Owen Gagare/Tinashe Kairiza
CHINESE financial institutions have indefinitely suspended funding three big infrastructural projects totalling US$1,324 billion after government raided and diverted US$10 million from an escrow account for the Robert Mugabe International Airport expansion project, the Zimbabwe Independent can reveal.
Official sources say the escrow account — where funds are held in trust while two or more parties complete a transaction — was raided for foreign currency, leaving the Chinese shocked about the breach of trust and confidentiality.
The sources said the move has strained relations and further complicated co-operation arrangements between the two countries. Chinese companies and financial institutions are not happy with the country’s deteriorating political risk and policy inconsistencies.
Chinese investors and financial institutions, including China Eximbank, are also worried about currency and exchange rate volatility which have affected projects they are bankrolling in Zimbabwe.
The affected infrastructural projects are the US$1,1 billion Hwange 7 and 8 refurbishment, US$153 million Robert Mugabe International Airport expansion and the US$71 million NetOne expansion project, which are at various stages of implementation. They were being bankrolled through various loan facilities secured from the China Eximbank and other financial institutions.
The seized funds, which were converted by government, through the Reserve Bank of Zimbabwe (RBZ) into the local unit, were raided from an account holding investment capital for the expansion of the airport at the beginning of the year.
The project is being undertaken by Jiangsu International and was being funded through a concessional loan facility from
It is envisaged that the expansion of the airport will transform it into a modern facility, which will increase its capacity from handling two million travellers to about six million annually.
According to terms and conditions of the US$153 million deal for upgrading the country’s largest airport, the loan will run for 20 years, with a grace period of seven years at an interest rate of 2% per annum and a 0,25% commitment fees per annum once off payment.
Despite negotiations and complaints from the Chinese company and complaints by Chinese Embassy officials, authorities revealed the government has not returned the US dollars, infuriating China Eximbank and Chinese officials. Work on the project commenced last year and was due to be completed over the next three years.
“Basically what happened is that the RBZ raided the escrow account for the Airport project and that move destroyed confidence and trust. There have been negotiations for the money to be returned but government is not being honourable enough,” one official said. “The Chinese were patient, but this happened at the beginning of the year and they have now run out of patience. Chinese financial institutions have taken the decision to cease funding the three projects.
“It’s a matter of principle, trust and confidence. How can you trust a pick pocket with your money? If someone steals money from your pocket, can you trust them with your money in future? Those are the questions the Chinese are asking.”
Government officials said Chinese Embassy officials have discussed the matter with Finance minister Mthuli Ncube, but no action has been taken.
“The Chinese have now resorted to withdrawing their funding as a last resort. It seems government does not know how serious the issue is and there is risk that the country could lose projects worth more than US$1 billion the theft of US$10 million,” a government official said.
There were already questions over the US1,1 billion Hwange 7 and 8 expansion project.Zesa officials told Power and Energy Development minister Fortune Chasi during a tour of Kariba Power Station that China Eximbank was considering withdrawing funding for the Hwange project after the escrow account for the project was also raided.
Zimbabwe Power Company, the generation arm of State power utility Zesa, acting managing director Engineer Robson Chikuri said China Eximbank had verbally expressed its displeasure about the situation.
Zesa was expecting the bank to register its misgivings in writing, indicating the escalation of the gravity of its reservations.
The expansion of the Hwange plant, which is 22% complete, is expected to add 600 megawatts to the national grid.
The project has created 3 000 jobs since commencement last year and is set for completion in 2023. It is being implemented by Sinohydro, one of the largest construction companies in the world.
The NetOne project is meant to expand the company’s mobile telecommunications network through setting up and upgrading base stations across the country.
The affected projects are among the several multi-billion dollar sectoral infrastructural deals China lined up for Zimbabwe following President Emmerson Mnangagwa’s visit to Beijing where he met Chinese leader Xi Jinping last year.
Although the projects had been agreed during the late former president Robert Mugabe’s era, Chinese financial institutions had not released funds because of Zimbabwe’s failure to repay earlier loans.
China, however, made a special dispensation to release the loans to Zimbabwe to assist the new government and also in line with the elevations of relations from all-weather friends to strategic partners.
Despite the elevation of relations, Chinese financial institutions remain worried by the economic conditions in Zimbabwe.
Shanghai Construction Group, for example, has complained that it is failing to access hard currency as it constructs Zimbabwe’s new parliament building through a US$100 million free grant from China-Aid.
Although the money is coming as hard currency, the company is only allowed to withdraw local currency.
RBZ governor John Mangudya had not responded to questions sent to him at the time of going to print. Finance ministry secretary George Guvamatanga also did not respond to questions sent to him. He was not answering his mobile phone.
The latest swoop by the central bank on private funds follow disclosures by the Chamber of China Enterprises and Tian Ze Tobacco Company general manager Yei Hai to the Independent on August 23 that the reintroduction of the Zimbabwean dollar after government had scrapped the multi-currency system was disrupting business operations.
“The re-introduction of the Zimbabwean dollar really affected our operations. For us (Tian Ze) as an exporting company we bring foreign currency into the country. When money comes in, it is changed into the Zimbabwean dollar. If you do not use that money in time, it loses its value by the day and this impacts on planning,” Hai said at the time.
‘The situation is worse for our members who are not exporting. With the exchange rate going up, most companies suffer from workers who are now demanding to be paid more. As a business, it is now difficult to survive here in Zimbabwe.”