Request for abstinence of the Ministry of Finance participation from Lesotho 2020 AUSC Region 5 Games projects.
By N. Ramokhele
The delegation sent by the Ministry of Finance (MoF) which is providing inputs on legal and fiscal issues pertaining to the negotiations between the Government of Lesotho represented by the Ministry of Gender, Youth, Sports and Recreation (MGYSR) and various proposed developers, has identified that the project is flawed with procedural discrepancies with threatening fiscal, legal and regulatory implications.
The following gave rise to this opinion:
Lesotho is going to host the 9th edition of the African Union Sport Council (AUSC) Region 5 games in December 2020. AUSC is the sports arm of the African Union with its headquarters in Yaounde, Cameroon. The AUSC has divided Africa into seven competition zones based on the countries’ geographical positions. Lesotho is therefore part of AUSC Region 5. We are informed that the games are held biennially, and they are mandatorily hosted by Member states rotationally.
The African Union, recognising that sports can encourage nations to come together, irrespective of colour, economic status, politics, class, or gender, realised that sports is one of the vehicles through which African States can collaborate to achieve peace, stability, unity and development. The AUSC games are therefore intended to be one of the mechanisms through which member states can achieve peace, integration and unity within the African Continent.
As one of the requirements for hosting the games which normally span over a 12-day period, the host country should amongst others develop the necessary infrastructure for all the sporting codes that form part of the AUSC Region 5 games. The host should further develop what is normally referred to as the Games Village with all the necessary facilities to accommodate the games’ participants. The Government of Lesotho through the Ministry of Gender, Youth, Sports and Recreation (MGYSR) has collaborated with the National University of Lesotho (NUL) and the latter has been identified as the possible location for the Games Village.
Though there are some sporting facilities around Maseru city and at NUL that can be used for the games, most of these facilities need refurbishment to meet the AUSC Region 5 standards. Furthermore, there are facilities that need to be developed from scratch. We are informed that the Games Village should as a rule, have the capacity to host a minimum of three thousand (3,000) participants. NUL currently has the capacity to host 1,300 people implying there is a need to construct facilities to accommodate no less than one thousand seven hundred (1,700) people.
As a custom and a mandatory requirement, the host country should finalise any developments on the games infrastructure and the Games Village three months prior to the games kickoff. This implies that Lesotho should have finalised all the developments by or before July 2020.
We are informed that the Infrastructure development of the projects were procured through an expression of interest which is irregular given the magnitude of the project. It is not clear why the procurement under these transactions was not followed because it has resulted in Government of Lesotho affording potential developers to set terms and conditions as they deem fit.
The Expression of Interest (EOI) is meant to test the market and the alleged addendum to convert it into Request for Proposals (RFP) is unheard of in supply chain practice. Government of Lesotho has issued carte blanche EOI to the market without necessary limitations.
Despite the irregularity, the potential investors were not evaluated hence the absence of evaluation report but rather a disappointing scoresheet. At this stage the Ministry of Finance has not seen neither the Tender Panel Report nor the Preferred Bidder Award Letters.
The basis for recommendation of the potential developers is not known. As the Custodian of Procurement in Lesotho through Public Procurement and Advisory Division (PPAD), Ministry of Finance is unable to confirm the competencies of these agencies.
The Entities are all eight months behind commencement of the works in terms of the timelines provided in their response to the EOI. It is not known at least to Ministry of Finance how such risk will be mitigated otherwise Lesotho risks substandard unsafe facilities. The Ministry of Public Works and transport may advise accordingly.
Legal due diligence is not done including but not limited to: any pending litigation on the entities and their partners not vetted, nonexistence of legal processes such as insolvency, business rescue proceedings or judicial management, etc have not been verified; there is no board authorisation for parties handling negotiations to ensure adherence to corporate governance and to determine legality of acts of such persons should anything arise, contacting a list of. references provided by the potential developers to ensure the business relationship described, to assess the interaction of persons listed in the references with the bidder and its staff, and insight on issues they encountered, the resolution process and the responsiveness of the potential developer to any agency concerns not verified.
Since the transactions are neither PPP, EPC etc. it is not known as to what legal arrangements must be concluded leaving Government of Lesotho very vulnerable because in the absence of the feasibility study, at least the minimal options benefit analysis.
The economics of the construction method, processes and, or the services provided not verified; assumptions affecting revenue and expense projections, investment cost, capacity utilization, tariff, traffic, inflation, foreign exchange, interest rates, growth, or others not verified. The project falls short of market analysis and demand supply parameters are not known.
Government of Lesotho is exposed by assuming unknown and uncalculated risks and there is need to insulate itself with performance guarantee, Notarial Bond for movables, Maintenance Bond to show commit from the potential developers among others.
The costing of the projects entirely depends on the developers’ estimates; therefore, the Government of Lesotho remains vulnerable to over-costing of these projects without justification. There is a possibility of cost escalation due to unforeseen costs. The cash flow projections are not based on facts simply because the financial proposals attached are not financial models which cannot determine the viability of the project into 30 — 35 proposed years.
The bankability of the projects cannot be determined hence no accredited financiers seem to be interested in these projects. Property 2000 was allegedly converted from a close corporation into a company only last year. The fiscal implications including its solvency cannot be determined under the new regime it has opted for. In addition, it is not
known whether indeed it is a trustworthy financier.
The commercial viability is not known and will never be known without
the feasibility; Government of Lesotho will just be signing a blank cheque and tying future generations in undesirable debt that we created. In the absence of
baseline study by Ministry of Public Works and Transport, potential fiscal implications are not known.
The Ministry of Gender and Youth, Sports and Recreation has not provided Ministry of Finance with the possible penalty for not hosting the games or whether Lesotho will be suspended, for how long etc. to be determined as alternative option.
Stakeholder analysis and involvement has not been done meaning Government of Lesotho risks having the same instability caused by South African Toll Gates
wherein users claim they were never consulted therefore South African Government has been locked into negotiations to close the gap to ensure 1RR for the Private Operator.
It is not clear whether AUSC is contributing anything similar to organisations such as FIFA which provides financing to some facilities to relieve government with an understanding that Member States pay some subscription.
We wish to inform you that since this is not a PPP, Ministry of Finance should not be participating in the exercise save of procurement the sovereign loan which we feel that Public Debt and Aid Management Unit ought to perform due diligence. Having articulated all the procedural discrepancies, it is not advisable for the Government of Lesotho to furnish any sovereign guarantees to any of the proposed developers.
We recommend that normalisation should be done within the confines of the law meaning that procurement process should be followed and adhered to accordingly. The Ministry of Gender and Youth, Sports and Recreation should perform needs assessment, feasibility study, project scope and clear risk metric as well as Environmental and Social Impact Assessment (ESIA). These are critical components. Anything outside these requirements remain invalid and cannot be substantiated by any empirical evidence. Otherwise we reiterate the upgrade of existing infrastructure due to time limitations.
We propose that Government of Lesotho should advise itself accordingly. We understand and appreciate the urgency of this matter. Be that as it may, we note that any catastrophic consequences that may result as a consequence of time limitations is undesirable.
We accordingly advise. NW
Ramokhele is a legal officer at the Ministry of Finance. This is the unexpurgated version of the legal opinion she wrote to the Ministry’s Principal Secretary (PS) on August 8.