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Finance Ministry raise red flag on Fibre Optic Cable Contract

Finance Ministry raise red flag on Fibre Optic Cable Contract

Pending submission to Cabinet and Parliament for approval and ratification respectively, the Ministry of Finance has pointed out serious flaws in the contract awarded to Zoodlabs (SL) Limited headed by Iranian borne Davar Fazali (in photo) by the Government of Sierra Leone, represented by the Ministry of Information and Communications for the Operation, Maintenance and Commercialization Management Services of the Africa Coast to Europe Submarine Fibre Optic Cable Landing Station and Ancillary Infrastructure.

In an official correspondence to the Ministry of Information and Communications, dated 14th December 2020, the Finance Ministry catalogued eight arears of fundamental financial transactions in the contract that require review to save Government from being exposed to liabilities, and to enhance revenue generation.

Foremost of these grey areas in the document is the lack of clarity and reference to justification as to why the Contractor Zoodlabs (SL) Limited should be given access to the national terrestrial backbone infrastructure and at what cost, given the background of Government indebtedness.

The Ministry of Finance also notes that the contract only provides for the taking over of assets and not liabilities. “We observed that the contract provides for the company to only take over the assets of the ACE but not the liabilities”, the correspondence from Finance stated, citing liabilities of the defunct Sierra Leone Cable Company Ltd (SALCAB), in the areas of taxes and custom duty owed to the National Revenue Authority to the tune of approximately  Le 27.43 billion; end of service benefits for existing staff, and debt service payment arrears of about US$ 14.2 million on four projects including the West Africa Regional Communication Infrastructure Project (WARCIP) managed by SALCAB; and future debt service obligations up to the life of the loan.

Furthermore, the Memorandum from Finance frowned at the US$ 1.8 million annual payment by the contractor to the Government of Sierra Leone of which US$ 1.4 is paid to the Consolidated Revenue Fund (CRF); and the projected revenue throughout the concession period, considering the proposed investment of US$12.8 million, describing both figures (annual payment & projected revenue) as rather “conservative”.

Given the context, the Ministry of Finance recommends that “the Contractor pays the sum of US$ 2.5 million annually to enable Government meets the related debt service obligation”.

In the same vein, Government being primarily obliged to meet debt service payment to the World Bank, the transfer of a paltry US$1.4 million annually, throughout the concession period starves government of making profitable returns in addition to meeting its debt service obligation.

While more will be reported in the next addition, it is important to finally mention that the Ministry of Finance considers the arrangement of “fixed annual fees for 15 years” for a Management Contract as not standard international practice, recommending that the 15 years be subjected to renewal every five years and that based on “…verifiable evidence of the investment of Zoodlabs (SL) Ltd in the infrastructure, the concession period can also be reviewed to secure private equity”.

The Ministry of Finance Memorandum underscores the need for these loopholes to be mended and re-submitted to the Minister of Finance, Jacob Jusu Saffa for his consideration before submitting the Agreement to Cabinet for approval and subsequently to Parliament for ratification.

It remains unclear whether the Ministry of Information and Communications has conformed with Finance this time around, as the same issues were previously raised in a referenced Memo of 18th November 2020 but were not addressed. The Minister of Information and Communications could not be reached on phone for his comments.

Meanwhile, an additional US$ 30 million was contracted from the Chinese Government in 2019 for the implementation of the Phase II of the National Fibre Backbone Project to connect three additional districts in the south and east of the country, including Kailahun, Bonthe and Moyamba. The project seeks to connect learning institutions, hospitals and local councils. 

It can be recalled that the Government of Sierra Leone contracted a World Bank loan of US$ 27 million as investment into the ACE submarine project to enhance broadband internet connectivity. It is the only submarine cable system serving twenty-four countries on the west coast of Africa and Europe, managed by a consortium of 19 members. The 17,000 km long cable connects more than 400 million people, was launched in December 2012 with extension to South Africa.

By Abdul Kuyateh

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