GOVERNMENT officials were this week nervously scrambling to
salvage three big Chinese-funded infrastructural projects totalling US$1,324
billion, which are on the verge of collapse after US$10 million was raided by
authorities from an escrow account held at a local commercial bank,
considerably testing the Zimbabwe-Sino relations.
The affected infrastructural projects are the US$1,1
billion Hwange Thermal Power Station units 7 and 8 refurbishment, US$153
million Robert Mugabe International Airport expansion and the US$71 million
NetOne expansion, which are at various stages of implementation.
They are being bankrolled through various loan facilities
secured from the Export-Import Bank of China and other financial institutions.
Shanghai Construction Group has also complained that it is
failing to access hard currency as it constructs Zimbabwe’s new parliament in
Mount Hampden through a US$100 million free grant from China-Aid.
There were frantic denials from some government officials,
especially Treasury permanent secretary George Guvamatanga, when the Zimbabwe
Independent broke the story last Friday, leading to Chinese deputy ambassador
Zhao Baogang being asked to clarify the matter by delegates at a public debt
conference in the capital.
Zhao told delegates: “There are companies who are handling
the projects in question. Those companies may have given the information to the
newspaper people.
Well, I’m in no position to deny it, but I cannot also
confirm it. All I can say is that the newspaper people are well-informed.”
The Finance Ministry this week confirmed that the money for
the projects — which was in foreign currency — was converted into local
currency, the Zimbabwean dollar that was demonitised at the height of hyperinflation
in 2009, but bounced back in June.
The ministry also added that efforts were underway to
rectify the touchy situation.However, the ministry, shifting blame and hiding
behind semantics, said the money was not “raided” by government, but converted
into local currency by Stanbic Bank. Clive Mphambela, the Chief
Director-Communications and Advocacy in the Finance Ministry, absolved
government of any wrong-doing.
“The correct position is that, following the promulgation
of SI (Statutory Instrument) 142, some banking institutions correctly moved to
implement the full provisions of SI 142 across the board. This is a matter that
the authorities are still looking
into for resolution with regards to some entities that may
have been inadvertently affected by the operation of the new law,” he said.
Government promulgated SI142 on June 24 this year. It
banned the multi-currency regime, which had been operating since 2009 and
restored the Zimbabwe dollar as the sole legal tender in a new mono-currency
system.
Mphambela referred further questions about the raiding of
the forex for the projects, which authorities want to explain away as part of
currency reforms, an excuse the Chinese are not buying, to the Reserve Bank of
Zimbabwe (RBZ) “under whose purview, exchange control and banking matters
fall”.
Mangudya, however, maintained that the escrow account was
never liquidated.“The escrow accounts for those projects are maintained at
commercial banks and not subject to liquidation by anyone or the Reserve Bank.
The Reserve Bank never converted anyone’s escrow accounts into local dollars,”
he said.
“What was required by the funders was confirmation that the
escrow accounts continue to operate as foreign exchange-denominated accounts
which is exactly the position of the status of those escrow accounts.”
However, it is understood the Chinese companies involved
have been unable to access their money in forex despite numerous complaints
over the issue. This led to engagements between the Chinese and authorities
before and after the Independent story. The issue escalated this week after
President Emmerson Mnangagwa reportedly raised queries and concerns with
Treasury and central bank authorities.
Official sources told the Independent that senior
government officials, among them, Guvamatanga, RBZ governor John Mangudya —
have since intensified talks with Chinese embassy officials, including
Ambassador Guo Shaochun and Baogang, over the matter. The raiding of the escrow
account — where funds are held in trust while two or more parties complete a
transaction — left the Chinese shocked about the breach of trust and
confidentiality. The move had 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.
Officials revealed that government has made assurances that
the project funds will be restored and protected as hard currency, fearing that
failure to do could lead to the Chinese maintaining a freeze or completely
pulling out of the projects. The affected projects are the only major
infrastructural projects in the country at the moment.
A freeze by China, sources said, would further isolate Harare,
which is now a pariah state again from an international relations, economic and
financial point of view, particularly in view of United States financial
restrictions still remaining.
The Independent understands that the Chinese are, however,
keen to fix the situation, but remain worried by government’s failure to uphold
property rights and protect foreign investment.
Sources said China Eximbank, which withdrew funding for the
projects in protest, has maintained that it will only resume funding when the
raided funds are returned.
“The Chinese have been dismayed, but remain positive about
it. China Eximbank has indicated it will resume funding the projects once the
money effectively raided through a currency conversion is returned. In the
meantime, and as a sign of goodwill, the Chinese embassy has encouraged
companies undertaking the project to use their own funds to do some work, as
they hope the Zimbabwean government will honour contracts and financial
arrangements.
“The companies, however, have limited funds and cannot
complete the project or do significant work without funding from China Eximbank
and other institutions. As of this morning (Thursday) the funds had not been
returned and Eximbank was holding out.”
Palmer Mugavha, the Stanbic Bank head of marketing and
communications, declined to comment, citing bank-client confidentiality.“As you
are aware, banks are bound by several codes of ethics and data privacy, one of
them being client confidentiality. Therefore we cannot comment to third parties
about our clients’ details,” Mugavha said.
The airport project is being undertaken by Jiangsu
International and was being funded through a concessional loan facility from
China Eximbank.
There were already questions over the US$1,1 billion Hwange
7 and 8 expansion project being undertaken by Sinohydro. 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 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 Mnangagwa’s visit to Beijing, where he met Chinese leader Xi Jinping
last year. Zimbabwe Independent
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