spending the major part of his tenure fighting heavy criticism of the 2009 – 2011 gamble. With months left before he leaves the Office of the President, insiders believe Khama’s experience with the Chinese has blunted his sensitivity to the Oriental giant’s position on the Dalai Lama.

“The government will be extending the normal courtesies for visiting dignitaries and furthermore President Khama will meet the Dalai Lama when he is in Botswana,” reads a statement from Khama’s office sent out of the blue on Tuesday.

The Office of the President further said Khama may or may not attend the Dalai Lama’s August conference, “depending on his schedule,” a statement that offers no comfort for local Chinese embassy seniors who have formed the frontline of the Oriental giant’s bid to dissuade Khama.

While local embassy officials have clammed up in the wake of the drama, Mmegi is reliably informed that China’s bid to discourage the Dalai Lama’s visit has adopted a carrot and stick approach, successfully used in the past to dispirit other would-be hosts, including European states.

While the spiritual leader has been in Africa three times before, visiting the late Nelson Mandela and former SA president, Thabo Mbeki, his planned trip to Botswana next month comes at a time when China is ramping up its economic relationship with Africa, principally through the Forum on China-Africa Cooperation (FOCAC). One FOCAC initiative is to provide Africa access to $60 billion over three years in financial support for various projects.

“It’s a stab in the heart. Friends do not do this to each other. There’s insincerity in government saying it is not involved in bringing the Dalai Lama here, because they are facilitating for him.

“Will we remain friends after this? Well, what happens when your friend betrays you? You remain friends but it is not the same,” a senior official told Mmegi.

In Beijing, Director-General of the Department of African Affairs of the Ministry of Foreign Affairs, Lin Songtian was more blunt, telling a visiting delegation of Botswana media editors last week that there would be consequences.

“Some years ago, a few Western countries permitted the Dalai Lama’s visits in a deliberate attempt to use him and Tibet-related issues to make trouble for China. Those European countries have suffered serious setbacks in their relations with China and incurred great damage to their own interests following the visits.

“In the end, they drew lessons and made serious commitments to China, both publicly and bilaterally.

“Botswana should not harm such a true friend and reliable development partner like China and challenge the core interests of China and the dignity of the 1.3 billion Chinese people,” Songtian said.

The Chinese officials are correct. The Oriental giant holds the ability to hit Botswana hard where it hurts the most. In 2015, the last year for which data is available, Botswana imported goods worth P1.1 billion from China and exported goods worth P383.3 million, the latter figure representing a third of all total Asian exports and a growing avenue for export diversification.

China, also, is approximately the third largest consumer of both polished and rough diamonds, besides influencing prices of base metals and other commodities Botswana’s economy relies on.

The Government of Botswana also owes the Chinese government just under P500 million (as at March 2016), loans which were used for various road construction, housing projects and others, loans that could be reengineered in the wake of souring diplomatic relations.

At the Chinese embassy, the cooling relations are already being felt. Mmegi met two businesswomen and regular travellers to China who said they had sensed rising tensions.

“It’s becoming more difficult and slow to get a visa to China for Batswana. It used to take less than two weeks to get the visa, but now the Chinese keep sending us back for documentation or issues that were not asked for before.

“They no longer take cash as well and now want you to deposit, which is another issue.

“It’s taking much longer to sort that out and secure the visa,” one of the businesswomen said.

The carrot approach is still in play however, as evidenced by the recent attendance of a high-ranking Chinese official at the Botswana Democratic Party’s congress held in Tonota. The attendance was seen by some as an indication that within government, some still regarded China as a friend not to be made an enemy.

Room still exists for Botswana to back out from the Dalai Lama controversy.

According to Ministry of Nationality, Immigration and Gender Affairs’ spokesperson, Hannah Ramorogo the spiritual leaders’ visa is not yet a done deal.

“The Ministry is in receipt of the applications for visa and are being processed. For further information please contact the Ministry of Foreign Affairs and International Cooperation,” she said in response to Mmegi enquiries.

At the Mind and Life Institute, the Dalai Lama-linked organisation bringing the spiritual leader to Botswana, officials said the Dalai Lama’s visa was issued “towards the end of 2016”. Asked to avail a copy of the visa, Mind and Life Institute communications director Donald Crotteau was unyielding.

“Yes, it is feasible for me to make this request (to supply a copy of the visa). However, it is unnecessary and could be perceived as an intrusion into his personal papers. Why would I do that?

“I suppose the conference is for people who trust the truth that he is coming. The Dalai Lama has made a written statement and a video statement confirming his visit, in addition to publicity from the Mind & Life Institute. “Those who do not believe that it is happening are free to make their own decisions regarding attending,” Crotteau said.

In addition, the Dalai Lama visit from his exile base in India to Botswana could be complicated by transit visas in countries strongly aligned to China. One such route, through Ethiopia could be a dead-end as the Horn of Africa nation is known to be close to Beijing and in support of the One China policy.

Whichever way the Dalai dilemma goes, Khama holds the key. Analysts are already questioning why he would want to change 42-years of economic and diplomatic relations, a major foreign policy move, when he only has eight months left in office.

“The next president will be met with a hostile reception by a key trade and economy partner, and will have to answer for the actions taking place today,” one analyst said.

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Source: mmegi.bw

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