Liberia: Eton Deal Unraveling Red Flags Construction Partners with History of Bidding Laws Breach

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Monrovia – For the past seven years, Ung Jae Lee and Sung Ho Hong, two struggling Korean contractors with no office – or physical presence, under the guise of MAEIL Liberia Construction Co. Ltd., worked the grounds in Liberia in hopes of catching a break. After all, several others before them, most notable, the strap-dealer-turned millionaires, the Israeli firm Elenilto had used a similar model to catch a break off Liberia’s backs, taking advantage of a vulnerable system of governance to breach existing transparency and accountability structures in a bid to find their way.

Luck came calling for the Korean pair when George Manneh Weah won the Presidency last December. Immediately following the inauguration in January, the pair maneuvered their way in the system using some of the same people they had used in an unsuccessful effort to secure road construction contracts during the Ellen Johnson-Sirleaf era.

Couldn’t Raise US63M for Madina Project

Up for grabs, shortly after the 2011 presidential and legislative elections in 2012, was an Expression of Interest for the rehabilitation of the Medina-Robertsport Road and the Marshall Road project.

The pair solicited the help of Mr. R. Wesley Harmon, a former Deputy Commissioner of Customs for Administration at the Ministry of Finance during the Taylor era as one of their point men.

The new president, got the ground running early, taking both the President Pro Temp Albert Chie and the Speaker of the House of Representatives Bhophal Chambers on trips in hopes of cementing his grip on the legislature with the end game of easing what would later be, smooth passage of two controversial loans that would follow later.

The Madina project was intended to be an Asphalt of the Medina Robertsport Highway with two-lanes and width of 33.8 feet with an anticipated cost of sixty-three million, three hundred, thirty-eight thousand United States Dollars(US$63,338,000.00) with an anticipated date of completion of December 2015. The commencement date was predicated upon final approval and budgetary allocation by the Ministry of Finance.

In an unsolicited Expression of Interest obtained by FrontPageAfrica dated April 9, 2012, Mr. Lee wrote then Public Works Minister Samuel Kofi Woods, expressing interest in pre-financing the project.

Mr. Lee wrote: “We are in position to discuss the pre-financing of the Medina to Robertsport and the Marshall Roads projects. The modalities for payment schedule can be arranged over a period of five years effective of the signing of a formal contract. As soon as a formal understanding is reached between the Government of Liberia and Maeil Liberia Construction Company Ltd., the equipment for the operation of these projects will be shipped immediately. We sincerely look forward in becoming a truly genuine partner with the Government and People of Liberia.”

On paper, the MAEIL’s EIO was salivating.

The Koreans even received a letter from then Deputy Minister of Public Works Stephen M. Yekerson acknowledging receipt of their EOI with pledge to sift through the documentations presented before making a decision.

“MAEIL Construction has not carried any works within Liberia which provides a challenge for confirmation and verification. Additionally, information provided by MAEIL Liberia on past work experiences are largely credited directly to MAEIL Construction Company Ltd. And / or Korean Construction Management Corp.”

  Medina-Robertsport Road Project Bidding Committee, Ministry of Public Works

$US63M v. US$536M: Bank Guarantee Required

Mr. Yekerson wrote:

“After careful review, I am pleased to inform you that your documents meet substantially most of the Ministry’s requirements for project consideration. The Ministry is now conducting detailed and extensive review on documents submitted for approval. As this project falls under a pre-finance category, it is recommended that in addition to the letter of signature provided by Korean Construction Management, you provide a bank guarantee preferably one substantiated by a local bank. These two documents form an essential part of the approval process. Please note that the Ministry cannot make any commitment or awards until the project meets budgetary approval during the current phase f the budget enactment by the National Legislature. In addition, the project proposal and financing must comply with all other laws and regulations of the Government of Liberia.”

FrontPageAfrica has now learned that MAEIL never was able to come up with the US$63 million to pre-finance the project just as Eton is currently finding it difficult to find lenders for its US$536 million loan agreement with Liberia.

In addition, the process was characterized by controversy surrounding the mysterious awarding of the contract to MAEIL.

It all started when then Deputy Minister for Technical Service Victor B. Smith wrote a letter of intent to MAEIL for the construction of the Madina-Robertsport Highway, in Grand Cape Mount County.

In a letter to Mr. Lee, Minister Deputy Minister Smith took a unilateral decision to grant the Koreans the greenlight to secure financing from the Korean Bank, to enable them to implement the project.

