Uncertain Normeca Contract in Southern Sudan

(First published in Norwegian 14 December 2007)

By Pia A. Gaarder
Norwatch

Normeca’s 600 million euro contract with Southern Sudan’s government to construct and run 10 semi-permanent hospitals and 50 clinics has become a predicament for everyone involved. At the end of September Normeca fired the employees at the first hospital, Katiko Referral Hospital, which is almost completed. Southern Sudan was in an economic crisis and had gotten cold feet with regard to the extremely expensive, enormous project that would swallow up large portions of the budget for several years in the future. The government therefore withheld new payments to the Norwegian company.

“We have constantly been promised money. So far we have operated the hospital at our own expense, and we have now given them a new deadline for the middle of January. There are limits to how long we can keep the hospital running without funds for the operation,” Export Manager Thomas Kvifte told Norwatch.

He related that in November the government of Southern Sudan released a bank guarantee for close to 30 million NOK (3,7 million euros) and that during the past few months Normeca has run the hospital with reduced staff.

Large Problems
It is already well known that Normeca has large problems in Southern Sudan. Minister of Health Theophilius Ochang Lotti, who signed the enormous agreement for NOK 4.8 billion (600 million euros) with the Norwegian company, has been dismissed. And Kvifte does not try to conceal that the agreement with Normeca is one of the main reasons.

But in an even worse position is Martin Malwal, chairman of the board and part owner of the subsidiary, Normeca Sudan. He is being investigated for corruption and fraud in connection with another activity he runs, the purchase of automobiles for the government of Southern Sudan. According to the Norwegian newspaper Dagens Næringsliv, which carried a big article about the case this summer (english translation here), Malwal and another person have received payment of NOK 1 million (125,000 euros) from Normeca as thanks for their help in connection with landing the giant contract for NOK 4.8 billion (600 million euros).

On top of everything, the Government of Southern Sudan has great economic problems. Normeca was to construct, at record speed and with prefabricated modules, 10 large hospitals, 50 clinics, and 2 hospital ships with a health standard equal to that of Scandinavia.

The construction contract for 160 million euros and the operating contract for close to 3.5 billion (437 million euros) constitute a heavy economic burden that Southern Sudan must get out of. But the Ministry of Health and the Ministry of Finance of Southern Sudan are in a dispute as to whether this is possible.

Annulling the Contract
The new Minister of Health, Joseph Wejang, has recently stated that Southern Sudan will take over the hospital that Normeca has built and that the contract with the Norwegian company will be torn up.

“Apart from being very high-cost, these are prefabs … [and] will not last more than 10 years or so. So it will be a big waste of resources,” Wejang said in the middle of November to gurtong.org, a volunteer organization that runs a peace and media project.

Normeca’s export manager stated that complete chaos reigns with regard to the question of the contract: “The new Minister of Health in Southern Sudan has told the media that the contract with us has been terminated. This was said to, among others, Gurtong. But we have not received any letter to that effect. There is nothing in writing. And I doubt that we shall ever receive anything. Everything is very chaotic,” Kvifte said.

He said that it is correct that the buildings are constructed of prefabricated sections but that with normal maintenance they should last for 20-30 years.

Renegotiation
The export manager confirmed that there is great resistance in Southern Sudan to the agreement entered into with Normeca.

“The criticism pertains to the hospitals being too big and too expensive to run. They also fall outside that which the donor funds and the international organizations define as a primary health plan and which they would cover. As a result, Southern Sudan is left with fine hospitals, which they must pay for entirely themselves. And this is something they want to get out of,” Kvifte explained.

He related that Normeca is now trying to obtain the funds to keep the first hospital running. Primarily, they want to continue building the hospitals in accordance with the original plan, but they are willing to change the contract to include construction of smaller clinics that would be covered by the international aid schemes.

Imaginary Compensation
Kvifte denied that poverty-stricken Southern Sudan has to pay large amounts in damages to Normeca for violating the contract: “The damage amount rumoured in Southern Sudan is purely an imaginary product that neither we nor anyone else can vouch for. Enormous amounts, far above 100 million euros, have been mentioned. How they have arrived at such sums, I don’t know. It’s not logical. Then we would earn enormously by terminating the contract,” Kvifte said.

He believes that it has become a matter of politics and that, furthermore, it has become an object of the whims of the Minister of Health and the Minister of Finance.
“When the Government of Southern Sudan was to release our guarantees for about NOK 30 million (3,8 million euros), the question became an issue handed back and forth between the ministries. The Minister of Finance told the Minister of Health that that money should be released, but the Minister of Health literally ran off from the meeting. The Minister of Finance said that Normeca should keep operating the hospitals, but the Minister of Health claims that they have terminated the contract. Our impression of the situation is no clearer than that,” Kvifte stated.

