REPORT TO H.E THE PRESIDENT OF THE REPUBLIC OF ZAMBIA MR. MICHAEL CHILUFYA SATA OF THE COMMISSION OF INQUIRY INTO THE SALE OF ZAMTEL CHAIRED BY HON. SEBASTION ZULU S.C. MINISTER OF JUSTICE
1. Minister’s Report
2. Recommendations of the Commission of Inquiry
3. Summary of Technical Committee Key Findings
4. Report of the Technical Committee inquiring into the sale of
75% of GRZ shareholding in Zamtel
5. Appendix I -Sequence and timeline of events
6. Appendix II - List of documents perused by the Technical
7. Appendix III - List of people interviewed by the Technical
8. Appendix IV - List of oral submissions made to the
Commission of Inquiry
9. Appendix V - Transcripts of oral submissions made to the
Commission of Inquiry
10. Appendix VI - List of written submissions made to the
Commission of Inquiry
11. Appendix VII - Written submissions made to the
Commission of Inquiry
Recommendations of the Commission of Inquiry
1.1 The immediate termination of all Agreements relating to the sale of Zamtel to LAP GreennN and the immediate return of 100% of Zamtel to the people of Zambia for the following reasons:
i. LAP GreenN failed ALL the 3 mandatory prequalification criteria rendering this transaction null and void ab initio;
ii. The price at which Zamtel was sold clearly shows that the company was grossly undervalued and GRZ paid more than it received;
iii. In effect, GRZ paid LAP GreenN to receive a gift of 75% of Zamtel;
iv. The ZDA negotiating team was not independent as required by Law and did not negotiate in the best interests of the Zambian Nation resulting in Zambia receiving the same amount of cash equivalent to the amount paid to a single consultant for its sale of the whole of Zamtel.
1.2 The immediate termination of LAP GreenN appointed and seconded directors and management for the following reasons:
i. As a natural consequence of 1.1 above;
ii. In order to ensure compliance with the UN sanctions on LAP.
1.3 The immediate reconstitution of the board of Zamtel for the following reasons:
i. In order to ensure compliance with the UN sanctions on LAP;
ii. In order to reflect the recommended new shareholding.
1.4 A thorough and comprehensive audit of Zamtel post privatization.
2. Zesco Optical Fibre
Immediate termination of the IRU between Zamtel and Zesco and return of control and ownership of the optical fibre to Zesco for the following reasons:
i. It was illegal;
ii. It was signed by Zesco under extreme duress;
iii. It was not in the interests of Zesco and was solely designed to benefit LAP GreenN at the expense of the Zambian people.
3. Zambia Development Agency
i. The ZDA senior management must be held fully responsible and culpable for the grossly negligent and cavalier manner in which they conducted and “oversaw” the sale of Zamtel.
ii. ZDA should immediately account for and render the balance of GRZ proceeds received for the privatization of Zamtel and must immediately transfer the same to GRZ.
iii. ZDA must forthwith focus on monitoring post privatization a provided in the ZDA Act.
4. RP Capital Group
i. That a civil lawsuit be immediately instituted to recover the excess fees paid to RP Capital;
ii. RP Capital, its affiliates and its employees must be immediately barred from conducting business in Zambia;
iii. A civil lawsuit be immediately instituted against RP Capital and Simmons and Simmons for professional misconduct / negligence in qualifying LAP GreenN in spite of LAP GreenN failing ALL the 3 mandatory prequalification criteria.
5.1. A review of all the legislative changes made to accommodate the Zamtel transaction at the expense of the Zambian tax player such as:
i. Reduction of mobile license fees;
ii. International gateway fees;
iii. PSTN exclusivity license;
iv. Barring of a fourth mobile operator.
The Zamtel sale was a clear case of economic sabotage which pervaded and compromised key GRZ institutions to the extent that GRZ decisions and policy were being managed by a foreign consultant. The full extent and continuing effect of these actions can only be determined if a full scale and thorough comprehensive forensic audit of the Zamtel privatization process is instituted.
Internal RP Capital documents project the value of Zamtel in 2015 being in excess of US5 Billion, the benefit of which the Zambian people would not have enjoyed.
