Shock as Airport Road gobbles up US$80m

airport roadBrian Chitemba Investigations Editor
For six years, the construction of Airport Road in Harare has remained incomplete, with Zimbabweans wondering why a 20km stretch of tarmac can cost a shocking US$80 million and take that long to finish.
Adding to the mystery is a report by the Comptroller-General for the financial year ended December 2010, which states that the cost of constructing a road should not exceed US$500 000 per km.

How a road that should have cost US$10m is now said to gobble up US$80m has been a long-running puzzle, but the answers are finally emerging.

The road project was awarded to Augur Investments by Harare City Council without going through an open tender process, according to a report by the city council’s Special Lands Investigations Committee.

Augur Investments, it turns out, sub-contracted Power Construction South Africa to undertake the multi-million-dollar Airport Road project because it did not have the capacity while former Harare City Council chairperson Mr Michael Mahachi allegedly drew almost US$2 million after he appointed himself the project manager.

The committee said Augur lacked the technical expertise to implement the project after it emerged that the company had no proven track record on road works.

The report added that the Town Clerk, Dr Tendai Mahachi, confirmed council officials met Augur representatives at the Zimbabwe International Trade Fair in 2007 after which the firm was awarded the US$80 million contract without a formal tender.

Local Government, Public Works and National Housing Minister Dr Ignatius Chombo has since said the project will be handed over to the Zimbabwe National Road Administration (Zinara) for completion after Augur allegedly failed.

The deal, which has always been shrouded in controversy, was signed in 2008 and the project should have been completed in 2010.

“Power Roads (Zimbabwe) (Pvt) Ltd was only incorporated on the 6th of July 2009, a year after the signing of the Memorandum of Agreement (MoA). Augur’s partner in the Joint Venture Company (JVC) is a South African-based company called Power Construction.

“Augur is therefore hiring Power Construction South Africa to build the Airport Road under the guise of a JVC,” reads part of the report.

The Estonian company, council investigators noted, was registered on September 3 2007, although it had already signed the first MoA in June 2007.

The shareholder’s agreement which created the JVC (Sunshine Development Pvt) was signed on September 4 2007 — a day after the registration of Augur in Estonia.

It also emerged that Augur’s representative, Mr Oleksandr Sheremet, who signed the agreements with Harare City Council, only became a member of the Augur board on September 18, 2008.

The city council’s Special Lands Investigations Committee concluded that Mr Mahachi, who signed the MoA with Augur in his capacity as the chairman of the caretaker council, unilaterally approved the appointment of himself as the project manager, a move which guaranteed him of at least US$1 972 002.52.

“At the time of the signing of the MoU, the chairman of the caretaker council (Mr Mahachi) had not obtained the authority to do so from council as the matter had not been discussed in any meeting of the caretaker council,” reads part of the report.

“In the letter to the city council written by Mr (Michael) Van Blerk of Augur (Annexure S), Augur sets the cost of the utilisation of the project manager, Mr Mahachi, at 2,5 percent of the total cost of the project. This translates to US$1 972 002.52.”

The Lands Committee then recommended that: “Michael Mahachi’s conduct pertaining to the signing of the Memorandum of Understanding with Augur and his being appointed as Augur project manager for the same Airport project should be referred to the police for investigations with the view to having him charged in terms of section 172 of the Criminal law (Reform and Codification) Act.”

The report also notes that the local authority paid Augur with 93 hectares of prime land which translates to 41 000 high-density stands measuring 200 square metres each, which, in turn, registered seven Zimbabwean companies to manage the land.

Dr Mahachi reportedly approved the transfer of 20.380 hectares to Homevilla Properties while Yellow Seat (Private) Limited got 9.2332 hectares and another 10.3986 hectares was given to Doosex Properties (Pvt) Ltd.

Council also transferred 8.7880 hectares to Express Properties while Homeday Properties got 7.6663 hectares and stands 19610 and 19673 were transferred to Ice Class Properties and Electro Properties, respectively.

The report reads: “According to the MoA, the City of Harare was to deliver to Messrs Coghlan Welsh and Guest, a law firm, title deeds for no less than 100 hectares of land in Gunhill Township, Harare, as security for due performance.

“These title deeds were to be held in trust by the law firm. The Memorandum of Agreement provided for the transfer of the land to Augur upon production by Augur of monthly consulting engineer’s certificate showing expenditure.”

The shareholding in the JVC is 70 percent — 30 percent for Augur and Harare City Council respectively — although there was no discernible justification in the agreement of how this shareholding ratio was arrived at.

Clause 5 of the agreement states that Augur’s contribution to the JVC as an injection of between US$20 million and US$30 million. But there is no fixed amount that is prescribed in the agreement that pertains to Augur’s contribution.

Therefore, it is not possible to deduce from the agreement how Augur was allocated 70 percent of the shares, according to council’s Special Lands Investigations Committee report.
While Augur’s contribution is quoted in United States dollars, the value of the land that the City of Harare brought to the deal is quoted in Zimbabwe dollars. There is no explanation in the agreement as to how the land contribution amounts to 30 percent of the shares nor is it explained why the value of the land is quoted in Zimbabwe dollars.

“The rationale for the shareholding structure is therefore not apparent in the agreement,” noted the Lands Investigations Committee.

“The decision to allocate Augur 70 percent of the shares is further called into question by the provisions of Clause 13.1 of the agreement. According to Clause 13.1, working capital for the project was to be provided by Augur on loan account. If the JVC at its inception had an initial share capital of US$20 million to US$30 million and 1,7 million square metres of land, there would have been no need for a working capital loan.

“Augur’s contribution to the JVC is, according to the agreement, limited to a loan which was to attract interest at the rate of LIBOR plus 6 percent. In effect, Augur was therefore absolved from making a capital injection into the JVC as justification of its equity.”

Contacted for comment, Augur Investments representative Mr Ken Sharpe dismissed the findings in the report as “complete nonsense”, insisting everything was done above board.

He, however, admitted that there was no open tender process for the project, but said there was Cabinet approval.

He said he would only be in a position to give “comprehensive details of the deal on Monday”.
“It’s complete nonsense . . . there was no tender for the project because it was approved by the Cabinet; it was approved by the Government of Zimbabwe. The project was given a national status so there was no scandal,” said Mr Sharpe.

Dr Mahachi could not be reached for comment as his mobile phone went unanswered several times until last night when it appeared to have been switched off.

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