Minister slams LEC powerline contract as illegal and unauthorised
The Lesotho Electricity Company (LEC) has been accused of secretly entering a M2-billion power line contract with a major Chinese state-owned company without informing the Minister of Energy or the Cabinet.
The MNN Centre for Investigative Journalism can exclusively reveal that the contract was later cancelled after the intervention of then minister, Ntoi Rapapa – sparking a blazing political row with former LEC chairperson Refiloe Matekane, who personally signed it.
Rapapa accused Matekane of breaching the Companies Act by not seeking the mandate of the LEC’s shareholder, the Lesotho government.
Matekane hit back by alleging that the former minister, the deputy leader of the opposition Alliance of Democrats (AD), was doing the bidding of controversial financier Grissag AG, which, he said, was keen to fund the power lines project.
Grissag’s allegedly close relationship with the AD surfaced during the recent rumpus over the proposed athletics stadium in Maseru.
The current saga started in June last year when Lesotho joined 52 African states at the first China-Africa Economic and Trade Expo in Changsha City, China.
On the margins of the Expo a “memorandum of understanding” was signed by the LEC, represented by Matekane and managing director Leketekete Ketso, and China Railway International Group regarding the erection of power lines from Mazenod to Qacha’s Nek to electrify Lesotho’s central and southern regions.
China Railway is a subsidiary of China Railway Group Limited whose major shareholder, China Railway Engineering Corporation, is wholly owned by the State Council of China.
The memorandum was followed in December last year by the signing of an engineering, procurement and construction contract between the LEC and China Railway worth more than US$126-million (over M2-billion) at the Avani Hotel in Maseru.
Matekane again signed for the electricity company. Ketso did not take part, with Matekane saying that the MD “switched off his phone [when he was supposed to come for the signing], I don’t know why. He had worked on this for months with the project team.”
Matekane said the signing ceremony was, however, organised by Ketso’s office months before it took place. Ketso failed to take the MNN’s calls until his phone went offline.
MNN was told that there were immediate concerns about the contract. One issue was the M2-million contract price, which some LEC officials thought was far too high.
According to former minister Rapapa, the value of the project was initially estimated at $79-million (about M1.2-billion). It is understood that when the LEC carried out its own feasibility study, it valued the contract at M700-million – less than half the agreed price.
Asked about the discrepancy, Matekane said the LEC feasibility was preliminary and provisional, and that the later China Railway “thorough” assessment was far more accurate.
He said the China study, conducted after the signing of the memorandum of intent, “was done at their own risk and cost them around M4-million”.
There were also concerns about the selection of the China Railway as contractor.
Funding for the project was to be loan finance from the state-owned China Export and Credit Insurance Corporation (Sinosure), the state-owned Export-Import Bank of China and Import Bank (Exim) and one of China’s four largest commercial banks, the Bank of China.
Matekane said that the LEC did not have a choice of contractor, as the Chinese government insisted on China Railway as a precondition for its portion of the loan.
“Having initiated the preliminary talks with Exim Bank, the Chinese government chose a contractor for us as a condition for lending money. Only 30% of the contract is set aside for local companies,” he said.
The LEC chose to go to China because of the Chinese banks’ “cheapest” money, he added. “Exim Bank is cheap because their loans are concessional. They have a grant portion, a 10-year grace period, and a 1.5% interest rate – and now they have gone even lower.”
Rapapa’s major objection, however, was that neither he nor anyone else in government had sanctioned the negotiations, and that Matekane was not authorised to sign the contract.
He insisted that under Lesotho’s Companies Act it was mandatory for entering “a major transaction such as this one,” to have shareholder approval. The LEC’s sole shareholder is the government.
Rapapa said that the signing of the initial memorandum of agreement had also not been sanctioned by the government or his predecessor in the energy portfolio, Tsukutlane Au. Au confirmed this to MNN.
“Ministers of energy, including myself, never sanctioned such engagements or meetings with the Chinese company,” Rapapa said. “How can the chairperson of the board take a trip to China without the knowledge and authorisation of the Minister of Energy?
“Even the cabinet was not aware [of the signing of the memorandum in China], because I was already a minister by then, although in a different portfolio. The principal secretary for energy was also not aware.”
Matekane agreed that his trip was not sanctioned by the politicians, but added: “As the ones running the company, we went without a political mandate as we wanted the best technical partner.”
