US$1,2 bn road projects in jeopardy

AT a time Zimbabwe is hopelessly failing to attract meaningful investment to fund capital projects and is facing a severe liquidity crunch, the country has shot itself in the foot by failing to meet its obligations, stalling the current road rehabilitation works.

By Owen Gagare

Government’s failure to meet its side of the bargain in the US$206 million joint venture between the Zimbabwe National Road Administration (Zinara) and South African company Group Five Ltd to rehabilitate the Plumtree-Bulawayo-Harare-Mutare highway has led to the halting of the project — the biggest infrastructural investment in the last decade.

The project was supposed to be a precursor to bigger related investments, including the rehabilitation of the Beitbridge-Harare-Chirundu highway at a cost of more than US$1 billion.

The Development Bank of Southern Africa (DBSA) extended a US$206,6 million loan to Infralink, a 70-30% joint venture between Zinara and Group Five, in 2010, but has withheld funding since May after the company failed to service its debt.

Part of the conditions for the loan was that Infralink would fund a debt service reserve account with two quarterly loan installments during a two-year capital grace period. Thereafter all surplus cash generated by Infralink was supposed to be directed to a maintenance reserve account which would be used to fund periodic as well as major repairs.

Although negotiations are said to be progressing smoothly and DBSA is likely to release more funds paving the way for continuation of the project, failure by Infralink, which is basically a state entity, to honour its obligations has so far jeopardised a rare major project and other related investment prospects.

A report compiled following DBSA’s corporate credit committee meeting held in September 2010 says the Plumtree-Bulawayo-Harare-Mutare project represented “the first phase of a series of road projects in Zimbabwe involving the rehabilitation and tolling of existing national routes.”

Documents in possession of the Zimbabwe Independent show DBSA is keen to contribute towards Zimbabwe’s stalling turnaround programme by funding road projects, including the busy but shoddy Beitbridge-Harare-Chirundu highway.

The bank says good road infrastructure is strategic for stimulating growth and notes an efficient transport system in Zimbabwe would not only be beneficial to the country but also the entire region. However, DBSA wants Zimbabwe to play its part.

“Economic hardships experienced in Zimbabwe over the last decade and the related acute shortfall in access to hard currency hampered government’s ability to allocate an adequate proportion of its annual budget towards the upkeep and expansion of the country’s roads infrastructure,” one of the document says. “To this end, dialogue was established with the DBSA to address the Beitbridge-Harare-Chirundu arterial roads.

“Such a project is, however, estimated to cost US$1,1 billion and requires extensive feasibility studies, concession structures and in part further evidence of Zimbabwean economic growth before a mandated lead arranger can encourage a greater number of commercial banks to participate in the 15 to 20-year tenor financings of this nature.”

A report compiled after DBSA’s Integrated Investment Proposals Corporate Credit committee meeting held on October 13, 2010 shows that the bank felt Zimbabwe’s roads should be given priority as they would benefit the whole region.

“Given Zimbabwe’s strategic geographic positioning, the proposed roads rehabilitation programme provides for linkages with Sadc trade corridors, an initiative which addresses the DBSA’s regional integration objectives and provides for immense growth opportunities given that Zimbabwe has the ability to service the needs of over 400million people in the region,” it says.

DBSA said key factors why a sound Zimbabwean road infrastructure was vital include that the landlocked country is strategically positioned as a gateway between Southern Africa and the rest of Africa. DBSA also considered Zimbabwe has significant imports and exports.

“Such factors render its roads network of critical importance to both itself as well as the Southern African region at large,” said DBSA. “This transaction entails the rehabilitation of a network of existing roads in Zimbabwe which shall allow for the cost-effective movement of goods and persons, both internally as well as cross-border, which is imperative for the sustained economic growth of the region.

“Further, a road network complying with the all the necessary safety and security standards will improve accessibility to industries currently cut off from the mainstream economy as a result of the economic crisis. It is envisaged that this in turn will increase foreign direct investment into Zimbabwe by unlocking business opportunities in a number of lucrative sectors.”

DBSA also said Zimbabwe has the second most developed industrial infrastructure in the region although it is now in bad shape.

“Per market intelligence, such infrastructure can readily be recommissioned with minimal capital injections to satisfy firstly local demand — currently serviced by imports of the most basic of products — and later, that of the region. As such, opportunities currently abound in the mining, electricity, agricultural and tourism industries with the transport industry, roads infrastructure in particular, underpinning the recovery in all such sectors of the economy,” reads the report.

Efforts to get comment from Transport minister Obert Mpofu were unsuccessful.

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3 Responses to US$1,2 bn road projects in jeopardy

  1. Brighton December 6, 2013 at 2:50 pm #

    Oh! The project has suffered a hiccup, but it is on – u almost gave me a heart attack! At least u did write the story after the healine, otherwise you would have lied. Just a small question, in whose interest do you seek to portray Zimbabwe in a negative image?

    • Chen Chikezha December 6, 2013 at 3:15 pm #

      They are just telling the truth, if they had not published this story how do you think we were ever going to know that such things were happening. The Herald is busy telling us about Tsvangirayi’s private life which has nothing to do with bread and butter issues. These things bring development and not the failed indeginisation, I have a lot of relatives that have been absorbed into this project since it started in Plumtree; proper development with results.

  2. Michael Shapiro December 10, 2013 at 4:27 pm #

    Wait until the gantries are up and the toll gates like in south africa. BUt its worth it just make sure they dont charge crazy rates. Inside info tells me the project will go ahead no matter what coz pane chibhanzi ipapa muchaona henyu.

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