Greedy Zimbabwe ministers sabotage NRZ

Published: 22 September 2017

THE Diaspora Infrastructure Development Group/Transnet consortium (DIDG/Transnet), which won a US$400 million recapitalisation tender to revive the state-owned National Railways of Zimbabwe (NRZ), has been blocked from implementing the project despite proof of funding from top South African banks and technical support from the continent's biggest rail, port and pipeline company.

Apart from providing proof of availability of funds amounting to more than US$1 billion and technical support, the consortium had to provide information on a series of issues during the tender adjudication process.

Several international and South African financial institutions were willing to fund the project and provided letters of guarantee for the funds. These include Standard Bank, Nedbank, Rand Merchant Bank, Industrial Development Corporation and Concrete Finance.

Issues raised by the tender evaluation committee included that the DIDG/Transnet proposal lacked clarity in terms of structuring and mechanics of the joint venture. They were questioned about the role of the consortium and how it would fund the required equity.

DIDG/Transnet was also quizzed on why its capital expenditure (capex) drawdown was different from that proposed by NRZ in the project information memorandum. In its response, the consortium said its capex was informed by volume growth, without ring-fencing, and experience, estimated GDP growth, customer engagements, and current or most recent NRZ performance.

The committee also sought clarification on how the balance of the NRZ operations and employees will be treated if not absorbed in the operations of the proposed JV.

The tender evaluation committee also asked if Zimbabwean entities will maintain majority shareholding in line with the indigenisation policy. DIDG/Transnet then explained that the Zimbabwean ownership of the transaction is effectively 67% in the joint venture since DIDG and NRZ have 32% and 35% respectively. In the joint venture with NRZ, DIDG/Transnet will have 65%, while NRZ has 35 but 67% is practically owned by Zimbabweans.

DIDG/Transnet was also asked whether their partnership will be a new legal entity, and if so provide answers where it will be registered. They responded that it will be incorporated in Zimbabwe with DIDG/Transnet and NRZ as the shareholders.

Clarity was also required on how the consortium reached the basis for a 25-year joint venture operation agreement given that the loans will be repaid by year 16 to which they answered that since most railway assets have a long lifespan and railway infrastructure is immobile the joint venture operations should have commensurate duration. The consortium said it could review the dates if necssary.

DIDG/Transnet was also asked to avail its 41% capital expenditure to all local suppliers through standard procurement processes.

The committee questioned DIDG/Transnet's growth in business volumes citing that the proposed business growth volumes were lower than NRZ's as they are projected to reach over six million after seven years, while NRZ's projections reach the same target within three years. In response, the consortium showed that in its proposal it had projected to reach US$13 million in business growth by 2019.

Issues around the procurement of locomotives and wagons were also raised as the evaluation committee argued procurement should be done through open tender, as opposed to procuring the Transnet Engineering locomotive without considering other suppliers as proposed. Although Transport minister Jorum Gumbo and the NRZ management were provided with the required responses and documentation, last week he was mobbed by other cabinet colleagues who rejected the deal.

Gumbo had presented a memorandum to cabinet seeking approval that NRZ should engage DIDG/Transnet on the recapitalisation project.

The Zimbabwe Independent understands those who were most vocal against the project were Macro-Economic Planning minister Obert Mpofu, Information, Communication and Technology minister Supa Mandiwanzira and Mines minister Walter Chidhakwa.

President Robert Mugane and Vice-President Emmerson Mnangagwa seemed to agree with them.

Mpofu was first to speak after the presentation and led the campaign against DIDG.

"Mpofu responded arguing that when he was Minister of Transport he had tabled a better proposal whereby he had sought a US$700 million Development Bank of Southern Africa deal and yet it was rejected," one minister said.

Mandiwanzira, another minister said, questioned the structure of the deal, saying it was not in the best interests of NRZ and Zimbabwe to which Chidhakwa concurred.

"Information minister Christopher Mushohwe also weighed in saying that the DIDG investors were not known and could well be fronting foreign white capital," the minister said. Mnangagwa supported Mandiwanzira and others.

"In the end, Gumbo indicated that he was feeling relieved about what other ministers were saying as he also did not want the DIDG/Transnet at the first place. He actually claimed that he was being pressured by the Office of the President and Cabinet.

This was shocking as he had been pushing the project all along, a minister said."

Gumbo has reportedly been telling a different story to the DIDG/Transnet team. Mugabe is said to have questioned Gumbo on what had happened on the China Railway Eryuan Engineering Corporation (Creek) deal and instructed him to revive that deal.

Creek signed an agreement with NRZ for railway network planning and rehabilitation of four corridors in May 2015, but the collapsed due to lack of funds.

Chinese companies who had bid for the recent recapitalisation deal did not meet the tender requirements.

This paper also understands that a consortium of Zimbabwean politicians and businessmen has been frantically lobbying South Africa's ruling African National Congress, government officials and Transnet managers in a bid to block the DIDG/Transnet deal. The group wants the project, although it did not bid for the deal.

The consortium includes a former cabinet minister, a well-known war veteran, who is also a business man, and South African-based Zimbabwean tycoons.

In April this year, cabinet approved NRZ's recapitalisation proposal.
- the independent

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