The Privatisation of Utilities is an Invitation to Bribery and Graft

George Dor, Business Day
Tuesday, August 17, 1999

BUSINESS Day’s exposure of bribery on the Lesotho Highlands Water Project is a pointer to the degree to which the practice of corruption is increasingly becoming the norm in substantial sectors of big business.

It should also serve as a wake–up call to government in its seemingly uncritical faith in the private sector, in particular international corporations, as the vehicle for the development of SA and the region.

The initial focus of the Lesotho scandal was on the water project official who took the bribes, but Business Day was quick to point out that it "takes two to tango". In fact, those that offered the bribes were fighting each other for the dance. It seems the 12 transnational corporations or consortiums of companies were even fighting one another for a place in the R12m dance.

These included major dam construction corporations, notably Impregilio, the construction subsidiary of the Italian company Fiat, and the French companies Spie Batignoles, Sogreah and Dumez International, the Swedish–Swiss ABB and the German Lahmeyer Consulting Engineers.

All of these companies have been associated with allegations of bribery of top officials in dam projects in various countries.

The Highlands Water Venture consortium, alleged to have made the largest of the 12 bribes and the subject of various investigations into corruption and political payoffs, includes SA firms Concor and Group Five and the French firm Bouygues. SAUR, the other half of SAUR–Bouygues, won the Dolphin Coast tender for the privatisation of its water services recently.

Then there are seven or eight corporations that dominate the market in the local government services sector. They also have tainted track records.

The British company Biwater, which won the tender for privatised delivery of water services to Nelspruit in April, is party to the Panama water privatisation project which is under investigation for corruption.

It is ironic that while, in the wake of the 1970s Lockheed scandal involving bribery of Japanese officials, the US developed legislation to take harsh measures against companies guilty of corruption, many countries, including those in the developing world, do not have adequate measures and as such invite corrupt practices.

The response of Water and Forestry Affairs Minister Ronnie Kasrils to the corruption on the Lesotho project may have sounded tough but was entirely inadequate.

While he promised to recover the money he is simply relying on"international conventions and guidelines" to address the groups concerned. However, he assured us that "despite the court case, the project is on target and on budget".

In other words the corporations’ punishment for making bribes is to be reassured that they can continue to profit as successful tenderers on the project.

But there is more to the issue than those making and taking the bribes. The role of government and its advisers in creating the environment for private sector corruption also needs to be scrutinised.

In the Lesotho case there was a significant lobby against Phase 1B of the highlands water project, the construction of the Mohale Dam. This included groups as diverse as unions, civic, consumer and other nongovernmental organisations, Rand Water and even the water affairs and forestry department along with then Minister Kader Asmal’s own advisers.

There was no coherent scientific evidence as to whether and when Gauteng needed water from Phase 1B. The World Bank, in its Project Appraisal Document of April last year, acknowledges this and concedesthat there is "lower future demand" for water in Gauteng than anticipated at the time of the signing of the initial treaty.

The document states that the department "has made a firm commitment that no new investment decisions beyond Phase 1B will be made until this new information (on water demand patterns) is available and has been analysed".

Yet the dam–builder element in the department and the World Bank staff assigned to the project lobbied intensely for Phase 1B to be given the green light, primarily on the basis that if we should one day need the dam it will be financially better to build it soon.

This argument hinges on the presence in Lesotho of the contractors that built the Katse Dam and tunnel: "(Phase) 1A contractors already have incurred many fixed set up costs that they do not need to repeat. If the project was delayed for more than a very short period of time (one to two years), the benefits of existing bidders would disappear as staff and equipment were deployed elsewhere."

Leaving aside the weaknesses in the document’s argument, the point is that water affairs officials knew of the bribery allegations for at least two years and, according to Business Day, the department "has been closely involved in the investigation from the outset".

In short, DWAF officials were pushing for Phase 1B, in the absence of scientific studies and in the face of criticism of the project, on the basis that companies under investigation for bribery were at hand to do more work.

All of this raises a number of questions. Did [Kader] Asmal and the World Bank staff know of the investigation? If Asmal was unaware of the allegations, how is Kasrils going to tackle his officials for withholding this information and can we expect a definitive statement from him? If the bribery charges are upheld, should government continue to honour the contracts of the companies to complete a dam that may not be needed?

However, the lax attitude towards the potential for corruption in the privatisation process is not confined to the highlands project or the water department.

To give but two other examples: a top–ranking official in the department of constitutional development simply dismissed the concerns of the SA Municipal Workers’ Union in the Nelspruit water privatisation case as the union resorting to corruption as a "stock" argument against privatisation. And, in Johannesburg, former transport director–general Khetso Ghordan was given the task of privatising as many aspects of the council’s functions as possible with his remuneration package being linked
to the speed with which he implemented the process and the value of assets sold off.

The Lesotho case highlights the need to recognise the very real dangers inherent in a reliance on the private sector to deliver.

It calls for a re–evaluation of the notions of the public sector as inefficient and the private sector as the preferred vehicle for delivery.

This amounts to an urgent need to re–open the debate on privatisation in SA.

The article is from Business Day, 17 August 1999.
The author is a researcher at the Alternative Information and Development Centre in Johannesburg.