[Selling a company with $5 billion in assets and business for $257 million is a crime in itself. Selling it at a loss of $77 million is an outrage. - MrK]
SUMMARY OF TECHNICAL COMMITTEE KEY FINDINGS
1. ENGAGEMENT OF RP CAPITAL PARTNERS CAYMAN ISLANDS
1.1. The engagement of RP Capital Partners Cayman Islands for the valuation of the assets of Zamtel, by way of a MoU signed and executed by the Ministry of Communications and Transport and the Zambia Development Agency, on the 22nd of December 2008 was totally irregular.
1.2. The single-sourcing selection of RP Capital Partners Cayman Islands was singlehandedly driven by the Minister of Communications and Transport against the express advice of her ministry officials and that of both the Solicitor General and the Attorney General.
[That is minister Dora Siliya. - MrK]
1.3. We also note that the ZDA Board, at a Board Meeting held on 26th December 2008, expressed great disquiet at the attempt to have the ZDA Board essentially rubber-stamp a MoU that was fundamentally flawed, non-transparent and one that did not follow laid-down procedures. In addition, the Board noted that a due diligence exercise to establish the credentials of, and the persons behind RP Capital Partners had not been undertaken.
[In this article: Rautenbach: 'I was not detained' - but he names his perceived enemy', insider Billy Rautenbach names diamond magnate Dany Gertler as the individual behind RP Capital of the Cayman Islands: " Rautenbach also directly named his key "enemy," by stating that he believes the current "dispute relates to Dan Gertler of RP Capital". " - MrK]
1.4. We also note, from the Zamtel Audited Accounts for 31st March 2009, that Zamtel had, in the past, engaged world-renowned international experts in the field of telecommunications open market assets valuation (i.e. Experts engaged by Commonwealth Telecommunications Organisation in 1997). This is an example of the caliber of consultants that would be expected to undertake the valuation of Zamtel’s assets.
1.5. We further note, that it was an essential pre-requisite for Cabinet approval of the partial sale of Zamtel, that Cabinet be availed of an accurate, professionally conducted valuation of the Zamtel assets. A proper valuation of the Zamtel assets did not take place.
2. ENGAGEMENT OF RP CAPITAL AS TRANSACTION ADVISORS
2.1. RP Capital Advisors were engaged by the Zambia Development Agency to act as Transaction Advisors for the Zamtel Sale.
2.2. The basis for ZDA’s decision to single-source RP Capital Advisors as Transaction Advisors was based on ZDA management’s satisfaction with the work that had already been completed by RP Capital affiliates in respect of the “valuation” of the Zamtel assets.
2.3. We note as per 1.5 above, that a proper valuation of the Zamtel assets did not take place under the MoU. Even under the Agreement appointing RP Capital as Transaction Advisors, no mention is made of RP Capital Advisors conducting a valuation exercise of the Zamtel fixed assets.
2.4. We also note that no due diligence in respect of the suitability of RP Capital Advisors (capacity and capability, previous experience, etc.) was ever conducted by ZDA when they elected to single-source RP Capital Advisors.
2.5. This Committee hereby places on record that the engagement of RP Capital Partners by ZDA, was extremely hasty, did not follow normal tender procedures and may have been under duress. Each of the above, renders the engagement illegal.
3. VALUATION OF ZAMTEL ASSETS/BUSINESS
3.1. As has been stated in 1. above, a detailed, professional valuation of Zamtel assets never took place. The only “valuation” that this Committee was availed, is the one contained in RP Capital Advisors’ final report. This “valuation” is not a professionally conducted assets valuation, but essentially a desktop paper exercise that make numerous assumptions.
3.2. The value of Zamtel’s fixed assets as contained in the summary report by RP Capital Advisors dated 22nd July 2009 and presented to Cabinet is US$ 38 million.
3.3. We further note from the Audited Zamtel Accounts dated 31st March 2009, that the book value of Zamtel’s fixed assets only (property, plant and equipment) was approximately US$ 81 million (K 412,072,000,000). This is however, the book value and not the market value of Zamtel’s fixed assets which would be expected to be considerably higher than the book value.
3.4. This Committee finds it difficult to understand how RP Capital Advisors could arrive at a value of Zamtel’s fixed assets of US$ 38 Million in the absence of conducting a thorough, detailed and professional valuation of Zamtel’s fixed assets.
4. ZAMTEL SALE
4.1. The Cabinet decision to endorse and authorize the partial sale of Zamtel shares took place at the Cabinet Meeting of the 23rd July 2009. The Cabinet decision was based on a five page Project Zamtel: Cabinet Summary report provided by RP Capital Advisors. This report is a summary of the 316 page final report produced by RP Capital Advisors. Both of these documents are dated the 22nd of July 2009.
