How the Games deal collapsed

How the Games deal collapsed

 

MASERU – CABINET ministers piled huge pressure on Ministry of Finance officials to approve a flawed and highly risky deal to construct sporting facilities for regional games scheduled for December.

This was despite vehement push-back and sound expert advice by the finance ministry’s technocrats who warned that the deal could backfire and possibly ruin the government’s finances.

Investigations reveal how the ministers also ignored cautions that the multimillion contracts to three companies, financially backed by a South African company, was awarded through a dubious tender process violating procurement regulations.

The story of the sporting facilities for the African Union Sport Council (AUSC) Region 5 Youth Games is one of how corners were cut with the tacit approval of cabinet ministers. It shows how the ministers rod roughshod over civil servants to push through the project despite clear red flags that it was destined for disaster.

Its genesis is in late 2017 when the Lesotho government signed an agreement with the African Union Sport Council (AUSC) to host the Region 5 Youth Games in December this year.
The late Sports Minister, Kabelo Mafura, signed the agreement for Lesotho.

This means Lesotho had nearly three years to construct the sporting facilities or alter the existing ones to meet the AUSC’s specifications.
But nothing seems to have moved until late 2018 when the Ministry of Sports’ senior officials started what one Finance Ministry official describes as a “mad stampede to get things done without following procedure on the excuse that time had run out”.

How to get the sporting facilities ready in time for the games was a subject of heated debates between officials from the Ministry of Finance and the Ministry of Sports.
The Ministry of Sports was pushing for completely new sporting facilities while Finance was arguing that it was unaffordable and they would rather renovate existing facilities.

Finance is also said to have argued that it would not make economic sense to spend billions on facilities that would be used for a few days and possibly become white elephants after the event.
Where to get money when the government was already in a financial squeeze was also part of the squabble.

Eventually, the Ministry of Sports proposed that private investors should build the facilities through a long-term debt to the government.
The initial proposal, according to several sources, was for the private investor to build the facilities for M5.7 billion, a staggering amount slightly over 30 percent of Lesotho’s budget at that time.

Finance resisted the proposal and only begrudgingly relented after the amount was slashed to M2.450 billion. Yet even then the technocrats remained concerned about the amount. They worried that M2.450 billion was still a lot of money to spend on sporting facilities.

The amount translates to around 15 percent of the budget, an eye-watering amount for a country already struggling to pay its international debts and local suppliers. At the last count the government owed local businesses M1 billion.

Some public projects have stalled due to cash-flow problems.
The other concern was that the M2.-450 billion would increase the government’s debt from around 40 percent of the Gross Domestic Product to 42 percent.

The International Monetary Fund has repeatedly warned the government about the spiralling debt. So has Finance Minister Dr Moeketsi Majoro.
The government’s Public Sector Investment Committee, which signs off all major government projects, however refused to give the project the green light until several conditions were met.

The committee wanted the Sports Ministry to first have a feasibility study, environmental and social impact report and topography testing. This was in addition to the designs, leases to the sites and permits for the construction.
The committee also noted that the ministry did not have an agreement with the National University of Lesotho (NUL) where it was proposing to build accommodation facilities for the games.

Instead of complying with the conditions, the sports ministry approached the Cabinet’s subcommittee whose chairman is Communications Minister Thesele ‘Maseribane.

The ministry pleaded with the subcommittee to approve the project, arguing that there was no time to comply with all those requirements.
The subcommittee obliged but that set the stage for another round of raucous disagreements, with Finance insisting that those conditions should be met first to help the government make an informed decision.
Without those requirements it was virtually impossible for the finance ministry to know the cost of the facilities and how they would be used, managed and maintained after the games.

Finance also said by going ahead without satisfying those requirements, the sports ministry was denying the government an opportunity to assess the risk associated with the project.

Its other bone of contention was that the Ministry of Sports had not followed procurement procedure when hiring the construction companies.
They said after inviting expressions of interest the sports ministry had proceeded to award the contracts without calling for proposals as per procurement regulations.

