Africa

Highlands hearing may land multinationals in hot water

James Lamont
South Africa’s Business Report
June 12, 2000

Today a landmark case gets under way in Maseru with the potential to embarrass some the world`s largest construction companies.

Their relationship with Masupha Sole, the chief executive of Lesotho Highlands Development Authority, their local partner in the Lesotho Highlands Water Project, is under scrutiny.

Sole is under investigation for allegedly taking bribes from these firms and squirrelling the money to foreign bank accounts.

The case has received little publicity. The companies – Dumex International; Cegelec, a partnership including CGEE-Alstrom and General Electric; Coyne et Bellier, and Sogreah and Spie-Batignolles of France; Lahmeyer International and Asea Brown Boveri Schaltanlagen of Germany; Asea Brown Boveri Generation of Sweden; Acres International of Canada and Alexander Gibb of the UK – are understandably a little shy of this kind of inquisition and the damage it might do to their reputations.

Some of them will wonder when they can finally extricate themselves from a country difficult to operate in. The R10 billion project awakened old controversies over southern African land removals when local highlanders were resettled to make way for giant reservoirs and compensation payments were held up.

Unrest broke out among local workers as the project wound down. Non-governmental organisations (NGOs) made life difficult by questioning whether big dam projects were environmentally and socially watertight.

To make matters worse, there were two attempted coups.

It would be nice to think that calling these companies to account shows the gutsy determination of a small African country to challenge some of the irregularities that often attend large engineering projects in the developing world.

Very rarely have the mechanics of the relationship between government officials and corporate interests come to light.

More rarely still have representatives of multinationals been requested to sit in the dock of a courthouse in one of the world`s smallest and poorest states.

The project`s bankers will be curious to see the outcome, as will be the multitude of shareholders` associations and NGOs which have become interested in the conduct of multinationals in the developing world.

Should it avoid getting bogged down in litigious ramblings, the case has the potential to do for the construction industry what Nigeria did for Shell.

At best, it could have wider resonance as an example of corporate governance standards enforced by African governments. At worst, Judge Brandon Cullinan, the country`s retired chief justice, could find himself enmeshed in local feuds and corporate obfuscation.

Large engineering projects are fertile ground for corruption. Unscrupulous governments love multimillion-rand projects because they pose an enormous opportunity to syphon off funds put up by the World Bank, European Union or foreign governments.

Big dam projects have prestige and might, but they also hold the promise of foreign capital and the opportunity of kickbacks.

The Turkwel Gorge Dam in Kenya was promoted by President Daniel arap Moi in spite of widespread opposition. Zaire`s President Mobutu Sese Seko commissioned two dam projects across the Congo river.

On the other hand, companies are not altogether averse to smoothing their way with backhanders to get what they want.

The Lesotho Highlands Water Project had unpropitious beginnings. It was cooked up by the old apartheid government in the early 1980s to supply Gauteng`s industry with water.

The government`s inability to source international capital meant a complex and interwoven financing structure was required to fund the project, in a combination of South Africa`s good credit rating pasted onto Lesotho`s balance sheet.

In spite of the abundant pitfalls of a multibillion-rand project being administered in a weak national infrastructure, the water project had noble development intentions.

Lesotho is a desperately poor agrarian economy that relies on its people earning wages in South Africa and bringing them back home.

The export of water to Gauteng raises its gross domestic product considerably, and with it the chances of development.

It`s hard to know who or what is the force behind this extraordinary corruption trial in an unlikely environment to take on the international construction industry.

Sole has claimed that he was the victim of political and financial jealousy – not inconceivable in Lesotho, a place where rivalries run deep.

The focus so far has been squarely on Sole`s fallibility. Should it shift to the fallibility of others, then one can believe the trial may have noble intentions too.

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