Zambia: China’s Avic battles Casilli consortium for $700m DRC road contract

By Chiwoyu Sinyangwe

Posted on Monday, 22 August 2022 12:40
Zambian President Hakainde Hichilema in Washington DC, US on 27 September 2021. Twitter/@HHichilema

A consortium led by China’s Avic International and another led by Diego Casilli - a Lusaka businessman with strong links to President Hakainde Hichilema - are battling for pole position over the tender to construct Zambia's busiest road, the Lusaka-Ndola Road. 

The government’s Road Development Agency (RDA) is expected to announce – “before September this year” – a contractor to build the key road linking the capital Lusaka to the copper-rich regions. It is a strategic route: Southern Africa’s sole access corridor to the Democratic Republic of Congo (DRC).

Last February, the United Party for National Development (UPND) government cancelled the $1.2bn road contract awarded to China Jiangxi Corporation for International Economic and Technical Cooperation (CJIC) in 2017 by the regime, citing “overpricing” of the tender.

The dual carriage road is 321 kilometres long, plus a 45-kilometre bypass road.

The initial CJIC contract was originally for engineering, procurement, construction and financing, but now the government plans to award the tender under a public-private partnership model.

Avic vs Casilli

According to sources within the RDA and the Ministry of Infrastructure, Housing and Urban Development, of the seven expressions of interest that were submitted, the two best evaluated bids are Macro Ocean Investment Consortium and another one led by Velos Enterprises.

The plan is to get construction underway by September at the very latest.

The Macron Ocean Investment Consortium comprises all Chinese companies led by Avic International and China Railway Seventh Group. The Velos Enterprises Consortium is predominantly Zambian entrepreneurs and includes Italian born Diego Casilli as well as another prominent Lusaka businessman, Mark O’Donnell.

Casilli is one the wealthiest businessmen in Zambia who owns shopping malls and a football stadium. He is a very close associate of Hichilema and  was heavily influential in the UPND victory during the 2021 general elections.

“After the initial seven expressions of interest that we received, we shortlisted two bidders and both Velos Consortium and Aviation Industry Corporation of China [AVIC] Consortium have submitted their final bids of around $700m… The plan is to get construction underway by September at the very latest,” says an RDA source who is not authorised to speak to the media.

The minister of infrastructure, housing and urban development, Charles Milupi, said the bidding process was transparent and done in a credible manner. Milupi was a strong advocate for cancellation of the CJIC. He rejected the CJIC’s previous attempt to renegotiate the terms and scope of the works.

“I was not part of the evaluation committee and so I cannot comment on that, but those two companies could have been selected […] we want to be transparent at every stage and the evaluation process is being done by a multisectoral adjudication committee which also includes the intelligence people,” Milupi said.

Cancelled contract

The terminated $1.2bn contract included CJIC building the new headquarters for RDA.

Under the cancelled contract, CJIC was to do the engineering, procurement and construction of the road, besides raising the financing. CJIC, according to sources within RDA, withdrew its initial expression of interest after the government changed the financing model as it feared to “load more debt on its balance sheet”, having not been paid for most of its completed projects in Zambia.

Despite the contract having been signed in 2017, the Export-Import Bank of China could not release the loan after Zambia failed to raise $180m counterpart funding. Zambia only released $30m.

Another source close to the transaction tells The Africa Report that CJIC was demanding $200m in compensation for the works done ,which included the geotechnical survey, design for the road, environmental impact assessment and the resettlement plant.

On the other hand, the Zambian government has also engaged an independent engineering firm to determine the “correctness” of the compensation value submitted by CJIC.

The sources also say the change from EPC plus financing model in constructing the road is going to see the road that carries up to 42% of Zambia’s traffic, according to official figures, and is the country’s sole access to copper mines on the Copperbelt and North-Western provinces under concession for 25 years.

Debt drag

“As a country, we have over borrowed and we can’t afford to borrow more, so this model is essentially an investment. If we say the concessioner is going to construct the road at $500m, that $500m is coming into the country, which will help stabilise the economy and the kwacha [local currency],” said Milupi.

“When you have a PPP [model], the concessionaire will also ensure that you have a quality road because for the period of the concession, they will be the one running this road and so they wouldn’t want to do a bad job like we have been seeing,” he said.

[…] to see the project given to AVIC would be a smack in the face for China Jiangxi

Another source says owing to the magnitude of the contract, RDA could make a concession of the dual carriageway to two companies.

Zambia is currently sitting on over $17bn on foreign debt. The country’s creditors are said to be about to commit to debt relief needed to unlock $1.4bn from the IMF, which is needed to restructure the country’s debt.

Chinese grip

Avic International’s front role in the bidding process manifests how deep-rooted the Chinese companies are in Zambia’s geopolitical landscape and the fierce competition among Chinese companies in the Southern African country.

The UPND, in opposition,  frequently criticised Avic for its open support to then ruling Patriotic Front and its provision of financial and material support to the former ruling party.

“In Zambia, there are always Chinese for each ruling political party. UPND condemned Avic, but today, here they are in bed with them,” said Cletus Chisanga, a Lusaka-based development consultant. “It will not mark a new day for Zambia if Avic wins the tender for the Lusaka-Ndola dual carriageway. This is business as usual,” he says.

A source within the Chinese community says CJIC “would be happy to see the project be awarded to the consortium led by Velos” than AVIC International.

“CJIC [is] not friends with AVIC despite both being owned by the government of China, so to see the project given to AVIC would be a smack in the face for China Jiangxi,” he says.

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