Economy

Damned if you do

Anti-graft probe washes over the Three Gorges Corporation

CHINA-RENEWABLES

Now reckoned to have cost $80 billion

Last Sunday an earthquake measuring 4.7 on the Richter scale shook the area surrounding the Three Gorges Dam. It was the latest in a number of tremors caused by an estimated 30-fold increase in seismic activity that’s been blamed on the dam – which sits on a fault line, with the reservoir said to be weighing heavily on the underlying geology.

But shockwaves are also being felt inside the Three Gorges Corporation, which built and manages the project.

In an unprecedented move, the Organisation Department of the Communist Party announced last week that it had removed two of the company’s most senior executives at the same time. Out went chairman Cao Guangjing and Chen Fei, the general manager. And in came the State Council’s Three Gorges office vice chairman Lu Chun and Datang Group VP Wang Lin.

The domestic media has interpreted the unusually abrupt shake-up as a sign that anti-graft hawks are not only widening their activities, but may now be intent on breaking up monopolies across the electricity industry, particularly at the all-powerful State Grid Corporation.

Consternation about the Three Gorges Dam project is nothing new. The idea of building an enormous blockage across the Yangtze River was first mooted by Sun Yat-sen’s government in 1919 and has been dogged by controversy pretty much ever since. For most of its history, this criticism has centred on the social and environmental impact of a barrier that is five times larger than the Hoover Dam in the United States, produces the energy of 18 nuclear power stations and has required the resettlement of 1.7 million people.

But ultimately the most damaging row may be the one now unfolding as a result of the corruption and mismanagement of one of China’s proudest feats of civil engineering.

When the go-ahead for the dam was given in 1992, the decision was passed by the narrowest margin in the history of the National People’s Congress. Its chief advocate then and throughout his time in power was Premier Li Peng, a hydroelectric engineer by training.

At the outset, the estimated construction cost was reckoned to be $9 billion. A decade later this had spiralled to $28 billion. Twenty years on, when the dam was finally connected to the electricity grid, it was estimated to have cost $60 billion by some analysts, or over six-and-a-half times the original projections.

However, as the 21CN Business Herald reports, no one has ever really known the true cost of construction since the Three Gorges Corporation never published expenditure figures until after the dam was completed.

After the recent corruption probe a revised total of $80 billion is now being suggested. If this new figure is correct, then it will not only make the Three Gorges Dam the world’s most expensive hydropower project, but it will also be the second most expensive power project in history, after the development of the giant Kashagan oil fields of Central Asia.

As one netizen complains: “No one is deriving any benefit from this Rmb500 billion ($80.5 billion) project as our electricity tariffs just keep going up, not down. All we’ve created is a massive vested interest group and profit-seeking machine. Corruption at this project is a malignant tumour on our society.”

Public anger is likely to be more enduring because ordinary citizens have paid for the construction of the the dam via their electricity bills. The Three Gorges project was funded by a special levy on citizens in the 16 provinces and municipalities which stood to benefit from it.

The surcharge ranged from 0.007 to 0.124 yuan per kilowatt-hour and was supposed to expire when the dam was completed. Instead it has simply been carried over to fund Rmb240 billion in water conservancy and other follow-up work.

The project’s intensive costs have never been matched by similarly intensive oversight. “There has been almost no outside supervision,” Professor Wang Wenzhang of Beijing University told the Global Times. “On paper everyone is a shareholder, but in reality the company is run by just a few officials.”

Details of some of the mismanagement came to light after an audit (notably it was the ninth time the Central Committee had sent an inspection team to visit the project). Guangzhou’s Time Weekly recently published some of their findings in an investigative report. The magazine says corruption was uncovered in almost every facet of the organisation. This ranged from nepotism and bid-rigging to lavish spending on office buildings, villas and a fleet of Audi cars.

Much of the malpractice centred on the contract tendering process. Regulations specified that winning bidders should not sub-contract construction work. However, many bidders on Three Gorges projects would do just that once they had skimmed off their own cut.

China Huashi Enterprises is cited as one notable culprit, a name that still rankles with Liu Hu, whose Wuhan-based company once bid against it to build a training centre for the corporation. “Our offer of Rmb70 million was the lowest, while another company offered Rmb80 million,” he tells Time Weekly. “But we were both squeezed out by an offer of Rmb100 million.”

Liu subsequently filed an official complaint alleging irregularities in the bidding process. These included the submission of fraudulent certificates by Huashi and evidence that one of the judges on the evaluation committee had required Rmb1 million in bribes to support Liu Hu’s bid.

Nothing came of his complaint.

(Time Weekly says it contacted Huashi many times but could not get it to comment on Liu’s charges.)

A second irate contractor, Zhang Xichuan, spent eight years bidding for Three Gorges projects before finally giving up. He cites the tender to build an office complex in Chengdu, which was awarded to one bidder only to be overturned in favour of a Zhejiang-based construction firm at the insistence of an unnamed senior official.

Zhang claims the building work was then completed to such shoddy standards that the structure was never certified by the local authorities. The episode is also singled out by the magazine as a typical example of overspending by a corporation which has not one, but three HQ buildings: one in Yichang, where the dam is located, another in Chengdu and a third in Beijing where office space per capita is several dozen square metres per head.

According to the 21CN Business Herald, the Three Gorges Corporation spent a further Rmb1 billion in 2013 on ambitions to build a fourth HQ in Kunming.

What will now happen to the two ousted executives is the subject of much conjecture. One netizen asks if the government is really blowing the anti-corruption horn or whether the disgraced officials will simply get moved to other jobs.

Another wonders who else in the chain of command could be brought in for questioning. “We can’t rule out the possibility that behind the scenes there may be even bigger tigers,” he speculates, referring to Xi Jinping’s comment about cracking down on tigers (very senior Party figures) and flies (lower level bureaucrats).

Time Weekly even suggests that retired leaders continued to involve themselves in the activities of the corporation, which is now riddled with “panic from top to bottom”.

If the corruption probe against the China National Petroleum Corp (CNPC) is anything to go by, even former members of the Politburo Standing Committee are no longer out of bounds. Reuters reported on Sunday that the government has seized at least $14.5 billion in assets belonging to 300 family members and associates of former security chief Zhou Yongkang, who made his name at the state energy giant.

The investigation into the energy sector has been ongoing since last summer and domestic commentators now believe the move against the Three Gorges Corporation represents an opening salvo before a deeper push into the power industry too.

At its heart sits the State Grid, the nation’s buyer and seller of electricity (see WiC174). The Shanghai Securities News recently reported that the National Energy Administration had submitted a proposal to the State Council to break its monopoly by allowing large consumers to buy directly from the generating companies. State Grid issued a testy denial of the claim.

Meanwhile the government continues to bolster its investigative efforts by adding 100 more staff to its anti-graft body, the Central Commission for Discipline Inspection.

Current premier Li Keqiang, has indicated that corrupt patronage networks are the target. “In the course of reform, vested interests will be shaken and some people’s cheese will be moved,” Li warned in Beijing last month.


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