4.2. This Committee finds it totally inconceivable that the Cabinet and any of its sub-committees, officials and advisors could have read, digested, analyzed and drawn meaningful conclusions from the voluminous report within a period of less than 24 hours.
4.3. We repeat 3.2 above, and state that in making its decision to proceed with the partial privatization of Zamtel, Cabinet did not have a proper value for Zamtel’s fixed assets, as the fixed assets value presented in the RP Capital Advisors summary is only US$ 38 million.
4.4. LAP GreenN failed all three of the mandatory prequalification criteria and ought to have been disqualified in the preliminary stage.
4.5. The negotiating team appointed by ZDA was not independent.
4.6. The negotiating process gave away more than it gained.
5. ZESCO OPTICAL FIBRE NETWORK
5.1. A Joint Technical Committee comprising Zamtel and Zesco staff was set up under the auspices of the Communications Authority in July 2008 on the understanding that the two parties would seek to rationalize and harmonise their optical fibre network roll-out and expansion plans, based on mutually beneficial and agreed commercial terms.
5.2. Contrary to the above, on the 28th October 2009 the Zesco Board were informed by the Board Chairman that the Ministry of Finance, as principal shareholder, was directing Zesco to cede their optical fibre network to Zamtel and to cease all commercial operations on their optical fibre networks.
5.3. Immense pressure was exerted on the Zesco Managing Director to sign an Indefeasible Right of Use Agreement (IRU). Named individuals threatened him with the loss of his job and accused him of dragging his feet and holding up the process.
5.4. Revenue sharing under the IRU is 80% Zamtel and 20% Zesco; provisions of the IRU will apply to all existing and future optical fibre networks to be rolled out by Zesco.
5.5. The Zesco MD whilst on an official trip to Egypt, was forced into signing the single signature page of the IRU Agreement under extreme duress and thereafter faxing it back to Zambia on the 17th of December 2009.
5.6. The Zamtel board retrospectively approved the IRU in a board meeting held on the 24th of December 2009. The Zesco Board passed a retrospective board resolution at a Board Meeting held on the 28th January 2010 authorizing Zesco to sign the IRU Agreement which had, in fact, already been signed by Zesco on the 17th December 2009 and the Zesco MD’s contract of employment was terminated.
5.7. This Committee believes that in expropriating the Zesco optical fibre network assets and handing them over to the soon to be privatized Zamtel, GRZ acted in bad faith. GRZ was in effect purloining valuable assets from a 100% government owned company and giving them away – free of charge – to a company that they would soon only own 25% of! We believe that this was done with the express intention of making the soon to be privatized Zamtel, a more attractive proposition to potential buyers, and did not take into account that Zesco had made a considerable investment (approx. US$ 20 million) into their optical fibre network and were operating it on a very profitable basis.
6. FINAL PURCHASE PRICE OF ZAMTEL
6.1. The final purchase price for a 75% shareholding in Zamtel by LAP Green Networks (LGN) was US$ 257 million and is broken down as follows:
ZAMTEL STAFF PENSIONS LIABILITY: US$ 20,000,000
CHINESE BANK LOANS: US$ 32,700,000
ZAMTEL WORKERS REDUNDANCIES: US$ 97,700,000
LAPGREEN NETWORKS EQUITY INVESTMENT: US$ 64,000,000
GRZ PROCEEDS: US$ 42,600,000
TOTAL PAID BY LAP GREEN N: US$ 257,000,000
From the information provided by ZDA Chief Accountant, the proceeds due to GRZ have, to date, been disbursed as follows;
Expenditure Breakdown of Govt Proceeds of $42,600,000
RP Capital Advisors $12,689,759.03
Net Cash GRZ Proceeds to date (MoFNP) $15,000,000.00
Legal Fees $702,296.33
Zamtel Staff Incentives $85,926.59
ZDA/Zamtel Staff Incentives and Overtime $307,462.73
ZDA Negotiating Team $65,797.25
Zamtel Staff Training $192,907.51
Grant Thornton Consultants – Financial $94,859.14
ZDA (Zamtel sale) Assets $46,388.08
Bank Charges $8,304.28
Other Zamtel Related Payments $19,473.60
Total Disbursed $29,300,643.52
Balance of Funds due to GRZ $13,299,356.48
6.2. Of the total sale price of US$ 257 million, as per the terms of the sale, GRZ was
only entitled to US$ 42.6 million (16.6% of the sale value).
