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(MAILING LIST) Privatisations under probe by the Sata government

Privatisations under probe by the Sata government:

ROAN ANTELOPE MINING CORPORATION:

Following relentless pressure from the IMF and World Bank, the Chiluba government (including minister

Sata) agreed to privatise Zambia Consolidated Copper Mines (ZCCM), starting in 1997 with the Luanshya and Baluba Mines (and the Mulyashi green-field project) in Luanshya. The Zambia Privatisation Agency recommended selling the mine to First Quantum Minerals, current owner of Kansanshi Copper-Gold Mine, but Chiluba overrode the agency, instead selling the mine for USD 35 million to Roan Antelope Mining Corporation (RAMCOZ) owned by the Binani Group of India.

RAMCOZ struggled from the beginning, but the government refused to take responsibility for the failed privatisation, which had massive social implications in a town that owes its existence to the mine. The government even intervened on behalf of Binani whenever creditors threatened to discontinue business with the mine.

Eventually, in 2001, ZANACO Bank placed RAMCOZ under receivership with massive debts and leaving thousands of workers jobless. The appointed receiver was Hichilema’s Grant Thornton. In 2004, J&W Investments, a subsidiary of Enya Holdings of Switzerland, took over 85% of the RAMCOZ assets as the Luanshya Copper Mines (LCM) at about USD 7.5 million. ZCCM Investment Holdings acquired a 15% shareholding in the venture. In 2008, in

the face of falling copper prices, Enya placed LCM under care and maintenance, having accrued a USD 20 million debt to third-party creditors such as Zambia Revenue Authority, Copperbelt Energy Corporation and contractors. In 2009, Enya’s stake in LCM was sold to China Nonferrous Metals Mining Group for USD 50 million.

The Chinese expect to increase copper output at LCM to 120,000 tonnes per year, up from 23,750 tonnes in 1999 under RAMCOZ. THE INTERCONTINENTAL HOTEL in Livingstone was sold on competitive

tender to Sun international of South Africa for USD 6.5 Million in 1998. The purchase included leasehold rights to Rainbow Lodge. Grant Thornton’s role was not immediately obvious, but Sata has queried why Hichilema chaired the board of Sun International (Zambia) until 2006.



LIMA BANK: In 1987, the two government institutions, the Agricultural Finance Company and the Zambia Agricultural Development Bank were merged to create Lima Bank. Like its predecessors, Lima’s main purpose was to provide small-scale farmers with short-term loans. However, the bank experienced problems from the start. It had inherited a large non-performing loan portfolio and liquidity problems caused by poor loan recoveries, inadequate government funding and political interference. The bank suffered from the borrowing attitudes of small-scale farmers, who saw a loan from the government as a grant – which did not have to be repaid in drought years. LIMA Bank was liquidated by the Chiluba government in February 1997 – with Grant Thornton as appointed

liquidator. KAGEM MINING LIMITED was started in 1984 as a joint venture between an Indian-Israeli cooperative

Hagura Mining (45%) and a Government company, Reserved Minerals Corporation (55%). In 1998, government offered Hagura an option to buy a further 42% of Kagem at USD 1.8 million – but later reversed on its decision to sell. As a result, Hagura took government to court, and the two parties settled the matter out of court:

Hagura agreed to buy 30% of Kagem at USD 3.6 million. Hagura now owns 75% of Kagem and the government 25%. Grant Thornton was involved in the valuation of Kagem. Zambia National Commercial Bank (ZANACO) was formed by the government in 1969. The government had tried to partly privatise ZANACO for years, going back to 2001, when the bank made a net loss of just over K 65 billion (about USD 18 million) due to bad debts. Its initial offer of selling a 35% stake attracted little interest, but in 2007, the Mwanawasa government concluded

the sale of 49% of ZANACO to Rabobank of the Netherlands for USD 8.25 million (criticised for being low by Sata). ZANACO’s net assets as at 31 December 2004 stood at USD 20.5 million.

FINANCE BANK: In December 2010, the Bank of Zambia took over Finance Bank because it violated the Banking and Financial Services Act – although critics said the takeover was orchestrated by the Banda government’s wish to neutralise the bank’s founder Rajan Mahtani. In September 2011, the bank was sold to First National Bank at K 27 billion. In October 2011, President Sata handed the bank back to Mahtani. Critics said the reversal of the sale was inspired by Mahtani’s financial support of Sata. Mahtani is involved in several court cases in relation to Finance Bank, but last week, the State discontinued one case where Mahtani was charged with money laundering and acquiring beneficial interest in voting shares of Finance Bank, and this week, the State entered a nolle prosequi in a matter where Mahatani was charged with obtaining credit by It is official – the government has decided to reverse the sale of Zamtel . At the beginning of the week Justice Minister Sebastian Zulu said a reversal would depend on the outcome of negotiations with LAP GreenN. Later in the week, however, Zulu clarified that “[w]e are taking back the shares, and if there will be any negotiation, it will be to determine whether LAP GreenN deserve any compensation or not”. The Banda government sold 75% of Zamtel to LAP GreenN of Libya for USD 257 million in 2010. After assuming office, President Sata appointed a commission of inquiry to look into the sale. In November 2011, the commission deemed the sale “irregular, illegal and fraudulent” – and this week, Sata ordered that the commission’s report should be made public to “insulate our people against blatant lies”, directing that an express copy should be sent to the Libyans “who have dirty money and dirty hands”.

