Sierra Leone contract cancellation risk
Sierra Leonean President Julius Maada Bio's cabinet on 9 July approved a commission to investigate and prosecute corrupt activities allegedly undertaken by the previous government in the banking, construction, and energy sectors. Several contracts face cancellation and legislative disruption is likely.
- President Bio has formed a commission of inquiry with the legal powers and political will to investigate and prosecute former government officials allegedly involved in corrupt practices from September 2007 to April 2018.
- Emergency power purchasing and road construction contracts are likely to be cancelled, and the government is likely to undertake an audit of lending arrangements at the wholly government-owned Sierra Leone Commercial Bank.
- Even in the absence of prosecutions, former president Ernest Bai Koroma's opposition All People's Congress (APC) party, which controls 47% of seats in parliament, is likely to actively oppose the government's legislative agenda in parliament this year
President Julius Maada Bio's cabinet on 9 July approved a commission of inquiry to investigate and prosecute alleged corrupt activities undertaken by the previous government between September 2007 and April 2018. It will also seek to "recover all stolen or inappropriately converted state funds and other assets" within 30 working days or press charges for non-compliance. According to the 1991 constitution, the commission has the same powers to prosecute as the High Court. The commission will be chaired by Attorney-General Priscilla Schwartz, who also has powers under the Criminal Procedure and Anti-Corruption Acts to indict those accused. Bio appointed Schwartz on 11 June, replacing his original choice, former People's Movement for Democratic Change leader Charles Margai. No reason was given for Margai's removal.
The inquiry will draw on recommendations contained in a report presented on 4 July by President Bio's Governance Transition Team, which was tasked with preparing Bio's government for office. President Bio leads the Sierra Leone People's Party (SLPP) and was inaugurated on 4 April 2018 after defeating the opposition All People's Congress (APC) party's candidate by a narrow majority in the second round of the presidential election. The APC continues to dominate the legislature with a 47% share of parliamentary seats, while the SLPP holds 37% of seats.
Recent developments
Prior to the commission's formation, Sierra Leone's Anti-Corruption Commission (ACC) on 5 July charged former vice-president Victor Foh and former mines minister Minkailu Mansaray with corruption-related offences. Both were charged with the alleged misuse of public payments intended for financing the Hajj pilgrimage; Foh and Mansaray have denied all allegations.
Separately, the report alleges that the acquisition in April 2012 of a 30% equity stake in the formerly government-owned Sierra Rutile by SRL Company, allegedly owned by former president Ernest Bai Koroma's nephew John Sisay, was in breach of procurement law, as was the subsequent sale of this block of shares to Iluka Resources on 12 December 2016 for USD375 million for an alleged profit of USD113 million. The report alleges that Koroma was a part-owner of SRL, which held Sisay's shares. Sisay was one of several APC presidential candidates. He has denied all allegations. Former president Koroma strongly denied all accusations on 5 July, describing them as "complete nonsense". On 11 July, the APC, as a party, refuted all allegations of corruption involving party members.
Outlook and implications
We assess that the commission of inquiry, which was unanimously approved by the cabinet, has the political will and legal power to broaden the investigations and prosecute alleged cases of corruption. However, the APC still has influence over the judiciary, and probably would look to intimidate witnesses from providing evidence. As such, any implicated APC party members potentially could avoid prosecution by seeking recourse through the Court of Appeal. Similarly, they are likely to use judicial contacts in an effort to secure early bail terms. The APC would also seek to pressure President Bio by blocking key legislation in parliament. As we previously assessed, cross-party agreement is likely to remain necessary to review all existing mining contracts, primarily to reduce inconsistencies in tax exemptions and incentives between operators. However, if Koroma is found to have facilitated when president the award of health service contracts for tackling the Ebola virus disease outbreak in 2014-15 to political allies, as the corruption report alleges, then his support base is likely to split, indicating reduced scope for opposition in parliament. The review of mining contracts and associated legal amendments would, however, probably still be delayed until early 2019, with Chinese iron ore miners least likely to be affected given the currently unfavorable market conditions for attracting alternative foreign investment into this sub-sector.
In any case, evidence gained during corruption investigations is likely to be used as grounds to cancel existing emergency electricity off-take agreements, especially where tariffs are higher than the regional average, as well as underperforming road construction contracts. Resulting legislative reforms are likely to be tabled in early 2019. These would aim to increase transparency in tendering processes to prevent politically preferential bidding and reduce opportunities for price inflation. It is also likely that construction and financing of the Mamamah Airport will be terminated or, more likely, suspended pending a government audit. China Railway International Group commenced construction of the airport in March, financed by a USD315-million China Import-Export Bank loan. Then-transport minister Leonard Balogun Koroma finalized the contract agreement in February. If he is targeted during the investigation, this would indicate that the contract is highly likely to be cancelled. In any case, Bio's government is more averse to onerous terms in external lending arrangements, and his government perceives the project to be uncompetitive and unlikely to produce sufficient economic returns on its current terms. The Freetown Port Terminal Extension project is also likely to face scrutiny, although cancellation or revision of contractual terms is less likely.
Separately, the domestic banking sector will come under greater scrutiny. This is likely initially to involve a targeted audit of unpaid and non-performing loans issued by wholly government-owned Sierra Leone Commercial Bank (SLCB), which comprise facilities that are likely to be related to APC party officials. The report alleges that loans issued by SLCB to businesses owned by former president Koroma's allies were either unpaid or written-off, and the commission has been instructed to reclaim these. The most significant defaulter identified is Premier Investment Sierra Leone Company, reportedly owned by Kabba Khalu, who, the report alleges, is a "close friend" of Koroma. The dismissal of SLCB's board would indicate the audit will be widened to the 51% government-owned Rokel Commercial Bank. However, this measure alone would probably create opportunities to re-route corrupt lending to SLPP members, rather than credibly improve the oversight and scrutiny of lending practices.
Chris Suckling is a Senior Analyst, Country Risk – Sub-Saharan Africa at IHS Markit
Posted 19 July 2018