In a letter dated December 27, 2012 to Mr. Lee, Minister Woods announced the ministry was revoking the bid of the company.

Said Mr. Woods:

Our attention has been drawn to series of discussions and correspondences between your company and Deputy Minister Victor B. Smith over the last couple of months that have culminated to the issuance of a letter of acceptance on December 21, 2012 to your proposal to pre-finance the rehabilitation of the Medina to Robertsport Road. The processes leading up to the issuance of the letter of acceptance for your construction proposal constitutes a violation of several sections of the public procurement laws of the Republic of Liberia. Moreover, Deputy Minister Smith does not have the legal authority to unilaterally commit the Government of Liberia to a project of this magnitude; this will require further involvement  of other Ministries  and Agencies of the Government, including the Ministries of Finance and Justice as well as the Public Procurement Commission. In view of the above and in keeping with our commitment for openness  and transparency, we are officially informing you that the Letter of Intent and subsequent Acceptance of Proposal referenced VBS-DMTS/MPW-RL/905/’12 and VBS-DMTS/MPW-RL//1334/’12 respectively between your institution and Deputy Minister Victor B. Smith are hereby and effectively revoked and nullified.”

Concerns Over MAEIL’s Proposal

Minister Woods’ letter to Mr. Lee was preceded by a detailed narrative of concerns over the process leading to the award of a Letter of Intent and a Subsequent Letter Acceptance of the Maeil proposal by Deputy Minister Smith.

In an Internal Memorandum, Minister Yekerson pointed out that while the ministry was in the process of verifying the documents submitted, Deputy Minister Smith had already written the company that they had won the bid.

Said Minister Yekerson:

“Approximately three weeks ago, Officials of MAEIL Construction visited my office to discuss submissions; specifically, certificates of deposit with a Chinese financial institution in favor of KCM (design supervision partners of MAEIL Construction). As the submitted documents were yet to be authenticated by our banks in Liberia, MAEIL Construction was advised by me that further due diligence was required to (1) authenticate the validity of the submitted certificates of deposit and (2) to authenticate that funding mentioned in the certificates of deposit was set aside for the exclusive use of the Medina to Robertsport road project supported by a banking instrument/relationship with an approved Liberian bank.”

Minister Yekerson pointed out that the letter of intent under the signature of deputy minister Smith addressed to MAEIL Construction was without the expressed or implied consent of the Procurement Committee informing MAEIL it had been awarded the project without the knowledge of the minister or his principal deputy.

Unilateral Decision Revoked

Following the gaffe, Minister Yekerson summoned the Korean pair to his office to verbally informed them that the letter from Deputy Minister Smith was null and void as decision to single source the procurement of such a massive project needed the approval of the procurement committee for the sake of transparency and assuring the value for money, that the award process adhered to the public work procurement laws of Liberia.

Internally, the ministry decided that it was necessary to overruled deputy minister Smith’s unilateral decision to award the contract to MAEIL citing issues of noncompliance with procurement laws of Liberia as a fundamental reason.  Additionally, the ministry held a separate discussion with deputy minister Smith about the inherent risks associated with the unilateral actions and the high possibility that the process would besmear the integrity of the Ministry of Public Works in the event it gets in the public domain.

Deputy Minister Smith’s unilateral decision led to his suspension by former President Ellen Johnson-Sirleaf who took issue with the minister’s breach of the PPCC regulations. But Smith, in an appeal to the President, argued that the procurement process was still ongoing and the contract had not been awarded to MAEIL as claimed. “I await a timely intervention as this has the ability to destroy my character if I am not cleared of this baseless allegation.”

The revelation comes in the wake of reports that Eton is looking to renegotiate the terms of the agreement with Liberia. One source told FrontPageAfrica Tuesday that the controversial company is exploring the possibility that it gets a collateral from Liberia although it is not sure what collateral is. “They want a guarantee,” said the source, who also said once the state(Liberia) makes a loan it becomes a guarantee. Eton is said to be struggling to get international banking institutions to buy into its US$536 million loan on the vague paper signed in Liberia without a feasibility study or clear payback method in place.

No History in Liberia: Query Over Work Experience

In the agreement recently signed between the government of Liberia and Eton Financial Private Limited, MAEIL is listed as one of the contractors and described as a major Chinese Engineering, Procurement and Construction Company despite having no prior major or minor construction work done in Liberia.