6.3. We note, from the foregoing that GRZ have, to date, only received a cash sum
of US$ 15,000,000. We further note that RP Capital Advisors received a cash
payment of US$ 12,689,759.03, based on 5% of US$ 257 million.
6.4. The majority of the funds due under the sale went into paying Zamtel Workers
Pensions Liabilities, Zamtel Workers Redundancy Payments, Chinese Bank Loan
and a cash equity injection by LAP Green Networks into Zamtel of US$ 64
7. GRZ PURCHASE OF 25% ZAMTEL SHAREHOLDING
In accordance with the Share sale and purchase Agreement the following liabilities
accrued to the parties:
I. Prior to completion, GRZ was required to pay Zamtel : US$ 120,000,000.00 Subscription monies in respect of Tax shares US$ 214,440,000.00 Subscription Amount Total US$ 334,440,000.00 This figure represents the value paid by GRZ for a 100% of the shareholding in a debt free Zamtel with a US$64,000,000.00 surplus reserve.
II. Post completion, LAP GreenN was required to pay to GRZ : US$ 257,000,000.00 This figure represents the value paid by LAP GreenN for 75% of the shareholding in a debt free Zamtel with a US$64,000,000.00 surplus reserve.
This in effect means that GRZ paid Zamtel US$ 334,440,000.00 for the retention of 25% shareholding in Zamtel while Lap GreenN paid GRZ US$ 257,000,000.00 to acquire a 75% stake in Zamtel.
III. Payment of Outstanding Zamtel Telephone Bills by GRZ
This Committee were informed by the Zamtel MD that the outstanding GRZ telephone bills which stood at approximately US$7,000,000.00 at the time of privatization, has to date been reduced to US$100,000.00. This Committee finds it both sad and disappointing that GRZ who had over the years, consistently failed to support Zamtel by the promptly settling their telephone bills, enthusiastically and regularly did so post privatization.
8. Other LAP GreenN operations in Africa
In its prequalification application form LAP GreenN stated that they owned 5 operations in Africa. The following is the status as at the date of this report:
On the 16th of October 2009 LAP GreenN stated in its prequalification
application form that it owned 69% of Uganda Telecom who had 2,584, 252
subscribers and therefore LAP GreenN attributable subscribers were
As at the date of this report the status of Uganda Telecom is: “Ugandan Government recently took over full management of the company in line with the UN decision to freeze all assets owned by Gaddhafi. In this case, the Ugandan Government is holding the 69% owned by Libyans in trust until the matters in Libya are resolved.”
On the 16th of October 2009 LAP GreenN stated in its prequalification application form that it owned owned 80% of Rwandatel who had 487,470 subscribers and therefore LAP GreenN attributable subscribers were 389,976.
As at the date of this report the status of Rwandatel is: In April 2011 Rwanda revoked the Rwandatel license which belonged to LAP GreenN due to an inability to invest in accordance with their commitment.
Sonitel & Sahelcom
On the 16th of October 2009 LAP GreenN stated in its prequalification application form that LAICO Networks (a subsidiary of LAP) owned 51% of Sonitel & Sahelcom who had 823,133 subscribers and therefore LAP GreenN attributable subscribers were 419,798.
As at the date of this report the status of Sonitel & Sahelcom is:
“The Government of Niger has cancelled a deal to sell majority stake in state owned Telco Sonitel and its mobile arm Sahelcom to LAP Green Network stating that the Libyan Government Investment vehicle had not respected the terms of transaction”
iv. Cote D’Ivoire
On the 16th of October 2009 LAP GreenN stated in its prequalification application form that it owned 75% of Oricel who had 852,661 subscribers and therefore LAP GreenN attributable subscribers were 639,496.
As at the date of this report the status of Oricel is:
v. Sierra Leone
On the 16th of October 2009 LAP GreenN owned 85% of the Company which
had no subscribers at that date they were still in the process of rolling out
It is clear from the above, that in its short 3 year history, LAP GreenN has proved to
be inept and incompetent at running telecommunications networks.
9. Official GRZ Statement on the Release of the Zamtel Sale Report
This Committee notes that the previous Minister of Commerce Trade and Industry
Hon. Felix Mutati, in justifying his refusal to release the Zamtel sale official report
stated on the 14th of June 2010, and we quote "I don't see how releasing the RP
Capital report will help the citizen because they will not even understand it. It is just
figures on paper. I would advise people to instead listen to the rational explanation
of the government over the Zamtel sale."
