This won’t be cheap

This won’t be cheap

BY now the experts at the Ministry of Finance must have calculated how much the government will pay if it cancels Tšepong’s contract to manage the Queen ’Mamohato Memorial Hospital (QMMH).
Our estimates, based on what remains of the 18-year contract and the annual unitary payments, indicate that the government might have to shell out about M3 billion to end the relationship.

That is a staggering amount for a country already struggling with waning revenues and an economy in doldrums. It translates to about 15 percent of the budget but could be much higher if you consider that the government would still have to pay off the M300 million of the M800 million Tšepong borrowed from the Development Bank of Southern Africa (DBSA) to build the hospital and its three filter clinics.

While we admit that the basis of our estimates might be slightly off the mark, there is no doubt that the cancellation will be expensive for Lesotho.
In addition to paying off the remainder of the contract and the loan, the government would have to inherit the workers at the hospital. Then there is the cost of running the hospital.
Those celebrating the government’s decision should thus be warned that the cancellation will come at a humongous cost Lesotho might not afford at the moment.

The consequences go beyond the colossal cost of the cancellation. Lesotho’s reputation as an investment destination might be sullied and we might not see another Public-Private Partnership for the next few years. International funders might use the debacle as the basis to elevate Lesotho’s risk profile and make capital expensive for the country.

In taking over the hospital, the government is also putting itself in the firing line. We shudder to think of the fallout that would happen if the service at the hospital turns out to be worse than it was under Tšepong. What if QMMH becomes as messy as government’s district hospitals?
What if the cost of running the hospital remains as high as it was?
The decision looks a bit rushed and ill-advised, given that just under six years remain on the contract. It might be cheaper for the government to endure the contract until it ends. This is not a popular view but it might be the most pragmatic under the circumstances.

In any case, there is room for the government to renegotiate the terms of the agreement. We believe vigilant monitoring of Tšepong’s adherence to the contract might significantly reduce the fees over the last few years. Fast-tracking the construction of the proposed district hospital for the Maseru district could help reduce the number of patients to QMMH.
Building the capacity of other district hospitals might help as well. Closer scrutiny of Tšepong’s referrals to South Africa could knock off some millions from the contract.

So would a phased takeover that is amicable rather than abrupt and acrimonious. So far, we doubt that the cancellation would be cordial. There is so much at stake for both parties and relations have broken down.
There is a possibility that it might take years to reach a settlement. Lesotho’s courts are painfully slow. Arbitration could drag on for years until the contract lapses.

Eventually, the government might score a pyrrhic victory that could still come at a massive cost. Its decision to cancel the contract is bold but it must be tempered with caution.

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