Chinese firms are fast moving from competing for construction and maintenance projects in the African energy space, to increasingly holding equity and being producers on the continent. However, the failures at Morupule B are a warning that when the best laid plans go up in smoke, it is ordinary citizens who must pay the price. MBONGENI MGUNI and BABOKI KAYAWE* investigate the evolving trend in a relationship tainted in the past by under-delivery
Continued from last week…
The path of Sino-African engagement going forward that McKinsey researchers suggest, opens the door to more Chinese firms taking up equity in sectors such as infrastructure, construction and others. McKinsey researchers say the adoption of Public Private Partnerships should be the new direction of Sino-African economic engagement.
“We believe an answer is to shift to public-private partnerships and blended finance models, in which national governments take on less debt and share financing responsibility with external partners such as private-sector firms and multilateral institutions.
“Better enabling the private sector to take on the projects that have greater market viability would free up government budgets to finance projects that are less likely to generate market returns – projects such as water, sanitation, and rural infrastructure.”
The researchers’ recommendations are already being implemented across the continent.
In Zimbabwe, state electricity utility officials say the Chinese are moving into the equity space in energy as a way of positioning themselves to tap into the potential revival of the economy. On site in Hwange, a coal mining town 608 kilometres west of the capital Harare, senior Zimbabwe Power Corporation (ZPC) officials revealed that Chinese giant, Sinohydro has sealed a deal to take up 36 % equity in the 920MW Hwange Power Station, after completing the 600MW expansion currently underway.
“The idea is to avoid the situation that Morupule B found itself in,” the officials said, requesting anonymity, as they were not authorised to speak to the media.
“Rather than build and handover, Sinohydro will continue after completion of the expansion, with maintenance and operation of the plant for six years, which enhances quality control.
“The six years will also allow smooth skills transfer and after that, Sinohydro has the option of disinvesting from the project.”
Zimbabwe Power Corporation managing director, Noah Gwariro could not be reached for comment. Samuel Undenge, the Zimbabwean Minister of Energy and Power Development declined to respond to requests for an interview or answer questions supplied to him.
Zimbabwe state media have said the 600MW expansion project is being funded through a US$1.1 billion loan from the China EXIM Bank, which carries a 20-year repayment period, with a grace period of seven years. The loan draws an interest rate of two percent.
Botswana, in its negotiations with CMEC, is also putting fail-safes in place to protect the economy and ordinary households.
“We are saying we want to recover the funds we have invested while the burden or risk should be transferred to CMEC,” Kebonang explains.
“If we stay on board, in addition to the P15 billion, we would be continuously spending on the plant and perhaps reach P20 billion.
“We are passing the risk, but retaining the right to repossess the power station for national interests.
“We are also mitigating the risk through the development of other power supply, such as solar power plants and the expansion of Morupule B.
“There’s no risk of being sabotaged, but if it does happen, we can take the station back.”
As governments across the continent become debt-weary and transition to increasing equity arrangements with Chinese SOE banks and contractors, countries such as Botswana are emerging as more attractive due to their sturdier fiscal positions and investment climate.
In Gaborone, Kebonang says it is only natural that Botswana would stand out as a prime destination for Chinese attention in the energy sector, given the country’s comparatively stronger economic fundamentals for investment.
The minister however warns that as much as China’s engagement with Africa has come sweetened with concessionary loans and tied to development aid, there is a pure profit motive at work.
“They are not coming here out of a social cause of saying ‘let’s help Africa,’” he says.
“It’s purely a situation where people are saying this is our target market and we will do anything to get it.
“Most African countries are poor and even after many years of independence, we are always looking for aid and FDI.
“These are not relationships of equals. There’s an element of saying ‘let’s beg’ and the Chinese come with hugely attractive incentives with their banks, incentives you would not even find at the World Bank.”
Kebonang describes the Chinese approach in the energy sector as “predatory” involving heavily discounted tender bids, subsidised by virtue of SOE status.
“For poor countries, it’s like a credit card. Once you’re hooked, you’re hooked.”
At grassroots level
However, even in “richer” Botswana, poor communities feel the impact of China’s push for footholds in the energy sector.
In Palapye, a town in the Central District where Morupule B is located, the takeover of the power plant by CMEC is a sore point, following on from the years of prickly relations between the Chinese and the surrounding community.
Palapye councillor, Mphoentle Kabelo says government has kept the village’s leadership in the dark about the Chinese takeover of Morupule B.
“As things stand, we do not have answers to provide to the community, as leaders. The community is unsettled by what they see in the media concerning the sale of this national asset.
“To be honest, we are clueless as the community leadership. We don’t know what is happening because we have never received official communication about the process, let alone the decision to sell the plant,” Kabelo says.
The councillor says if leaders had been briefed, they would have official information to relay to the community.
“At present, there is a lot of uncertainty about the jobs and other issues. People are worried even about power tariffs once the Chinese take over and rumours are rife in our little town.
“We are at a point where we think the transaction will be a surprise and we are afraid it will leave us devastated.”
Elsewhere in the town, Morupule ward councillor, Jordan Makhura says information at hand is that a number of BPC workers at Morupule B have been given their termination notices.
“We are amazed to learn that a number of workers at the power plant have already been served with dismissal letters, yet we long asked authorities to brief us.
“This is an issue of national interest. It will not only increase unemployment in Botswana, but will also lead to power tariffs hikes and ultimately affect the entire economy,” he says.
He adds: “This government must protect the interests of locals. Services such as power provision cannot be given to private hands.”
The termination notices, according to BPC unionists, are not as a result of the planned takeover of Morupule B. Documents passed on by unionists indicate that the terminations are part of a turnaround strategy under which the BPC is seen returning to profitability within three years.
However, the uncertainty gripping Palapye is typical of the insecurity many communities across the continent feel, as China moves from turnkey projects to equity stakes in the energy sector and others. Many ordinary Africans hold very dim views of Chinese firms, with grievances ranging from unfair labour practices, “slave” working hours and wages and even racism. As the Chinese settle in for a seat at the table, many communities are wondering how they will coexist with a more permanent presence of the Oriental giant.
Kebonang does not provide any comfort in this regard.
“The Chinese by their nature, they do not socialise, interact or become part of a community.
“If you look at Palapye, we should be seeing a situation where we can say ‘this is what they have done’.
“They have been there for the last seven years, but they are content staying in a little corner in the plant. From their rice to anything else, they import everything.
“Do they help local communities, my answer is no. They take a lot more from communities than they put in.
“I know that will not make me popular, but that’s a fact,” he says.
Over the course of two months, every effort was made to provide officials at the Chinese Embassy with an opportunity to contribute to the debate. Written questions were sent and top diplomats pledged to respond in detail to questions on the evolving role of China’s engagement with Africa and Botswana specifically. However, no responses or contributions were forthcoming at the time of going to press, with the officials repeatedly saying “the timing of the questions is wrong”.
Happy days coming?
McKinsey researchers look forward to a more positive relationship between the Chinese and Africans at grassroots level. In their report, they recount a dinner between Chinese and Nigerian businessmen. The Chinese businessman had been in Nigeria since the 1970s and had even acquired citizenship.
As the night drew to a close over stewed pork, stir-fried tofu, and chow mein, the businessman raised his glass: “There is a wise saying in Yoruba: should I wash my left hand or my right hand? The answer is that the right hand should wash the left, and the left hand should wash the right. That is the way to do things. Africa is one hand; China is the other. Working together is the way to do things. Cheers to that. Ganbei! Ma gbadun!”
*This work was produced as a result of a grant provided by the Africa China Reporting Project managed by the Journalism Department of University of Witwatersrand