THE Diaspora Infrastructure Development Group and Transnet (DIDG-Transnet) consortium, which will recapitalise the National Railways of Zimbabwe (NRZ) under joint venture two (JV2), will also be registered in South Africa to mitigate perceived high country risk, both politically and economically, the Zimbabwe Independent has established.
By Hazel Ndebele
This comes after intense negotiations were held in order to explain to government why the company needs to be registered outside Zimbabwe. Last month, the US$408 million DIDG-Transnet deal sailed through cabinet after it turned out the deal was more viable and sustainable than the one presented by President Robert Mugabe’s preferred Chinese company China Railway Eryuan Engineering Corporation (Creec).
According to sources close to the developments, negotiations of the deal resumed last week. The resumption of negotiations is meant to seal joint venture contract agreements to allow commencement of operations.
In previous meetings, sources said, a number of issues were addressed, including that of registration of DIDG-Transnet consortium. It is understood that in last week’s negotiations, the registration of the consortium was raised among issues which had been dealt with in previous rounds of negotiations. The Independent is reliably informed that government sought clarification as to where the DIDG-Transnet consortium, joint venture one (JV1), and the DIDG-Transnet and NRZ, JV2, would be registered.
Sources say government indicated that they would prefer to have the joint venture companies registered in Zimbabwe in order to maintain majority shareholding in line with the indigenisation policy.
However, after negotiations it was agreed to have JV1 registered in South Africa and JV2 in Zimbabwe. The agreement to have JV1 registered outside Zimbabwe was reached after considering perceived country risk.
“The DIDG-Transnet consortium will be registered outside the country. Zimbabwe is facing sanctions as well as perceived country risk both politically and commercially, and therefore different factors such as the fact that investors will not be able to lend directly into Zimbabwe will make the deal unviable if JV1 is registered in Zimbabwe,” a source said.
Sources said if JV1 were to be registered in Zimbabwe, the cost of capital — which comes at a premium — will be exorbitant and would most likely require certain government commitments such as relaxation of certain policies and guarantees or other requirements such as additional security for the capital investment.
“Government eventually agreed because there are a number of limiting factors if JV1 were to be registered in Zimbabwe. One limiting factor for funding institutions that might be able to fund directly into Zimbabwe is prudential limits which are set based on jurisdiction. Most of these have either exhausted or have insufficient head room to support the entire capital requirement of the NRZ recapitalisation project,” another source said.
JV1 will be responsible for providing full engineering, procurement, contract management and financing of the recapitalisation programme. Shareholding in JV1 will see South Africa’s Transnet having 51%, while local implementing partner DIDG will have 49%.
Sources say it was agreed in the meetings that JV2 would be incorporated in Zimbabwe in order to be able to unlock the strategic markets, supply chains and value propositions, implement the market strategy, restructuring and strengthening of the NRZ balance sheet through the rehabilitation programme as well as enhance efficiency of operations among other reasons.
In JV2, the NRZ will have 35% shareholding, while DIDG will have 32% and Transnet 33%. This effectively means that Zimbabweans will have majority shareholding on the deal as NRZ and DIDG shareholding totals 67%. Government had requested that Zimbabweans maintain majority shareholding in line with the controversial indigenisation policy. Sources explained that although JV1 would be registered in South Africa to make the project viable, Zimbabweans will have majority shareholding in JV2.
Different stakeholders who are involved in the negotiations of the deal other than the NRZ are Transnet, DIDG, inter-ministerial task team, Ministry of Transport, Ministry of Finance, Office of the President and Cabinet, Joint Venture Unit and State Enterprise Restructuring Agency, Central Intelligence Organisation represented by the Economic Research Unit as well as the Attorney-General’s Office.
According to sources who attended last week’s meetings, timelines were set in order for the deal to move at a fast pace for the benefit of the economy and also so that full operations start.
“At the meetings, working committees were set and they comprise of commercial and financial, legal, technical and operations and project management were set-up to deal with different matters of the contract,” the source said. “When terms are set and agreed upon, the documents will be sent to Cabinet for approval.”