Last month, the government commissioned the first phase of the $US83 million Dema Diesel Power Plant, ostensibly to provide temporary power to prevent shortages. Zimbabwe has been facing serious power outages in recent years, and the idea was that temporary power supplies could be established while awaiting long-term expansion projects at the main power plants in Kariba (hydro) and Hwange (thermal).
However noble the idea appears, the circumstances around the granting of contracts for a temporary power project are murky. Not only do they implicate local ZANU PF political elites in a corruption scandal, but they also involve a global player in the temporary energy supply industry – a British multinational called Aggreko PLC.
The Dema Diesel Power Plant deal puts a spotlight on the role of multinational companies in developing countries and the problem of incentivising corruption, which ultimately impoverishes some of the poorest people in the world.
Why the Dema Diesel Power Plant deal is murky
The dubious nature of the Dema Diesel Power Plant deal was exposed in great detail over the past month by the Zimbabwe Independent newspaper. In one of the most significant pieces of investigative journalism this year, Zimbabwe Independent journalist Elias Mambo uncovered and chronicled how the authorities disregarded the outcome of a tender process, instead awarding the contract for the Dema Diesel Power Plant to a company that did not even take part in the bidding process.
The company awarded the contract was Sakunda Holdings, a fuel procurement and distribution company, despite the fact that it did not place a bid when Zimbabwe’s energy utility company invited tenders for the project. The tender was won by APR Energy Holdings, an American company, presumably because its bid met the requirements. Presumably, Sakunda Holdings did not place a bid because it realised it could not meet the requirements.
However, APR Energy Holdings lost the contract, which was awarded to Sakunda Holdings.
So, how did Sakunda Holdings win this multi-million dollar contract, even though it did not participate in the tendering process?
To understand what happened one has to lift the veil of Sakunda Holding’s corporate status to identify the people behind it. Sakunda Holdings is owned by one Kuda Tagwirei, described by the Zimbabwe Independent newspaper as a close associate of the ruling party, ZANU PF. Also according to the Zimbabwe Independent, his business partner in the Dema Diesel Power Plant project is one Derrick Chikore, the brother of Simba Chikore, who, in turn, is husband to Bona Mugabe, President Mugabe’s daughter. In short, one of the key parties awarded the contract is a close relation of President Mugabe.
Now, there is no problem with President Mugabe’s relatives, or companies associated with them, being involved in business. They are entitled to equal opportunities, like all other citizens. However, when contracts are obtained in the manner that Sakunda Holdings got the Dema Diesel Power Plant contract, it raises serious questions over undue influence and corruption. According to the paper, APR Energy Holdings, the original winner of the contract, “was later sidelined in favour of Sakunda after intervention by the President’s Office”.
The tender requirements included a provision that the successful bidder would have to demonstrate experience in the field of power generation. Sakunda Holdings never participated and, in any event, did not have this required experience. So how will it manage this big project without the necessary experience, expertise and equipment? This is where Aggreko PLC, the British multinational, enters the spotlight.
Enter Aggreko
It turns out that Sakunda Holdings has hired Aggreko’s services for equipment and technical expertise to set up and run the project. But what is Aggreko?
Aggreko is a Glasgow-based multinational business listed on the London Stock Exchange. It states on its website that it made a profit of £252 million before tax in 2015, and £289 million the previous year. In developed markets, Aggreko specialises in renting power and temperature control equipment to those in need of power for limited periods of time. In developing and emerging markets it focuses on selling power, supplying and operating utility power plants to state utilities and key sectors like mining and manufacturing. 19% of its revenue comes from the African region – joint second just behind North America. There is no doubt that Aggreko is a huge and successful multinational business. Its historical footprint has a slight Zimbabwean connection – a previous CEO, Rupert Soames, is the son of Lord Soames, the last British Governor in the days leading up to Zimbabwe’s independence in 1980.
According to the Zimbabwe Independent, tender documents show that Aggreko was one of the losing bidders for the Dema Diesel Power Plant contract. The paper says they were “initially disqualified because the ‘bidder is non-compliant with mandatory technical requirements of the request for proposal’”. Furthermore, its costs were too high. However, in a twist of events, it is Aggreko PLC, not the winning bidder, APR Energy Holdings, which is now the key player in the project. This is because they have partnered with Sakunda Holdings, which won the contract in an irregular and arguably unlawful way. Aggreko announced in April that it had signed a three-year contract to provide 200MW of diesel-fuelled power in Zimbabwe, with Sakunda Holdings as its direct customer.
On analysis, what is effectively happening here is that Sakunda Holdings is no more than an intermediary in a project that is effectively being carried out by Aggreko. Although Aggreko lost the initial bid last year, they have effectively sneaked in through the backdoor via Sakunda Holdings, which has no capacity or expertise to carry out the project. Interestingly, Aggreko CEO Chris Weston announced in April, “We are pleased with the award of this important contract. Our operational flexibility and our ability to deploy large amounts of equipment at short-notice, in particular our fuel efficient engines, was critical to this award.” (ShareCast news). Missing in this self-praising narrative is the fact that Aggreko had actually lost the initial bid to their American rival, APR Energy Holdings, in 2015.
