BDC to put more money in murky glass project

EPHRAIM KEORENG
Staff Writer | Thursday January 19, 2012 00:00

This is inspite of the expert advice of a forensic audit that BDC must re-evaluate its involvement in the project because of uncertainty regarding the financial strength of Fengyue. 

A meeting of the BDC board on December 19, 2011 sought to justify the significant over-budget and delays in project implementation that were noted in the forensic audit report.

A statement circulated by BDC spokesman, Gomolemo Zimona, glosses over serious irregularities identified by the forensic audit by saying there were some start-up delays and that although the project was approved in June 2007, its financing package was only concluded in November 2009 while civil works commenced in July 2010.'This exposed the project to adverse foreign exchange costs and major price escalations,' says Zimona's letter.

Further, the board says the change in project scope from 350 to 450 tons of float glass produced per day and unforeseen project component costs such as additional civil works and geological work had added to cost escalation.

The board says the Palapye project is 72 percent complete and is still viable. In light of this progress and cost escalations, the board decided to approve additional funding for completion of the project and would consequently enter into new agreements with the Fengyue company 'in respect to additional funding and that all existing agreements be revised with a view to safe-guarding the interests of the Corporation'.

'The board further wishes to announce that   Shanghai Fengyue Glass Co. Ltd (BVI), BDC joint venture partner, has agreed to contribute additional equity into the project as part financing of the cost escalations.'

The BDC board says it expects the project to be completed in November this year. It gave BDC the go-ahead to procure the services of a glass manufacturing specialist to oversee the installation and commissioning of the plant and to advise on any other matters relating the plant, it says. The board also confirms an earlier report by Mmegi that BDC had engaged the law firm Collins Newman to advise on partnership issues 'and to review and align all existing agreements to the new funding structure and to the terms of the revised Engineering Procurement and Construction Contract,' Zimona's letter says.

'Finally, the board wishes to assure the business community and the public of its commitment to principles of good corporate governance.

The board is currently studying the contents of the ENS forensic audit report and shall make its pronouncements on the report in due course.'

However, in the report of ENS forensic auditors said the BDC should re-evaluate its involvement in the glass making project and raised questions about the financial wherewithal of Fengyue.

'The project is significantly over-budget and serious delays in project completion are being experienced,' said the forensic report.

'There are further risks to the project in terms of viability and cost. BDC should ensure that its return on investment justifies its continued involvement in this project.

It is uncertain what financial resources Shanghai Fengyue BVI and Shanghai Fengyue China have at their disposal.There are serious concerns about whether either of these companies are suitable partners for BDC in a joint venture of this size and nature.'