In view of its findings, this Committee believes that to the contrary, had a full and
comprehensive report been released, the Zambian public would have drawn
logical conclusions regarding the conduct and execution of the sale.
REPORT OF THE TECHNICAL COMMITTEE INQUIRING INTO THE SALE OF 75% OF GRZ
SHAREHOLDING IN ZAMTEL
In accordance with a directive from His Excellency the President of the Republic of Zambia, the Hon. Minister of Justice instituted an inquiry into:
i. The Sale of Zambia Telecommunications Company (ZAMTEL);
ii. The sale of Finance Bank Zambia Limited;
iii. The financing by the National Pension Scheme Authority (NAPSA) of the Zambia National Building Society House Project; and
iv. The purchase of land by NAPSA from Meanwood Property Development Limited. The Hon. Minister of Justice has constituted a Committee to conduct the inquiry. A Technical Committee to assist the Committee through relevant expertise was set up on the 13th of October 2011. Due to the importance and urgency of the assignment the Technical Committee was divided into four groups to conduct the inquiry.
1.2 Terms of Reference
This Technical Committee was tasked with investigating:
The Sale of Zamtel
i. To determine how the sale of ZAMTEL was conducted; and
ii. To ascertain whether all the required procedures relating to the sale were complied with.
1.3 Composition of the Team
The Technical Committee inquiring into the sale of 75% of GRZ Shareholding in ZAMTEL comprised the following:
i. Mrs. Dimple Ranchhod Lawyer - Chair
ii. Mr. Misheck N Kaoma Procurement - Secretary
iii. Mr. Cosmas Mwananshiku Accountant - Member
iv. Dr. Mupanga Mwanakatwe Telecommunications - Member
v. Mr. Emmanuel Mbewe Telecommunications - Member
vi. Mr. Don Zyambo Valuations - Member
1.4 Documents Perused
At the commencement of the assignment, the Ministry of Justice availed this Technical Committee a number of documents. It is worth noting that these documents were compiled by the Zambia Development Agency in response to a letter from The Hon. Minister of Justice requesting the same.
This Committee wishes to place on record that a substantial portion of these documents were irrelevant to the Committee’s Terms of Reference and consequently this Committee lost several days perusing them.
This Committee therefore had to spend additional time identifying and sourcing material and relevant information that was essential to the task at hand.
A complete list is available in Appendix II.
This Committee puts on record the following:
This Committee requested but has at the date of this report not received:
. A copy of the management contract between LapGreenN and Zamtel referred to by the ZAMTEL management team during their interview with the Committee. Instead Zamtel only provided the Committee with a letter containing values of the basic pay of senior management and a copy of a secondment contract between LAP GreenN and Zamtel.
. A copy of a detailed LAP GreenN business plan relating to the acquisition of Zamtel shares that in the opinion of this Committee should have been submitted to ZDA for purposes of the bid evaluation and negotiations in order to enable ZDA assess, monitor and evaluate post privatization business performance.
The ZAMTEL CEO declined to provide the same as he considered it to be LAP GreenN proprietary information. He further advised the Committee that the only business plans submitted to ZDA was the one attached as Schedule3 of the Shareholders Agreement.
It is the Committees opinion that a 4 page sketch cannot be considered a serious business plan for the sale of this magnitude.
1.4.2 Ministry of Communications and Transport
This Committee requested but has at the date of this report not received:
. the dossier provided by RP Capital Partners;
This document either does not exist or has been lost or destroyed.
. the report prepared by MoCT staff to the Minister recommending RP Capital Partners;
Likewise, this document either does not exist or has been lost or destroyed.
. Email correspondence between RP Capital Partners and MoCT officials.
Despite several requests for this information, MoCT has failed and or is unwilling to furnish the Committee with this information. The Committee hereby places on record that the practice of MoCT is to delete user accounts from its email server upon an official leaving the Ministry. This is clearly not good practice and the Committee expects that even if a user is deleted from the email server, official records should be retained for future use and reference.
1.4.3 Zambia Development Agency
This Committee requested but has at the date of this report not received:
. Email correspondence to ZDA from Nkwazi.gov.zm accounts relating to Zamtel and RP Capital; The Director General of ZDA undertook to provide the same but as he had reservations on the security clearance of the Head of IT at ZDA, he declined to avail the Committee the available information without vetting by a ZDA director.