The previous leadership at the MPW concluded during MAEIL’s quest to secure the construction project for Madina that all the contractors in the bid with the exception of MAEIL provided evidence of past work. “MAEIL Construction has not carried any works within Liberia which provides a challenge for confirmation and verification. Additionally, information provided by MAEIL Liberia on past work experiences are largely credited directly to MAEIL Construction Company Ltd. And / or Korean Construction Management Corp. (KCM) (although there is a signed MoU amongst KCM, MAEIL Construction Company, Ltd and MAEIL Liberia that ‘purpose to establish cooperative and mutually beneficial relationship between the parties in pursuit of new construction project opportunities in Liberia.”

Now paired with ETON for a financing loan covering 505.3km of roads including the corridor from Grand Bassa County in Buchanan through Cestos City in Rivercess County to Greenville City in Sinoe County onward to Barclayville City in Grand Kru County -316km road, MAEIL is under scrutiny.

The road construction also includes the corridor between Barclayville to Sasstown road-21km in Grand Kru County; while the Barclayville to Pleebo road-75km in Grand Kru and Maryland Counties will be constructed and paved. The ETON Financing Road Agreement will also cover Western Liberia counties including the Tubmanburg to Bopolu -52km road in Bomi and Garpolu Counties while the Medina and Robertsport-41.3km road in Bomi and Gbarpolu Counties.

The revelation is raising questions about how the current administration ignored red flags the previous administration was alerted to in MAEIL Construction’s quest for a major construction contract in Liberia. Eton is in the agreement in conjunction with MAEIL, described as its branch company in Liberia.

Like MAEIL, Eton too is said to be finding it difficult to convince lenders to put up more than half a billion dollars for the Liberia operation amid concerns that the agreement is not credible as an arm’s length commercial arrangement, and that the terms and the very large size of the loans suggest that there is an improper purpose behind the agreements.

Financial analysis point to the basic questions lenders are prune to ask with no basis for cost estimate and no indication that a feasibility study has been performed.

It is likely, sources say that the agreement could be tweaked and taken back to the national legislature for revisions. The big concern for many remains whether the Weah administration could risk toying with the idea of throwing in oil blocks, the Wologisi Mountain Range or Putu into the pot to appease Eton.

Sources: Eton Unsatisfied With Sovereign Guarantee

The Eton loan is also complicated by the issue of the Sovereign Guarantee. For example, the disbursement of the entire loan within 110 days after approval by the Legislature and issuance of Sovereign Guarantee, as opposed to disbursements tied to progress of construction.

Some are beginning to fear that the reference to an unidentified “major Chinese” construction company suggests that there may be a Chinese company behind the scenes, perhaps providing the funding raising the possibility of potential money laundering. The interest rate of 1.46% is also believed to be too low for sovereign debt of Liberia.

More importantly, Eton may be taking advantage of some of the fine prints of the agreement notably relating to the fact that, any sovereign guarantee put forth by the Government of Liberia should, “in form and substance be satisfactory to Eton”, before any portion of the US$536 million can be released.

The agreement states clearly: “The Government of Liberia guarantees that this loan financing  Agreement shall be ratified and confirmed by the National Legislature of the Republic of Liberia; creating a binding legal obligation on the current government and all succeeding governments during the life of this Financing Agreement. The Government of Liberia shall provide a sovereign guarantee issued by and the Central Bank of Liberia as collateral for the loan.”

Ironically, the agreement also states: The (unnamed)major Chinese Engineering Procurement and Construction Company herein referred to above, shall provide a performance guarantee satisfactory to the Government of Liberia, prior to the disbursement of funds by Eton.”

This, some financial analysts say, could suggest that Eton could use this as an excuse not to disburse if it is not satisfied.

Although Liberia’s argument is that the loan it is taking on and the responsibility with it, is a sufficient guarantee for the lenders, Eton is said to be struggling to make a pitch to lenders.

As this report went to press, behind the scenes negotiations are said to be ongoing with multiple sources telling FrontPageAfrica that Eton may be seeking more in terms of a stronger sovereign guarantee that could be more appealing to lenders. It is likely, sources say that the agreement could be tweaked and taken back to the national legislature for revisions. The big concern for many remains whether the Weah administration could risk toying with the idea of throwing in oil blocks, the Wologisi Mountain Range or Putu into the pot to appease Eton. This, political observers say could open a whole new can of worms for a government determine to see the most controversial of the two loans on its plate, become a reality.

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