An over M600 million loan that was provided by the Development Bank of South Africa to partly finance construction of the Queen ‘Mamohato Memorial Hospital was underwritten by government yet the debt was registered as a private sector contribution.
This is revealed in a new Eurodad report published on Monday and officially launched on Wednesday this week.
It indicates that when Tšepong – a private sector consortium which manages the hospital – defaults on the loan, government suffers the financial consequences.
This could exacerbate the financial crisis of a government already mired in a tough financial situation.
Eurodad is the European Network on Debt and Development, a network of 47 civil society organisations (CSOs) from 20 European countries.
Its report titled: History Repeated: How Public Private Partnerships Are Failing indicates that Queen ‘Mamohato Memorial Hospital, commonly known as Tšepong, has defaulted on the loan at least once.
The report reads: “The government has incurred even greater costs in the form of penalty payments. Not only does this threaten the continuing viability of the PPP, but it could negatively impact on the government’s international credit rating and ability to raise affordable capital in the future.”
The state-of-the-art 425 bed hospital is the first of its kind in any low-income country in the world – built, financed and run entirely as a Public-Private Partnership and is managed by Tšepong under an 18-year contract at the end of which the hospital passes into government ownership.
The PPP contract was signed in 2008 while the hospital opened its doors in October 2011 to replace the aging and outdated main public hospital, Queen Elizabeth II, and to upgrade the network of urban filter clinics.
It serves as the country’s main referral healthcare facility.
Even the Ministry of Health Principal Secretary (PS) ‘Mole Khumalo believes that the Tšepong contract is “very complex and confusing”, and said he therefore had no reason to doubt the findings of the Eurodad report.
Khumalo told MNN Centre for Investigative Journalism yesterday the contract had “many clauses” that seem not to favour the government of Lesotho.
“We were in talks with Tšepong management yesterday (Wednesday) and we agreed in principle that the contract should be revisited. We are in that process now. I am not aware that government guaranteed a private loan but I have no reason to deny it because I know the Tšepong contract is confusing. This claim does not come as a surprise he said,” he said.
Khumalo said the contract was signed, on behalf of government, by the ministry of finance.
Finance Minister Dr Moeketsi Majoro did not respond to the email sent to him.
Tšepong also did not respond to the email sent on Tuesday but, instead, invited this reporter to a study tour at the hospital.
The total capital expenditure of the hospital at close of the contract was estimated at M1,164,541 million, M399 437 563 of which was public financing while M765 103 437 was sourced from private funds.
Private capital was made up of 14 percent equity and 86 percent debt underwritten by government.
In a report published in April 2014, titled A Dangerous Diversion, Oxfam and the Lesotho Consumer Protection Association (LCPA) said the running and loan costs of the then three-year-old hospital complex had blown out to $67 million a year – or 51 percent of Lesotho’s health budget.
The Oxfam report was sharply critical of the International Finance Corporation (IFC), the private sector arm of the World Bank, which advised Lesotho on the deal and promoted it as a flagship model to be replicated across the continent.
The report says the IFC has acted irresponsibly, “both in terms of its role as a transaction adviser to the government of Lesotho and in its marketing of the Lesotho health PPP as a successful model for other low-income countries to replicate”.
The IFC reportedly received a fee of US$723,000 (about M10 million) for its work on the deal.
In 2016 the World Bank acknowledged that Tšepong had become “a considerable financial burden for the government of Lesotho” but said through the hospital and its filter clinics, the ministry of health was providing better quality health care.
“It is achieving better health outcomes for a larger number of patients, including providing more advanced medical technologies than were previously available in Lesotho”, it said.
The Eurodad report gives an in-depth, evidence-based analysis of the impact of 10 PPP projects including Tšepong that have taken place across four continents, in both developed and developing countries.
Eurodad said these case studies build on research conducted by civil society experts in recent years and have been written by the people who often work with and around the communities affected by these projects.
“All 10 projects came with a high cost for the public purse, an excessive level of risk for the public sector and, therefore, a heavy burden for citizens. For example, the Queen Mamohato Hospital in Lesotho has had significant adverse and unpredictable financial consequences on public funds,” reads the report.
It adds that the latest figures suggest that in 2016, the private partner Tsepong “invoiced fees amounted to two times the affordability threshold set by the government and the World Bank at the outset of the PPP”.
Contributing factors to cost escalation, according to the report, included “flawed indexation” of the annual fee paid by the government to Tsepong (unitary fee) and “poor forecasting”.
The unitary fee covers the care and treatment for a maximum of 20,000 inpatients and 310,000 outpatients.
Any patients serviced in excess of these numbers leads to higher payments.
The volume of patients has significantly exceeded these parameters in every year of the contract’s operation, Eurodad said.
It said the charges for excess patients now make up 19 percent of Tsepong’s fees charged.
In March this year, Deputy Prime Minister Monyane Moleleki said government owed Tsepong M400 million for excess patients.
Eurodad also found that five of the 10 PPPs reviewed impacted negatively on the poor, and contributed to an increase in the divide between rich and poor.
For instance, it said, in the case of Tsepong, the increasing and inflexible cost of the PPP hospital compromised necessary investment in primary and secondary healthcare in rural areas where mortality rates are rising and where three-quarters of the population live.
It said while the hospital cannot be blamed for some of the long-term structural constraints to progress in the country, including “poor management and budgeting, and the unequal distribution of human resources”, the cost and the inflexibility of the hospital “significantly curtails the ability of the government to invest where need is greatest”.