Zuma’s double trouble projects
With President Jacob Zuma’s pet project to build six to eight nuclear reactors pushed onto the back burner by a resistant public, two reluctant finance ministers and a disapproving high court, two new projects along similar lines have come back onto the agenda.
The first is a proposal for the construction of a dam on the Mzimvubu River in the Eastern Cape. The second is the construction of a 125km railway link along the Moloto Corridor from Mpumalanga into Gauteng. The estimated price tag for the dam is R16bn, while the railway is pegged at R57bn.
These two projects have long been discussed, but of all the infrastructure development projects that make up the 18 Strategic Infrastructure Projects, carefully selected by the presidential infrastructure co-ordinating commission, they are possibly the two most contentious.
The Department of Water and Sanitation’s own documents have made it clear that, as it is conceived, the dam will never be financially viable. It will also not meet social or economic development goals cost-effectively and will require continuing subsidisation long after any loan to build it is paid off.
Civil engineers and development experts have argued that the water needs of people and agriculture would be met more cost-effectively by a series of smaller dams instead of building a large dam from which water would need to be pumped long distances. There has also been strong criticism, especially from within the Treasury, of the commercial feasibility of the Moloto Rail Corridor, which will be far more costly than other transport options, such as upgrading the Moloto Road.
But for more than a year now, Zuma has been championing the projects, set to be built by the Chinese Construction Company, backed by Chinese loan money.
But just as Zuma and the officials in the Department of Energy tried to persuade us that SA would not have to pay for the nuclear plants it wanted as Russia would finance them, similar misinformation has accompanied news reports about the two projects. In September 2016, the South African Broadcasting Corporation reported that the government had secured R30bn for the railway from China, which was a “capable friend” and “a willing partner” that had poured billions of dollars into African infrastructure.
But just as there would have been a serious amount of fine print in an agreement with Russia to finance nuclear power stations in SA, on Sunday, the City Press newspaper revealed the fine print on the agreements that are under negotiation with China regarding the two projects.
First, the projects will require loan guarantees from the Treasury should the China Exim Bank provide the funding. Second, the documents seen by City Press state that the finance will only be provided if the construction is undertaken by the China Communications Construction Company. And third, there seems to be no intention to put either project out to tender, as is required by the Constitution and the Public Finance Management Act.
Even if the last hurdle is somehow overcome or an open tender is held, it is unthinkable in this fiscal climate that the government should be considering expanding contingent liabilities through increasing debt guarantees.
But there is a frightening disjuncture between the Treasury’s fiscal consolidation pledge and what the government, in particular Zuma and ANC, believe can and should be done. It is no accident that the two projects were singled out in a statement by the ANC after its July lekgotla as priority projects essential to stimulating the economy.
With two finance ministers having fallen foul of Zuma’s grand infrastrucuture ambitions, will Malusi Gigaba have the guts to stand firm and risk becoming the third?
IT IS UNTHINKABLE THAT THE GOVERNMENT SHOULD CONSIDER INCREASING DEBT GUARANTEES