. Zamtel updated business plan as required by Clause 9.4 (A) of the Shareholders’ Agreement dated the 5th of June 2010 between The Government of the Republic of Zambia and ZAMTEL and LAP GreenN.
The Director General of ZDA was unable to provide the same and referred the Committee to Ministry of Finance as the same was not the responsibility of ZDA post privatization but that
responsibility was with MoF as the holder of GRZ shares. The Committee places on record that this statement contradicts the provisions of Section 5 (2) (n) of the ZDA Act which defines one of the functions of the Agency as “monitor post privatization activities to ensure compliance with any agreement entered into for the privatization of any state owned enterprise”.
It is the opinion of the Committee that this is an extremely important document in the post privatization process as it is the ONLY document on which GRZ can assess the performance of the Zamtel business and ensure that LAP GreenN undertakings and commitments have been satisfied and if not, make an informed decision on exercising termination and/or claw-back options.
. A complete and accurate account of monies received and their disbursements.
The ZDA chief accountant was unable and/or unwilling to provide the same.
The Committee places on record that the ZDA chief accountant furnished the Committee with numerous versions of the account of monies. Each version conflicted with the other and no version has balanced and the chief accountant was unable to justify the numbers. The Committee has no confidence in the accounts presented by the ZDA chief accountant.
. A due diligence on RP Capital
The privatization manager advised that the same was never done. In conducting its assignment, the Technical Committee met and interviewed several people and a list is attached as Appendix III.
The Committee places on record that prior to consenting to the initial interview, the CEO of Zamtel advised the chair that he needed clearance from the National Transition Council in Libya. The CEO subsequently advised that he had the clearance from the NTC in Libya and therefore attended the interview.
2.1 The applicable law in this instance is set out in the Zambia Development Agency Act of the Laws of Zambia Section 4 (1) of which provides for the establishment of the Zambia Development Agency as a body corporate.
The Director General of ZDA also advised the Committee that as the Privatization Act had not been repealed as per the provisions of Section 84 (2) of the ZDA Act, the Privatization Act also applies to the Zamtel privatization.
It is the opinion of the Committee that as the Zamtel sale was approved by Cabinet and conducted under the provisions of the ZDA Act, only the ZDA Act is therefore applicable and this is the only Act the Committee considered.
2.2 In addition to the Zambia Development Agency Act, the Zambia Public Procurement Act No. 12, 2008 of the Laws of Zambia applies to the engagement of consultants and prescribes the following methods of procurement:
1) International Selection
Participation in open international selection shall be open to all bidders, including citizen, local and foreign bidders.
2) National Selection
Participation in open national selection shall be limited to citizen and local bidders.
3) Limited Selection
Limited selection may be used where:
a. the consulting services are only available from a limited number of suppliers; or
b. there is an urgent need for the consulting services and engaging in open selection would therefore be impractical.
4) Direct Selection (Direct Sourcing).
Direct selection is done by directly requesting proposal/s from one firm or individual where only one firm or individual is the qualified and available entity to conduct the consulting services or the consultant is to be engaged with the view of continuing the downstream tasks of similar nature of a previous assignment, in order to reduce the time frames of engagement, or to standardize the quality of services provided, or under emergency
situations and that using other selection methods will not yield quick results.
3. Sourcing and Engagement of Consultants
3.1 Engagement of RP Capital Partners Cayman Islands for the Valuation of Zamtel Assets:
Although this transaction was extensively covered in the Dennis Chirwa led tribunal (the Tribunal), whose report and findings were extremely useful to this Committee, we hereby highlight some of the elements.
Ministerial Statement by Hon. Dora Siliya, MP; Minister of Communications and Transport in Response to a Point of Order Raised by Kantanshi MP. Mukanga Yanfwa. On The Engagement of RP Capital Group and What Tender Procedures Were Followed To Value Zamtel Assets
13th February 2009
Republic of Zambia National Assembly
We quote from the above-captioned Minister’s Speech;
“After various consultations, it was clear that the immediate task for the Ministry was to undertake a Valuation of the Assets of ZAMTEL to ascertain the true value of the company on the open market.”
“It must be noted that, Government could not enter into any commercial agreements with the companies that were expressing interest because of inadequate information, which I needed as the responsible Minister to take to Cabinet to seek formal approval to actually partially privatise Zamtel.”
From the above, it is clear that it was the intention of GRZ to have the Assets of Zamtel properly valued in order to ascertain the true value of the company on the open market.
