Norway ethics body blacklists parent company of proposed Amaila builder

-recommends it be excluded from country’s sovereign fund

Norway’s Council on Ethics (CE) has recommended that the parent company of China Railways First Group (CRFG) be excluded from the Scandinavian country’s sovereign fund “due to the unacceptable risk of the company being responsible for gross corruption.”

China Railways First Group is involved in several major multi-billion projects here and was selected to construct the Amaila Falls Hydropower station as well as a section of the access road to the Falls. It was also awarded the multi-billion dollar East Coast road project.

The Guyana Human Rights Association (GHRA) has since recommended another round of consultation together with serious due diligence investigations of contracted companies for the Amaila Falls Hydropower Project (AFPH). “While the China Railways First Group is not the company directly referred to in the CE Report, the extensive inter-changing of Directors and CEOs between parent and wholly-owned subsidiary companies…has to be a matter of concern to Guyanese authorities and citizens,” the human rights body said in a statement.

In its 2014 Annual Report, Norway’s Council on Ethics recommended the exclusion of China Railway Group (CRG) Ltd, the parent company of CRFG, from the investment universe of the Scandinavian country’s Government Pension Fund Global (GPFG) due to the unacceptable risk of the company being responsible for gross corruption. Norway’s US$875 billion sovereign fund is one of the world’s biggest investors and is considered a leading player in responsible investment worldwide. It is a fund into which the surplus wealth produced by Norwegian petroleum income is deposited. The GPFG had held NOK 306 million worth of shares in the company.

Yesterday, the GHRA noted that CRFG has won several important contracts in Guyana, including construction of the stalled Amaila hydropower station. The human’s rights body noted that the parent company has been embroiled in some of the worst corruption scandals in China’s history. With the prospects for Amaila having improved appreciably in recent weeks, the Guyana Government would do well to take note of the Norwegian body’s recommendation, the GHRA said referring to the CE’s recommendation on the company.

The human rights body recalled that in 2012, CRFG signed a contract with Sithe Global of the Blackstone Group for construction of the Amaila Falls hydro-station and related transmission lines in a contract worth US$506 million. “Should the political problems surrounding Amaila be resolved, it is assumed that CRFG would be head of the line to get the contract again,” the GHRA stated. The company was also awarded an US$8.5M contract for the construction of a difficult section of the Amaila Falls access road.

 

Office

The GHRA noted that in 2014, the same company, CRFG, was awarded the G$8.7 billion East Coast road expansion project. “Around the same time the company, under its locally incorporated title, CRFG (Guyana Inc.), were reportedly granted two free lots of land, one acre in Liliendaal on which to construct an office and a 7.5 acres plot at Friendship on the East Bank for materials and marshalling yards,” it noted.

Last June, Stabroek News had reported that government holding company, the National Industrial and Commercial Investments Limited (NICIL) had confirmed that land had been gifted to CRFG at Liliendaal, as part of a deal for a fixed contract price for the Amaila Falls Hydropower Station and construction of a crucial section of the access road. In a statement, NICIL disclosed the transfer, “by way of Deed of Gift, from government of two lots of land, one acre at Liliendaal (completed) and 7.5 acres at Friendship.”

According to the report by Norway’s CE, “based on the information available, the Council finds it highly likely that CRG has been involved in gross corruption and that the company does not meet national or international standards regarding compliance and anti-corruption. The Council therefore recommends excluding CRG from the investment universe of the GPFG.”

The report says that according to information obtained by the Council on Ethics, including information relating to legal rulings and internal disciplinary processes in the Communist Party published in the Chinese press, it is highly likely that CRG has been involved in gross corruption. The CE Ethics wrote to CRG asking for its comments on the accusations and for a report on how it is trying to prevent future violations. “The Council has also asked for a meeting with the company in connection with the fact that it held meetings with other companies in Beijing. CRG has confirmed receipt of these requests but has not answered any of them. Nor does the Council have any other information about how the company has reacted to the accusations,” the report says.

The Norwegian Ministry of Finance manages the GPFG and an important component of its decision-making in determining its investments are the recommendations of its CE. The GHRA noted that CRG is itself a wholly-owned subsidiary of the China Railways Engineering Group (CREG), listed on the Shanghai and Hong Kong stock exchanges.

 

Heavily exposed

According to the CE report, “…CRG is involved in one of the most serious corruption cases in China, is still managed by the same people who managed it when the acts of corruption took place and who knew or ought to have known about the acts, and is still operating in countries heavily exposed to corruption without at the same time making it clear that it is trying to prevent future violations, the Council believes there is an unacceptable risk of CRG being involved in future cases of gross corruption.”

The report also highlighted that the management of CRG apparently also knew about the bribes from the parent company. “This is supported by the fact that the current CEOs and legal director, as well as several other key managers in CRG, also held important positions in the parent company during the years when the acts of corruption apparently took place,” the report says. The company’s annual report for 2013 states that: ‘CRG’s president until 2014 was a vice executive president of the parent company from 2006 to 2007.’

The CE report also says that the parent company has apparently bribed China’s former railway minister in order to secure major contracts for CRG. “In June 2013, the railway minister was convicted in China of taking bribes to award contracts to individual companies for a number of years. The Council on Ethics assumes that CRG knew about its parent company’s bribes. This assumption is substantiated by, among other things, the close ties between the parent company and CRG. Reports in the Chinese press also refer to the parent company being one of the companies that have been investigated and sanctioned internally by the Communist Party for having paid bribes,” the report states.

“CRG operates in countries and sectors that are known to have a high risk of corruption. The building and construction industry, where large public contracts are common, exposes the company to a considerable risk of corruption. It is the Council’s opinion that a company in this given situation is required to have solid systems and measures in place to prevent corruption,” it further says.

The report said that based on the available information, the Council cannot see that CRG’s internal measures for preventing future violations meet such requirements. The systems appear to be defective, among other things because it is unclear which parts of the operations are covered by internal controls intended to reveal dishonest acts, the report says.

The GHRA said that with the Norwegian Government having recently given the green light to the Inter-American Development Bank to facilitate the Guyana Government with US$80 million to serve as the Guyana’s equity contribution to the AFHP, the investment hurdles to this project appear to have been largely overcome. “However, in light of the deep political divisions around this ambitious project, before contracts are signed, a prudent step would be to hold another round of consultation together with serious due diligence investigations of contracted companies, following general elections in May 2015,” the human rights body declared.

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