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Ministers derail NRZ revival

By Phillimon Mhlanga

The $400 million deal to recapitalise the National Railways of Zimbabwe has been thrown into jeopardy, after rival suitors for the parastatal, fronted by Cabinet ministers, launched a last-minute bid to abort the transaction.

National Railways of Zimbabwe (NRZ) trains
National Railways of Zimbabwe (NRZ) trains

The ministers are pushing for the involvement of China Railway Eryuan Engineering Corporation (CREEC), which did not participate in the bidding process and Sinohydro, which took part in the tender but lost out.

CREEC signed an agreement with NRZ for railway network planning and rehabilitation of four corridors, including the supply of traction and rolling stock and other equipment in May 2015.

The company undertook a feasibility study which initially put the project cost at $750 million. The figure was subsequently reduced to $324 million.

The derailment of the NRZ’s revival programme risks damaging and expensive litigation for government should it decide to cancel the tender. The country also stands to lose its strategic geographical advantage which makes it a potential regional hub.

As President Robert Mugabe’s government bickers and dithers over the rail project, Zimbabwe’s neighbours are investing in networks to bypass the country.

On Zimbabwe’s western border, Botswana is pursuing a $260 million road-rail link with Zambia, while the African Development Bank (AfDB) is funding Mozambique’s Nacala rail project, to link that country with Malawi and, potentially, Zambia by extension.

The Diaspora Infrastructure Development Group (DIDG) — a consortium of 500 non-resident Zimbabwean professionals — in partnership with South Africa’s Transnet, was last month announced winner of the NRZ recapitalisation tender.

However, multiple sources told The Financial Gazette this week that Mugabe’s Cabinet has held back signing off on the deal after spirited opposition led by Information Communications and Technology Minister, Supa Mandiwanzira, Macro-Economic Planning and Investment Promotion Minister Obert Mpofu and Labour Minister Prisca Mupfumira.

Transport Minister Joram Gumbo, who sought Cabinet approval for the deal last week, failed to defend it against the onslaught from ministers opposed to it.

“After a sustained onslaught, mainly from the trio, Gumbo failed to defend the transaction,” one source said.

“This prompted the President to ask the minister to go back and review.”

Another source said ministers opposed to the DIDG-Transnet-NRZ deal raised three main issues — financial and technical capacity as well as a five percent royalty payment due to the government of Zimbabwe annually, for the duration of the 25-year project.

“This is despite the fact that the tender documents bear evidence of availability of funds and financial backing from major South African bank, Standard Bank, Rand Merchant Bank, Nedbank and development financier, Industrial Development Corporation,” the source said.

Documents seen by The Financial Gazette show that the institutions’ financial backing for the transaction exceeds $1 billion, far more than the scope of the NRZ recapitalisation.

“It was evident, early on, Minister Gumbo was not sufficiently prepared to make the case for this transaction. In the end, he came just short of disowning it.”

Apart from enjoying the technical expertise of Transnet, DIDG, is led by professionals currently involved in billion-dollar deals in South Africa and east Africa.

Mpofu, a former transport minister weighed in, saying an abortive deal between NRZ and the Development Bank of Southern Africa (DBSA) had been a better proposition.

The $700 million DBSA loan deal, which fell through a few years ago, was priced at 16 percent, according to officials with inside knowledge of the discussions. Funding for the DIDG-Transnet-NRZ deal is understood to be at about 6,5 percent interest.

“The five percent royalty clause deliberately misrepresented as a purchase price by opponents of the deal is just a structure put in place to clear the NRZ’s historical debt, mainly salary arrears,” a source said.

Ministers opposed to the DIDG-Transnet-NRZ deal are reportedly doing the bidding for a rival group led by a non-resident indigenisation proponent and banker, who is understood to have tried to lobby Transnet to drop DIDG.

The ministers want government to rope in the China’s CREC and Sinohydro. Well placed sources said CREC wanted to be awarded the tender without submitting a bid.

They added that government exposed itself to the risk of damaging and expensive litigation if it moved to cancel the tender. Chimhandamba said his consortium remained committed to the transaction, but declined to comment further.

Gumbo declined to comment when contacted for this story.

NRZ chairman Larry Mavima yesterday confirmed that the transaction was under review, but declined to give details of Cabinet’s decision.

“Cabinet issues are confidential, so for now it will be difficult for me to comment.

“But I can tell you that there were some questions regarding the structure of the Transnet/DIDG deal and certain financial capacity,” Mavima said.

“Cabinet has now asked the minister to go back and verify the capacity. I believe the shareholder is right to question the capacity of the winner. I, however, hope this is not a situation where a golden opportunity can be missed.

“We are hoping to submit clarifications soon so that government can reconsider its decision because this was the best opportunity for NRZ. This was going to revive the economy as it would benefit from cheaper transportation for goods.”

Zimbabwe Congress of Trade Unions secretary general, Japhet Moyo said government should not let the NRZ deal collapse, as it has brought renewed hope to the rail company’s estimated 5 000 employees, collapse.

Citing the $750 million to revive Zisco, which suffered a stillbirth a few years ago, after India’s Essar walked away Moyo said: “This would not surprise us if the deal does not materialise because the culture has not changed. It’s a disaster for the economy and for the workers who are owed millions of dollars because they were starting to see light at the end of the tunnel.”

The DIDG-Transnet consortium emerged winners after one of the most transparent bidding processes conducted by the State in recent times.

There were five other bidders vying for the NRZ revival, namely China Civil Engineering, Sino Hydro, accountancy firm Crowe Horwath & Welsha, SHM Railway of Malaysia and Croyeaux Limited of Zimbabwe.

The adjudication process was overseen by an adjudication team comprising members from the Ministry of Finance and Economic Development, the Ministry of Industry and Commerce, the Office of the President and Cabinet, State Enterprises Restructuring Agency and NRZ.

The NRZ board also engaged Deloitte as a transaction advisor. The Financial Gazette