The Zimbabwe Independent reported that Aggreko has supplied the diesel generators for the project and had also sent a team of managers and technicians to Zimbabwe to prepare for and run the project: “The team of close to 50 people arrived in mid-April … The team consists of project managers, operations managers, engineers, commissioning staff and other specialists.”
What has happened is a classic case of rent-seeking: a local company with no capacity gets a contract irregularly, simply because it is local and its beneficiaries are politically connected, and then enters into a partnership deal with a foreign company with the capacity they lack. That’s how Aggreko managed to win the contract for the Dema Diesel Power Plant, which it lost in the normal process.
Some might try to justify the arrangement on the grounds of the indigenisation policy – that government is ensuring locals benefit from big infrastructure projects by partnering with foreign companies like Aggreko – but this a weak argument used to dress up a simple act of corruption. If Sakunda Holdings did not participate in the tender process it had no legitimate right to be awarded the contract. Why invite tenders and initiate a bidding process when the outcome is then thrown out and a non-bidder awarded the contract? And if the reality is that Aggreko is the company actually running the project, why not partner with the local community of the Dema area, who will now have to live with the pollution from the diesel-run power plant?
All this suggests the influence of a ‘big hand’ in the irregular awarding of the contract to Sakunda Holdings. Concerns regarding possible corruption and undue influence should be investigated. The problem is that the Zimbabwe Anti-Corruption Commission (ZACC), which is supposed to investigate corruption, now sits in the Office of the President and Cabinet – the very same Office that the Zimbabwe Independent alleges was involved in awarding the contract to Sakunda Holdings. This seriously compromises the independent status of the anti-corruption unit and limits the chances of any investigation ever taking place, although an application could be made to court to compel the ZACC and the police to carry out investigations.
What about Aggreko’s ethical investment responsibilities?
Looking at it from the British side, Aggreko’s role and conduct cannot go unscrutinised either. As a large multinational listed on the London Stock Exchange, it is subject to regulatory and ethical rules of investment. There are also laws, such as the Bribery Act, which deal with overseas corruption. All this means multinational companies must be wary in their dealings, especially where corruption is involved. Investors and regulatory authorities must surely take an interest in Aggreko’s involvement in the murky arrangement. As the Zimbabwe Independent reported on 22 July 2016, “The tender was initially won by American power company APR Energy Holdings before it was corruptly taken away and awarded to Sakunda for the benefit of individuals who are politically well-connected …” The Zimbabwe Independent says it has evidence that the contract was corruptly awarded to Sakunda Holdings.
So how did Aggreko PLC get entangled in such an underhand deal? As a losing bidder in the tender process, they would have been aware of the shady circumstances under which their American rivals lost the contract they had initially won, and that the awarding of the contract to Sakunda was irregular as it had never participated in the tendering process. Indeed, they cannot feign ignorance that the company they are working with has close connections with President Mugabe. The business intelligence and compliance units would have been aware of this but they went ahead anyway and are now the key players in this project.
Multinationals like Aggreko must face up to their moral responsibility to the ordinary people in the countries in which they invest. It should not be all about margins and profits – there are real people involved who are affected by their activities. Corruption imposes heavy costs on poor people and stifles development while benefitting the multinationals, the political elites and politically-connected people, as is happening in this deal.
Zimbabwe’s struggling energy utility will have to pay $US8 million in advance every month, for a period of at least 3 years. But figures show that it is the ordinary Zimbabwean who will suffer the most. The Dema Diesel Power Plant will produce electricity at a massive cost of 15,04c/kWh. This is very expensive compared to hydro-electricity generated at Kariba, which costs 4,11c/kWh, and thermal power from the Hwange Thermal Power Station, which costs 6,97c/kWh. Even imports are far cheaper than power from the Dema plant. According to the Zimbabwe Independent, ZESA imports electricity from the Zambia Electricity Supply Corporation at a cost of 5,18c/kWh, and from Mozambique’s Hidroeléctrica de Cahora Bassa (HCB) at 5,66c/kWh. The power utility applied to increase tariffs by 49% but so far the regulator has turned them down. Now they are threatening load-shedding.
Conclusion
The victim in all this is the poor Zimbabwean citizen. The political elites and the well-connected who got a corrupt deal, and the British multinational partnering them, will be smiling all the way to the bank, what with a monthly fee of $US8 million, paid in advance. When the argument is made that multinationals fuel and incentivise corruption, it is because of fundamentally corrupt deals such as this one.
Western governments, which often preach democracy and anti-corruption, must also lead by example and not look aside when multinationals are involved in corrupt deals like this. The pursuit of profit makes business sense but it should not be an excuse for incentivising corruption, which ultimately hurts the poor and vulnerable of this world. Western governments are rightly proud of the millions of dollars they spend on foreign aid each year. But in an indirect way, by not reining in multinationals which incentivise corruption, they are worsening the plight of the people they claim to be helping. You cannot fight poverty while condoning business activities and conduct which fuel the forces of poverty.
waMagaisa
Key Zimbabwe Independent articles used for this article:
https://www.theindependent.co.zw/2016/06/03/mugabes-relative-corrupt-project/
https://www.theindependent.co.zw/2016/07/22/aggreko-engineers-roll-controversial-dema-project/