We further quote from the above-captioned report;
“At the meeting, RP Capital introduced itself as an entity that could assist the Government of the Republic of Zambia in addressing the issues regarding the assets valuation of Zamtel and possible sale of Government stake in Zamtel and to provide Transaction Advisor Services at own cost subject to administrative costs and/or professional fees being paid once the transaction had taken place.”
3.1.2. Process adopted
i. RP Capital Partners Cayman Islands were sourced and engaged by the Ministery of Communications and Transport (MoCT) by its Minister Dora Siliya.
ii. Dora Siliya unilaterally and arbitrarily signed a MoU with RP Capital Partners Cayman Islands. She stated to the Tribunal that this was on the recommendation of her staff who had reviewed a dossier submitted by RP Capital Partners and were satisfied with their review.
The Committee was unable to find any documentary evidence supporting the Minister’s claims. To the contrary the Committee has obtained a MoCT internal memo which in fact contradicts the Minister’s statement. This Committee places on record that this memo was neither mentioned nor availed to the Tribunal.
Internal Memo – Ministry of Communications and Transport – Director of Communications
19th November 2008
Ministry of Commerce, Trade & Industry
We refer to, and quote from the above-captioned internal memo, whose subject title is “Valuation and Possible Sale of Government Stake in Zamtel: Signing of The Memorandum of Understanding (MoU) with RP Capital:
“Page 2: Before the MoU is signed between the Ministry and RP Capital, it is important that the Cabinet Approval be sought through a joint Cabinet Memorandum on the purpose of the valuation and ultimate engagement of RP Capital as Transaction Advisors. Only if this is done can the process be deemed transparent by the stakeholders, failure to which the Ministry may be drawn into protracted speculations as to whether Government is going to get value-for-money in the transaction. The quality and cost as proposed by RP Capital in the attached letter may not be justifiable without a competitive process being undertaken.”
This committee notes that contrary to the Minister’s claims that her ministry officials advised that RP Capital Partners were the ideal consultants, her officials had in fact advised her not to sign the MoU, and to follow the normal and proper laid out procedures expected in a transaction of this nature. This is a matter of concern to the Committee as the Minister misled the Tribunal.
Tribunal Report on Investigation on Allegations of Breach of Parliamentary and Ministerial Code of Conduct Against Hon. Dora Siliya M.P. Minister of Communications and Transport 16th April 2009
We quote from the above captioned report;
Page 19: “In the process, RP Capital Partners submitted a dossier about themselves. Her officials were happy about it and made recommendations. She acted on these recommendations. Everything that the Ministry did as far as RP Capital Partners Limited was concerned was done through the office of the Permanent Secretary”.
Our extensive enquiries at the MoCT have indicated that the abovementioned RP Capital Partners Limited dossier does not and did not ever exist. All the senior staff interviewed at the MoCT deny ever having sight of such a dossier, nor is it on any of the MoCT files. This includes the Permanent Secretary. This finding is in total variance with the former Minister’s claims.
Furthermore, our findings indicate that there is no documentary evidence of the experience and caliber of RP Capital Partners, in relation to complex telecommunications transactions of this nature and magnitude.
It is the opinion of this Committee that in selecting and appointing RP Capital Partners Cayman Islands as the Zamtel Assets Valuation Consultants, Dora Siliya acted unilaterally and against the advice of her professional staff within MoCT.
With the foregoing in mind, it is the considered opinion of the committee that GRZ should have, by way of an international open tender, sought to procure the services of an established, internationally reputable and competent consultant to carry out the valuation of the Zamtel assets.
iii. Although the MoU is dated the 22nd of December 2008, ZDA who was a Party to the MoU only considered the MoU at a Special Board Meeting on the 26th of December 2008.
ZAMBIA DEVELOPMENT AGENCY
MINUTES OF THE 10th SPECIAL BOARD MEETING OF THE ZAMBIA
DEVELOPMENT AGENCY HELD ON THE 26th DECEMBER 2008 IN THE
BOARDROOM, PRIVATISATION HOUSE
We quote from the above minutes:
“8.5 In a lengthy discussion that followed IT WAS NOTED inter alia that: ….
(ii) the manner in which the Consultants were engaged does not appear to be transparent;
(iii) it was not clear whether proper tender procedures had been followed;
(iv) The ZDA Board was not consulted in the preparation of the MOU; …..