The sports ministry went back to the cabinet subcommittee which then ratcheted pressure on Finance to approve the project.
Finance finally succumbed and agreed to look at proposals from the three companies the sports ministry had shortlisted. They were MFT Lesotho, Design Edge and Nepcotwo Consortium.

MFT came with Property 2000 as its funding partner. Nepcotwo is said to have lacked a clear funding model while Design Edge’s financial plan was judged to be weak.
It was during the back and forth over the financial proposals that Property 2000, the company now at the centre of the storm, emerged as the financier for the three construction companies.

Some sources say it was Nepcotwo and Design Edge that approached Property 2000 but others says it was the other way round.
In the subsequent meetings with Finance officials, Property 2000’s managers claimed they had enough money to fund the companies to start the construction.

A government official who attended the meeting said Napo Modise, Property 2000’s chairman, “kept insisting that they had money and they could instantly release as much as M10 billion if the government wanted”.
But by then Finance officials were already fretting over what they viewed as Property 2000’s frugality with crucial details like which other major projects it had funded.

Some Finance officials say they had been unimpressed after checking out the company’s website which they thought was largely silent about its history of financing huge construction projects.
“It looked like they were more into Estates than financing construction projects,” said an official who attended some of the meetings and also looked at the company’s profile.

“Their history was sketchy. When you push for details they would mention several countries but not specific projects,” the officials said, adding that “they would always hide behind confidentiality”.
Now worried, Finance tried to stop the project by submitting a report to the Cabinet explaining why the deal was not in the government’s interest.

“The report was unlike other papers Finance submits to the Cabinet. In other papers Finance tries to offer solutions to the Cabinet but this one was unusual because they were pointing out the many dangers of going ahead with the project,” said a source who was involved in the discussions.

But the Cabinet subcommittee still insisted that the project be approved.
In the meantime Property 2000 was requesting that the government issues sovereign guarantees so it could release funds to the three companies.
The guarantees were meant to assure Property 2000 that the government would pay the debt if anything goes wrong with the project or if the three contractors defaulted on their loans.

Negotiations for the guarantees started in late August.
Property 2000 wanted the government to pay a five percent interest on the M2.450 billion-debt but Finance resisted until the parties settled on three percent over 30 years.

As the negotiations continued Property 2000 got a “letter of intent” to show that the government was working on the guarantees.
On October 11 last year Dr Majoro signed the guarantees and MFT Lesotho would get M785 2211 000, Design Edge M898 316 000 and Nepcotwo Consortium M785 221 000.
The guarantees included three clauses that would later become crucial in upending the deal.

The first was that the guarantees were neither negotiable nor transferable.
The second was that they would be effective for 21 days after the Minister of Finance’s signature. The third was that if Property 2000 did not release the first batch of funding within 21 days the guarantees shall expire and would have to be reissued.

The deal started unravelling four days after the guarantees were signed.
In an October 15 letter Property 2000 requested that the Lesotho government issue a guarantee in Nedbank South Africa’s favour.
The second demand was that the guarantee should be negotiable, transferable and irrevocable.

The third was for the government to send Nedbank South Africa a SWIFT MT900 message of guarantees through a Lesotho bank.
Finance officials say all those demands had the effect of completely changing the initial guarantees.

Issuing the guarantees in Nedbank South Africa’s favour meant that Property 2000 was no longer the funder as it claimed when the deal was negotiated.
In other words, Property 2000 was bringing a third party into guarantees it had received as the main funder.

By bringing in a bank into the equation Property 2000 was admitting that it had misled the government when it claimed to have the money to fund the project.
In fact they were just middlemen in a transaction the government could have negotiated directly with a bank.

The mere demand that the guarantee be issued to the bank meant that Property 2000 was now making it transferable. This was a violation of the key clause that said the guarantees should not be transferred and negotiable.
The danger with making the guarantees transferable and negotiable is that they could be sold to anyone on the international market. It could also be used to borrow on the international financial market or land in criminals’ hands.