Furthermore, he said that it is the Minister of Finance’s legal adviser who has found that the only possible way to get out of the contract is to pay an astronomic compensation of 138 million euros.

Three Contracts
It was on 16 September 2006 that Normeca AS signed three contracts with the Ministry of Finance of Southern Sudan. The first one concerned the construction of 10 semi-permanent hospitals and 50 mobile clinics. The second involved the construction of two hospital ships to sail the Nile, and the third was a contract for the running of hospitals and clinics for 5 years. Normeca has specialized in supplying products in acute emergency situations and supplied, among other things, field hospitals in connection with the tsunami catastrophe in Thailand and after the earthquake in Pakistan.

The company had not previously built permanent hospitals or been involved in running them. This made many wonder how such a small and almost unknown company managed to secure such a big contract.

In accordance with the agreement with Southern Sudan the company will construct altogether 1000 beds, in addition to living quarters for the staff, also with 1000 beds. The 10 hospitals were to be constructed within 2 years – that is, in record time. After 1 year only the first hospital is almost finished. Katiko Referral Hospital has 150 beds; this can be increased to 180 beds as required.

Right after the agreement had been brought to a successful close, Normeca received payment from the government of Southern Sudan of 20 million euros, which was to be used for the construction of the first hospital in Kapoeta. The advance payment was, according to Kvifte, not just for one but for 1.8 hospitals. “We reckon with 100 beds per hospital, more or less. We received an advance that covered approximately 1.8 hospitals and have so far built 1.5 hospitals – that is, 150 beds.”

The Account Drained
But Normeca in Norway claims that the entire amount was never deposited in their account. Kvifte related that money disappeared en route. The Ministry of Finance made a mistake and used the exchange rate for dollars rather than for euros; in addition, the advance was bled for NOK 20 million (2,5 million euros) when the money was to be transferred to Normeca in Norway.

“The same two contact persons in Sudan who helped us bring the contract to a successful close have helped themselves greedily from our till. The company Normeca Sudan has been drained of almost NOK 20 million (2,5 million euros). When we received the check in the local currency, it was deposited in the bank in Khartoum. It is this account that has been drained just before the money was transferred to Norway. There are now ongoing legal actions with regard to this,” Kvifte said but would not discuss the case further. Nor would Jan Karlsen, Normeca’s general manager and chief proprietor, on the phone from Bangkok, comment further on what had happened.

But the Ministry of Finance in Southern Sudan had utilized an incorrect exchange rate, which resulted in lower payments than agreed on. “We had specified the contract amount in euros. When we received the first payment in local currency, a large amount of money was missing. In response we were told that the Ministry of Finance had made a mistake and used the dollar and not the euro rate when they exchanged,” Kvifte said.

He explained that the exchange rate at that time was NOK 8,1 for 1 euro and NOK 6,7 for 1 US$. This entails that Normeca’s payment must have been reduced by slightly more than 17% – from 160 million (20 million euros) to about 142 million (17 million euros) – because of the exchange rate.

“The Ministry of Finance has acknowledged the mistake, and the difference is to be transferred to us. But from that acknowledgement until the money reaches us seems to be a long road,” Kvifte said.

“We have never tried to conceal that we are in Sudan to make money. But as of today the project has primarily had advertising value. It shows what we are capable of doing in the course of a year. But so far this has not been a big success for us. On the contrary. We have used more money than we have received,” Kvifte said.

FACTS
On 16 September 2006 Normeca AS, a company located in Lørenskog, Norway, signed three contracts with the Ministry of Health in Southern Sudan. The first one concerned the construction of 10 semi-permanent hospitals and 50 mobile clinics. The second involved the construction of two hospital ships to sail the Nile, and the third was a contract for the running of hospitals and clinics for 5 years. The total value of the contracts was NOK 4.8 billion (600 million euros).

Right after the agreement had been brought to a successful close, Normeca received payment from the South Sudanese government of 20 million euros, which was to be used for the construction of the first hospital in Kapoeta.

Katiko Referral Hospital has been constructed on a 90,000-m2 area between two rivers, not far from Kapoeta. A series of photos from the construction process and the completed wards is available at Normeca’s web site, and the hospital appears to be well equipped and advanced.

The construction process is supposed to be almost completed. The hospital has room for 150 patients (which can be increased to 180 during crises) and has living quarters for a staff of 150.

The construction costs for the first hospital as it stands today are, according to Normeca, NOK 140 million (17 million euros). More than 4000 tonnes of equipment have been transported in. The total building mass is approximately 8000 m2 and consists of prefabricated (containers) – that is, it is constructed with modules produced in China.

Last updated: 25 January 2008