He described Rapapa’s accusation that the government had been kept in the dark as “surprising”.
MNN has seen the 335-page document titled “Contract of Agreement” Matekane inked with a representative of China Railway. However, he said it was “conditional”, as it still had to be ratified by the minister and was subject to closure by the governments of Lesotho and China.
He said the Lesotho government was required to put down an advance payment of $33-million (M500-million) from its own coffers before the project could start.
The contract stood until May 18, when Ketso sent a letter to China Railway’s Africa subsidiary in South Africa cancelling it on grounds that “the conditions precedent to its signing have not been achieved”.
These were that the agreement was subject to the approval of the Minister of Energy and had not been closed by the Treasury.
“It is with a sense of regret that we inform you that the above-mentioned conditions have not yet been satisfied. It is therefore against this background that LEC deems it necessary to resile from the contract it entered into with your good selves,” Ketso noted.
Matekane said he had learned that Rapapa instructed the LEC to cancel the contract on his last day in office as minister, after his party’s negotiation to remain part of the current ruling coalition had failed.
Rapapa denied this, saying that he could not remember the precise date of the cancellation and that in any case he had only issued an instruction to the LEC to seek legal opinion on the matter.
“I did ask the LEC board to assure me who is responsible for committing LEC. The board said the only person, according to their resolution, was the managing director.”
“The board resolution meant only the managing director could commit the LEC with available resources within the company. The managing director cannot commit the government.
“Even myself as the minister of energy, I would not have powers to commit the government in that way. In terms of the law, it is only the Minister of Finance who can commit this country to contractual arrangements like that.”
Rapapa also pointed out that Matekane had resigned on February 17, the day of the board meeting, which he (Matekane) had not attended. Matekane denied this.
“I’m not saying he resigned because of the meeting, but look at the sequence of events. The chairperson goes when I ask to be briefed on who is authorised to sign the contracts.”
Rapapa said the LEC cancelled the contract based on the legal opinion received while he was minister. “The legal opinion said that the contract was of no legal force as it was signed by a person who was not authorised to sign.”
However, Matekane hit back by suggesting that the AD’s narrow party interests lay behind the contract cancellation and underscoring the possible involvement of Grissag AG.
Grissag AG is an obscure moneylender of Russian origin that was embroiled in a row over an attempted bailout of the South African national carrier, SAA. Later the MNN exposed its role in Lesotho’s M2.4-billion stadiums loan guarantee controversy, when the AD was pressing for government guarantees for funders.
Matekane said the advocate approached for legal opinion “brought the director of Grissag, Pieter van der Merwe, to negotiate the funding of this project with me. Grissag has good relations with some of the AD top brass”.
MNN understands that the advocate referred to is Salemane Phafane, an adviser to AD leader and former deputy prime minister Monyane Moleleki,
AD controlled the Ministry of Energy from June 2017 to May this year, when it dropped out of the ruling coalition after the fall of former prime minister Thomas Thabane.
During this period, the energy portfolio changed hands from Mokoto Hloaele, to Au and finally to Rapapa – all senior AD members.
Phafane rejected the allegation: “That’s a blatant lie. I’ve never connected the then chairperson with the alleged individual about the funding for that project”.
“In any event, my opinion speaks for itself. It’s purely legal and if anyone has doubts about its credibility, let him or her obtain a second opinion. It’s perfectly permissible to do so.”
He added that Matekane could have asked “his people” (China Railway) to contest the opinion and the LEC decision if they felt it was clouded by a conflict of interest.
In a separate interview, Grissag’s Van der Merwe confirmed his previous interest in funding the LEC project.
He said: “I always travelled to Lesotho with South African contacts, I never went to Lesotho on request from any Lesotho citizen. I can recall that I did have a meeting with a legal firm in Maseru”.
Pressed to identify the firm and whether it was Phafane’s, Merwe said: “Not sure, but it is possible”.
Asked how he knew about the power line project, as it was never advertised, he said: “Somebody made an inquiry about funding for the project, but no agreement was signed.”
Rapapa denied the claims that party political interests had turned him against China Railway.
“In all my entire life, from the ministry of education to that of energy, there is no single tender where I issued an instruction on how it should be dealt with. Schools were constructed with over M150-million but I never and will never be part of procurement issues.
“I only requested clarity on this matter. If all things had been done properly, the project could have received a green light.”