Main findings of the 112-page report:

RP Capital of Cayman Islands was “arbitrarily” appointed in 2008 to evaluate Zamtel by then Minister of Communications and Transport Dora Siliya – despite the Attorney General recommending a tender. When a tribunal found she had breached the Constitution, Siliya resigned, but the High Court ruled that the tribunal had “acted excessively”, and Siliya was appointed Education Minister. Siliya submitted that RP Capital had been recommended by ministry officials, but the commission said the ministry “contradicts Ms Siliya’s statement”.

It is said that President Banda’s son, Henry, who has gone AWOL in South Africa, introduced Siliya to RP Capital. The Zambia Development Agency (ZDA) team was not independent as required by law showed “gross negligence” (the ZDA has not commented). RP Capital controlled the privatisation process, as the committee uncovered numerous emails from RP

Capital issuing directives to high-ranking government, ZDA and Zamtel officials, including drafting ministerial and even presidential speeches and letters (such as a letter from president Banda to Chinese president Hu Jintao to ask for support in obtaining a loan to acquire the government’s share in Zamtel - see below).

Zamtel was “grossly undervalued” at USD 38 million despite having a book value for fixed assets of USD 81 million and a much greater market value (estimated by RP Capital itself at about USD 5 billion in two years). Regardless, Zamtel was sold for USD 257 million – disregarding that other companies such as Unitel of Angola (rumoured to be lined up by Sata to take over a repossessed Zamtel) had offered double the money and agreed to retain 60% of the staff. LAP GreenN, which failed all three of the mandatory pre-qualification criteria, retained 30% of Zamtel’s workers. Chairman of Vodacom Zambia Enoch Kavindele said Zamtel should have been sold for USD 3 billion, pointing out that Vodafone of the UK in 2008 paid USD 900 million for a 70% stake in Ghana Telecom with slimmer growth prospects than Zamtel.

The MMD government paid USD 334.4 million as “tax shares and subscription” for its 25% stake in Zamtel (which it owned), while LAP GreenN paid USD 257 million for its 75% - of which the government was entitled to USD 42.6 million. To date, the government has only received a cash sum of USD 15 million – while RP Capital has received USD 12.6 million as its 5% fee of the sales price. The transaction was structured in a “deliberately complicated” and “ridiculous manner” to let LAP GreenN take over Zamtel as a debt-free company with USD 64 million in its bank account paid by the Zambian government (equivalent to the privatised company’s capital expenditure for its first year of operation). The contract for the sale of Zamtel between the government and LAP GreenN was prepared before the negotiation process was complete as “it is inconceivable that a contract of this magnitude could have been prepared, approved and executed and copy forwarded from the Zambia Public Procurement (ZPPA) all in the course of one morning”.

Musokotwane’s defence:

Former Finance Minister Situmbeko Musokotwane called Sata’s allegations “un-researched pronouncements”.

He queried the independency of the commission, arguing that it consisted of politicians: Since they are “fully aware” of the president having pronounced that the sale was fraudulent, “it cannot surprise anyone that their report had to follow the same line of thinking or else they would have been sacked from their jobs”.

Musokotwane pointed out that the final price for Zamtel was higher than the value set by RP Capital – and challenged the PF government to refute the findings of a 2011 audit report by Ernest & Young, “which found Zamtel to be insolvent with enormous and unsustainable debt against few obsolete assets”. In 2009, Zamtel made a loss of more than USD 30 million, spending more than 50% of its revenue on salaries, while Airtel and MTN spent less than 25% on the same (analysts cautioned against direct comparisons as Zamtel offered three services: Landline, mobile phone and internet). Musokotwane further alleged that all of the USD 257 million had been received by Zambia and used to pay workers and clear Zamtel’s large debts. In 2010, the MMD government reported that the USD 257 million was broken down into USD 117.7 million to employee benefits and liabilities, USD 64 million directly injected into Zamtel, USD 32.7 million to settle external liabilities and USD 42.6 million to the Zambian treasury. Musokotwane pointed out that the price was the best ever received for a parastatal company in Zambia: According to the MMD, LAP GreenN’s total commitment came to almost USD 400 million including money pledged for network expansion and government guarantees. The gross value raised from the 262 privatisation before Zamtel was USD 433 million.

Zamtel’s response:

Initially, LAP GreenN stated it would “do everything possible to retain our stake in Zamtel”. Then it said it would “welcome any opportunity to work with the government to secure a swift and positive outcome that benefits both Zambia and Zamtel”. By the end of the week, it went quiet. It was reported that LAP GreenN chairman Wafik Alshater was due in Zambia to seek an audience with the government, but Justice Minister Zulu said he would not meet Alshater – “not for the time being anyway”.

The commission’s small concession:

The commission did recommend that a “thorough and comprehensive” forensic audit of the sale should be instituted (Daily Nation 13, Post 13-16, Daily Mail 13-17 and Times 15-17).

Labels: LAP GREEN, NEOLIBERALISM, PRIVATISATION, RP CAPITAL PARTNERS, SITUMBEKO MUSOKOTWANE, ZAMTEL

posted by MrK @ 10:34 PM