HomeLocal NewsNRZ: Why DIDG-Transnet deal sailed through cabinet

NRZ: Why DIDG-Transnet deal sailed through cabinet

PRESIDENT Robert Mugabe has baulked at the proposal that the China Railway Eryuan Engineering Corporation (Creec) recapitalise the National Railways of Zimbabwe (NRZ) due to the unsustainable nature of the deal, including the exorbitant cost of US$836 million which is more than double what the Diaspora Infrastructure Development Group (DIDG)-Transnet consortium is offering.

By Hazel Ndebele

This week, the US$408 million DIDG/Transnet deal sailed through cabinet after it turned out the deal was more viable and sustainable than the Chinese project which is US$428 million more expensive.

In a cabinet meeting last month, Mugabe blocked the DIDG-Transnet deal after questions were raised on the structure of the deal, the capacity of the consortium as well as issues to do with funding.

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

In the meeting Mugabe is said to have questioned Gumbo on what had happened to the Creec deal and instructed him to revive that deal. Mugabe adopted a “Look East” policy after being shunned by the West and considers China as Zimbabwe’s all-weather friend.

According to sources close to the developments, Gumbo, at this Monday’s meeting, gave feedback on the Creec deal and compared it to the DIDG-Transnet deal.

“After Gumbo’s presentation those who were initially against the deal seemed to be nodding to the deal. Home Affairs minister Obert Mpofu said Gumbo’s presentation now had more clarity as compared to his first presentation and said the DIDG/Transnet was a good project,” the source said.

“Vice-President Emmerson Mnangagwa weighed in, saying the Chinese project was clearly going to be costly to NRZ and therefore the other deal was a much better project. Mugabe then agreed and told Gumbo to go ahead with the project and resume negotiations.”

It is understood that in his presentation Gumbo explained that Creec’s proposal is silent on the source of funds and therefore NRZ would have to apply a loan from China Exim Bank. A 15% deposit would be required for the loan to be accessed, meaning the broke government would have had to provide US$125 million as a deposit for the US$836 million loan.

According to reports, the China Exim Bank closes its books of accounts for the year in November, meaning if it was to provide funding for Zimbabwe, the processes would only start in 2018. Other Chinese financial institutions such as Sinosure have been reluctant to lend or guarantee Zimbabwean loans as the country has a reputation for delaying on payments.

On the other hand, DIDG-Transnet has secured funds amounting to more than US$1 billion from different South African banks and international financial institutions. The consortium provided proof of those funds from Standard Bank Ltd, Rand Merchant Bank, Nedbank, Industrial Development Corporation and Italian company Concrete Finance.

“Gumbo also explained that the consortium is using the Transnet Freight balance sheet to support the borrowing because NRZ does not have the balance sheet to support any borrowing,” another source said.

While the Creec deal is more expensive, its feasibility study covers the rehabilitation of Victoria Falls-Bulawayo-Harare-Mutare railway line which is only 1 247 kilometres and 45% of the network. The DIDG/Transnet project would cover the entire network of 2 760km and all other aspects of railway operations.

Creec would only provide rolling stock (wagons and locomotives) of US$29 million while DIDG/Transnet would cover procurement of rolling stock, plant and equipment, rehabilitation of track infrastructure, signalling and telecommunications, Information Communication and Technology (ICTs), electrical reticulation and yard lighting.

Government ministers are convinced that the financing model and project operation of DIDG-Transnet is more viable when compared to the Creec one. The DIDG-Transnet proposal is a public-private partnership (PPP) arrangement with joint venture for operations and loan repayment and has a life of 25 years.

DIDG-Transnet also complies with the indigenisation policy. The Zimbabwean ownership of the deal is effectively 67% in the joint venture since DIDG and NRZ have 32% and 35% respectively. In the joint venture of NRZ and DIDG-Transnet, the parastatal has 35% while the consortium has 65%.

On the other hand, Creec’s financing scheme is 15% equity (US$125,4 million) and 85% loan (US$710,6 million). Moreover it seems Creec did not indicate what would happen to the proposed 15% stake beyond the 30 year loan repayment period. According to sources, the participation of NRZ or government in the equity would therefore need clarification.

Sources said while DIDG-Transnet proposed a 25 year concession, Creec proposed 30 years loan repayment period. Moreover projects costs to be spent in Zimbabwe in the Creec deal are not definite and will have to be negotiated.

On the consortium deal, 40% of the loan in the deal is to be spent in Zimbabwe and it amounts to approximately US$160 million. Government sources said this is expected to boost nostro accounts as direct cash will be injected into the country.

Sources told this paper that Gumbo emphasised in the meeting that in the Creec project, NRZ would be borrowing the money. Gumbo, according to the sources, also noted that the parastatal did not have the balance sheet to support borrowing from China Exim Bank. Sources said the Transport minister told the meeting that Transnet freight has more than US$1,2 billion in cash and cash equivalents.

In a telephone interview this week, NRZ board chair Larry Mavima said contract negotiations with DIDG-Transnet would be done next week.

“We are excited about the approval of the recapitalisation project and this leads us to contract negotiations which will be done next week and will at most take not more than three days. We will comply with the laws of this country and the contract will be done according to the Joint Ventures Act,” Mavima said.

“After the contract is signed it would be taken to Cabinet for final approval, when it is done you will see immediate implementation of the project, which is very important and a key enabler in terms of revival of the economy.”

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