The demand for an SWIFT MT 900 also spooked the Ministry of Finance because of its implications in financial terms. In simple terms Property 2000 was asking the government to provide proof that it had the M2.450 billion, the exact value of the guarantees, in its bank account.

In November the Ministry of Finance cancelled the guarantee, citing Property 2000’s violations. Without funding, the three construction companies are now stuck and so is the project.
Property 2000 is however still fighting on.

On November 20 Modise wrote to the Minister of Finance, bitterly complaining about the cancellations.
Those who have seen the letter say he accused Dr Majoro of reneging on his promises but also pleaded with him not to cancel the guarantees.

Sports Minister Mahali Phamotse this week said she could not comment on the issues because the government is “already working on finding a solution”.
“We are already talking about this so it will be premature to say anything about it,” Phamotse said.

thepost has been told that the Cabinet had discussed the issue two times since last week and there will be another meeting next Monday.
Khotso Moleleki, the director of Public Debt Management, confirmed that the guarantee had been cancelled but refused to go into details.

“This has been a very difficult project because of the way it was done from the onset,” Moleleki said.
“What I can only say is that government officials are obliged to follow proper regulations to avoid problems of this nature. A lot of procedures were not followed on this one.”

“The ministry offered its advice and did things by the book. Our role is to advise on how to correctly handle the government’s financial matters and that is all we did in this case.”
Modise could not be reached for a comment last night as his phone was not available.

The third was for the government to send Nedbank South Africa a SWIFT MT900 message of guarantees through a Lesotho bank.
Finance officials say all those demands had the effect of completely changing the initial guarantees.

Issuing the guarantees in Nedbank South Africa’s favour meant that Property 2000 was no longer the funder as it claimed when the deal was negotiated.
In other words, Property 2000 was bringing a third party into guarantees it had received as the main funder.

By bringing in a bank into the equation Property 2000 was admitting that it had misled the government when it claimed to have the money to fund the project.
In fact they were just middlemen in a transaction the government could have negotiated directly with a bank.

The mere demand that the guarantee be issued to the bank meant that Property 2000 was now making it transferable. This was a violation of the key clause that said the guarantees should not be transferred and negotiable.
The danger with making the guarantees transferable and negotiable is that they could be sold to anyone on the international market. It could also be used to borrow on the international financial market or land in criminals’ hands.

The demand for an SWIFT MT 900 also spooked the Ministry of Finance because of its implications in financial terms. In simple terms Property 2000 was asking the government to provide proof that it had the M2.450 billion, the exact value of the guarantees, in its bank account.
In November the Ministry of Finance cancelled the guarantee, citing Property 2000’s violations. Without funding, the three construction companies are now stuck and so is the project.
Property 2000 is however still fighting on.

On November 20 Modise wrote to the Minister of Finance, bitterly complaining about the cancellations.
Those who have seen the letter say he accused Dr Majoro of reneging on his promises but also pleaded with him not to cancel the guarantees.

Sports Minister Mahali Phamotse this week said she could not comment on the issues because the government is “already working on finding a solution”.
“We are already talking about this so it will be premature to say anything about it,” Phamotse said.
thepost has been told that the Cabinet had discussed the issue two times since last week and there will be another meeting next Monday.

Khotso Moleleki, the director of Public Debt Management, confirmed that the guarantee had been cancelled but refused to go into details.
“This has been a very difficult project because of the way it was done from the onset,” Moleleki said.

“What I can only say is that government officials are obliged to follow proper regulations to avoid problems of this nature. A lot of procedures were not followed on this one.”

“The ministry offered its advice and did things by the book. Our role is to advise on how to correctly handle the government’s financial matters and that is all we did in this case.”
Modise could not be reached for a comment last night as his phone was not available.

Staff Reporter

 

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