201003

africa-asia-confidential.com

Political rivalries in Algiers deepen as Chinese companies are named in an anti-corruption probe into Africa’s biggest road project

State prosecutors have ordered more arrests this month, as investigations intensify into the Chinese companies and European middlemen dealing with Algeria’s US$12 billion East-West Highway project. The probes, which started last September, are driven partly by a power struggle between President Abdelaziz Bouteflika and some top generals. Investigators say they have uncovered a system of kickbacks and illegal commissions linked to Algeria’s security services, senior directors in the Public Works Ministry, European banks and French businessman Pierre Falcone, who last year was gaoled for six years for his role in the Angolagate arms scandal.

Before his landslide victory in the April 2009 elections, President Bouteflika promised a sweeping anti-corruption campaign, although few expected the latest wave of high-level investigations and prosecutions. Indeed, some of the investigations have been launched by Bouteflika’s rivals – the so-called ‘decideurs’ – within the military and business-security elite – and target some of the President’s closest allies. The resulting arrests and sackings are popular among Algerians frustrated by poor services and high unemployment despite growing state budgets.

Much of the impetus for the probes comes from Major General Mohammed ‘Tewfik’ Medienne, who has used his control of the Département du Renseignement et de la Sécurité (DRS) to monitor Algeria’s leading politicians, securocrats and businessmen and to intervene in national and regional politics. Medienne’s officers operate in Mali, Mauritania and Niger and he has become a key ally of the United States in joint operations against Al Qaida in the Islamic Maghreb. Although Boutef’s government is due to preside over a phased retirement of Algeria’s most senior generals, the President remains extremely wary of Maj. Gen. Medienne’s power and influence in the country.

The first shots in this latest anti-corruption campaign were fired by Finalgeria, the Algerian subsidiary of India’s Jindal Steel, which made public its complaints about the award of pipeline contracts. Finalgeria said it was losing contracts for tubing because Sonatrach officials were signing illegal contracts with Turkish companies. Finalgeria filed a suit against Sonatrach and its pipeline subsidiary TRC in the Algiers courts in September. Finalgeria managers wrote to Sonatrach executives accusing them of wasting $6 million of state funds: ‘This time, the abuses were too much and we had to react.’

The next, much bigger development was the arrest and dismissal in mid-January of executives of the state-owned Sonatrach, the biggest oil company in Africa. The anti-corruption probe forced out Sonatrach Chief Executive Mohammed Meziane, 15 senior executives and several senior vice-presidents.


Contracts and kickbacks
Now investigators in Algiers have taken on the $12 bn. East-West Highway project. The 9th Chambre d’Accusation du Tribunal d’Alger is handling the criminal cases linked to the project. At 927 kilometres, the East-West Highway is Africa’s largest construction project but it is mired in controversy.

Investigators suspect that several hundred million dollars in illegal commissions have been paid. So far, the probe has focused on claims of cost inflation on the $6.2 bn. contract for the Highway won by China’s CITIC corporation and China Railway Construction Corporation. We hear that investigators will also review the other section of the Highway being built by a Japanese consortium (see Box) but no formal announcement has been made.

The investigation began after foreign intelligence services alerted Algerian officials to suspect transfers of substantial payments into bank accounts opened by Algerians in Spain. This prompted the arrest of Chani Mejdoub, an Algerian based in Luxembourg, who claimed to be working for the DRS. Medjoub told Algerian investigators that CITIC appointed him as a representative in Algeria, and he then set up two shell companies in Austria and Singapore into which tens of millions of dollars in commissions would be paid. He said that he used that money to encourage the Public Works Ministry to resolve problems on the project, such as visas for Chinese workers and the purchase of building materials.

Medjoub also named Pierre Falcone, who was invited to a meeting to discuss construction plans for the Highway with Public Works Minister Amar Ghoul, Energy Minister Chakib Khelil and Finance Minister Abdellatif Benachenhou. According to Medjoub, Falcone did not attend but he was in Algiers for the opening of bids on the Highway project and attended the signing of the original Memorandum of Understanding in 2005, as did CITIC’s Chief Executive and the Chinese Ambassador to Algeria. Initially, CITIC had wanted the project to be financed through an oil barter scheme, as with Falcone’s arms deals in Angola.

Falcone had worked with Pierson Capital Asia on several substantial China-Africa projects. In 2008, he told the Paris weekly Le Point that he was working on ‘several billion dollars’ of projects in Luanda, Brazzaville and Algiers. His links with China date back to 1988. CITIC and Pierson Capital Asia planned the new city project, south of Luanda; and Pierson helped CITIC structure finance for a road project in Congo-Brazzaville in 2009.

By early March, Algerian police had issued arrest warrants for eight people implicated in the East-West Highway case. Mohammed Khelladi, former Director of New Projects at the Agence Nationale des Autoroutes which managed the East-West highway project, was sacked in mid-December, then arrested on 3 March. He, Medjoub, Bouchama, Director of Planning and Coordination at the Transport Ministry Hamdan Salim and several businessmen have been charged with criminal conspiracy, corruption, money laundering and embezzlement. Khelladi has accused Minister Ghoul of direct involvement in the illegal commissions: his Principal Secretary, Mohamed Ferrach, was the last person called in to meet investigators in early March.

Rival companies are accusing each other of underhand tactics in bidding for other multibillion dollar public works projects, drawing attention to several Chinese railway contracts. In July 2009, the China Civil Engineering Construction Corporation won the contract for a 139-km Tissemsilt-Boughezoul railway line, another for 151 km of track between M’sila and Boughezoul and a third for a 153-km Saïda-Tiar1et line – worth a total of $1.9bn. China Railways, with the public Algerian company Infrarail, won a contract to build the 185-km Relizane-Tiaret-Tissemsilt line for $1.2 bn. The Agence Nationale d’Etudes et de Suivi de la Réalisation des Investissements Ferroviaires, which is also under investigation, says the awards must be approved by the presidency.

The Chinese Embassy and Chinese companies involved have not responded to press reports that CITIC’s Chief Executive Officer Hua Dong Yi was sacked in February and has left Algiers.