(viii) the MOU does not cover in detail the scope of work for the Consultants;…
(x) the ZDA could have been made a party to the MOU as a result of an
(xi) the people involved with the consultant were not known;
(xii) the Terms of Reference for the consultant are not clear; ……
8.6 After further discussion IT WAS AGREED that the Memorandum of Understanding can be signed subject however to amendments being made to it to address the concerns of ZDA and to provide for the process to be undertaken in accordance with the provisions of the Zambia Development Agency Act, Act No. 11 of 2006. “
iv. The Director General of ZDA also advised the Committee that in fact he was out of the country when the MoU was signed and in his absence, one of his officers a Mr. Matoka was summoned to the MoCT office and then Minister Dora Siliya instructed him to sign the document which he did.
v. The Committee interviewed then Chairman of the ZDA Board (Mr. Luke C Mbewe). Mr. Mbewe stated that following the ZDA Board Meeting, he made the effort of going to Dora Siliya’s office to discuss the MoU. Dora Siliya sent him out of her office and told him that he was wasting time and delaying the process.
vi. The ZDA Board approved the signing sometime in January 2009.
31 October 2011 Strictly Confidential Page 21 of 114
3.1.3. RP Capital Partners Valuation Report Project Zamtel: Valuation & Transaction Recommendations
22nd July 2009
RP Capital Partners
The “valuation” of Zamtel Assets that was done by RP Capital Group, is contained in the above-captioned 316 page report. The “valuation” methodology used by RP Capital Group, in the above report, is based on future discounted cash-flows and incorporates a number of assumptions relating to the company’s Key Performance Indicators (KPI’s). The “valuation” did not take into account, whatsoever, an actual valuation of the Zamtel assets.
This Committee noted that although the future discounted cashflow method is a possible option that can be used in the valuation of a company; it is however, merely an option that should have been used in addition to the actual valuation of the Zamtel assets. This would have permitted a comparison of the results emanating from the two methodologies.
In any event, the future discounted cash flow method that was used by RP Capital should have taken into account the three distinct business activities that Zamtel was engaged in namely Mobile, Fixed and Internet.
It is the opinion of the Committee that the fact that as the Zamtel assets were never valued as stated above, this may have led to a reduction in the final value that was placed on the enterprise by RP Capital and consequently GRZ. The Committee notes that due to the specialized and complex nature of the Telecommunications industry, the consultants hired to value Zamtel assets should have had proven experience and specialized staff.
3.1.4. Cabinet Approval
i. In April 2009, the President of Zambia constituted a Cabinet Committee of four Ministers to oversee the privatization of Zamtel. The Minister of MoFNP was the chair of the Committee.
ii. The first meeting of this Committee was held on the 29th of June 2009 and “the objective of the meeting is to receive a brief from RP Capital on the progress regarding the valuation of the assets of Zamtel.” (Reference letter dated the 26th of June from the Permanent Secretary MoFNP to the Permanent Secretary MoCT.
iii. On the 22nd of July 2009, in addition to the 316 page report, RP Capital also prepared a 5 page document labeled Project Zamtel: Cabinet Summary.
iv. On the 23rd of July 2009 Cabinet considered recommendations by four Ministers and decided that Zamtel be privatized.
This Committee has highlighted and underlined the above dates because we find it totally inconceivable that a report of this size, complexity and magnitude could be fully digested, analyzed and conclusions drawn from the same by the Committee of four Ministers as well as their relevant technocrats in the course of 1 day.
This Committee then safely assumes that the Cabinet approval was based not on a summary report on the recommendations of the Committee of Ministers but actually only considered the 5 page Cabinet Summary prepared by RP Capital.
v. The Permanent Secretary at the Ministry of Commerce, Trade and Industry wrote to ZDA the next day. Ministry of Commerce Trade and Industry 24th July 2009
We quote from the above:
“(d) directed the Minister to ensure that the privatization of Zamtel is conducted in accordance with ZDA Act No. 11 of 2006. In this regard, you are requested to provide an action plan that will expedite implementation of action (d) above as directed by Cabinet.” This Committee notes that we were unable to determine whether the action plan requested above was ever prepared and also notes that such a document would have been critical to this report.
This Committee can then safely assume that no action plan was prepared by ZDA but the privatization process was solely based on the 316 pages RP Capital valuation and transaction report.
3.2 Engagement of RP Capital Advisors by the Zambia Development Agency (ZDA) as
Transaction Advisors on the privatization of Zamtel.