Feb 11 , 2023

A state-owned company in the construction sector owed the Ethiopian Roads Administration (ERA) a staggering amount of debt seven times larger than the country's economic size, a federal audit finding revealed.

Amente Dadi, CEO of the Ethiopian Construction Works Corporation (ECWC), oversees a company which had owed 39.8 trillion Br to the Administration (ERA), claiming over 1,000-fold its authorised capital issued in 2015, according to the Federal Auditor General, which examined the Corporation's audit for the 2020/21 operational year. The audit report, submitted to Parliament nine months ago, attributed the claim to a contractual agreement - Adama-Awash Output & Performance Based Road Contract Project - signed between the two state-owned firms for the first time, incorporating a formula to deal with default.

Executives of the Corporation overlooked this contractual obligation for 10 years, never applied in Ethiopia before. Meseret Damte, the auditor general, described the contract as an "inapplicable penalty." Experts called it "illogical and illegitimate."

Haben Abraham, a contractor for 15 years, said project contracts should be terminated when liquidity damage surpasses its limit.

"This simply means that they slept on it until it reached this level," said Haben.

According to Paulos Zerihun, performance audit director under the Federal General Auditor, the claim was discovered from an interim payment certificate with resident engineers working on the project. ERA never claimed the penalty fee. Paulos told Fortune his doubt whether "the people in charge understood the details in the large-sized annexed documents."

Managers of public enterprises ought not to sign contracts without understanding the responsibilities and liabilities the contracts entail, Meseret testified before Parliament's Public Expenditure Administration & Control Affairs Standing Committee, chaired by Christian Tadelle, an MP from the opposition National Movement of Amhara (NAMA).

"This is a big lesson as 'the devil is in the details," said Paulos.

Auditor General Meseret lamented that any contract should not exceed the 10pc penalty fee.

"No budget is lost due to the contract," the Auditor General to Parliament. "They should have paid attention to the contracts they signed."

The interim payment certificate calculation was a mistake, Amede Muhye, Alemgena Road Network and Safety Management Director, told Fortune. The directorate under Amede is in charge of administering the contract.

The Auditor General has urged ERA to cancel the contract.

Even though the auditor found out that the corporation would be liable for the reported amount according to the formula in the contract, the client, the contractor and the consulting company did not officially communicate whether the contractor should pay the performance guarantee.

Reflecting on the corporation's  enquiry to amend the contract, Melaku Weldu, Resident Engineer from the consultant Ethiopian Construction Design and Supervision Works Corporation, said that the administration responded it will not amend the contract just because the contractor does not like the liability after once they started working and earning. He told Fortune, "The interim payment certificate is not authenticated document".

ERA and the Corporation have worked on customising the contract type for local use for more than two years. ERA was set to terminate the contract and nullified the payment when the Corporation defaulted. But considering many circumstances, they are still working based on the contract that covers 10 years to 2026.

The Corporation, established in 2015 with over 7.7 billion Br paid-up capital, is now one of the 38 state subsidiaries under the Ethiopian Investment Holdings, Ethiopia's first sovereign wealth management company. CEO Amente blamed shortages of machinery, cement supply, petty cash and tricky weather conditions followed by natural disasters as factors that hindered the company from delivering projects on time, hence leading to debt pileup.

The Corporation works on 32 public projects, including three in the Tigray Regional State: 21 have passed their project completion date. In the half-year report Amente presented, the Corporation claims to have achieved above 90pc performance results in 61 projects, including building, roads and water infrastructure construction, with a 45.2 billion Br budget.

Zeritu Shiferaw, an MP serving in the standing committee, could not have concealed how much she was appalled to see the Corporation's executives' failure to deal with the liability to ERA 10 months after the audit findings were revealed.

"Shouldn't the Corporation be horrified and act accordingly?" Zeritu confronted Amente.

However, the issue has already been handled after ERA responded to the Corporation's request, Habtamu Tegegne, former director general of the Ethiopian Roads Administration, told Fortune.

PUBLISHED ON Feb 11,2023 [ VOL 23 , NO 1189]

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