Govt cheated in $1bn deal

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HARARE – Government was grossly short-changed in the $1 billion Zimbabwe Platinum Mines Limited (Zimplats’) indigenisation deal due to a combination of contradictions, misrepresentations and blunders, the Daily News can reveal.

As details of what was dubbed as the greatest empowerment deal between Zimplats and the State-run National Indigenisation and Economic Empowerment Board (Nieeb) emerge, it has been established that Zimbabweans will effectively benefit nothing at the end.

The Daily News can reveal that contrary to President Robert Mugabe’s vision on indigenisation and empowering local people, the $1billion deal signed by Nieeb and Zimplats will not benefit Zimbabweans but a few individuals such as financial advisors principally George Manyere's Branworks Consultancy was due to pocket millions of dollars in consultancy fees.

Nieeb did not consult relevant government arms such as the Reserve Bank of Zimbabwe (RBZ) and the ministry of Mines.

It could not be established at the time of going to press if the Attorney General was consulted.  It appears from the Daily News investigations that the deal is shrouded in secrecy to an extent that relevant government structures and even  some Nieeb board members are not aware of the details of the deal.

Also more worrying for Mugabe is that any disputes arising from the signed deals will be resolved by British courts given the background of his “Zimbabwe will never be a colony again” ideology.
There was gross under-assessment of the Zimplats value but it could not be established if this was deliberate or gross negligence on the part of Nieeb.

It was not clear from the Zimplats term sheet whether the comedy of errors in the deal represent genuine mistakes, misunderstandings in implementation of the programme or deliberate diversion from Mugabe’s policy and stance on indigenisation.

From the Zimplats deal perused by the Daily News, indigenous people must pay $971 million within a period of 10 years, failure of which the shares revert back to the owners of Zimplats.

Clause 14 of the Zimplats deal partly reads: “On the expiry of 10 years following the effective date, Zimplats Holdings will have the option to repurchase as many of the VF (vendor financing) shares as it is sufficient to settle, by way of set off, the VF balance as at the end of the VF term (Repurchased VF Shares)……

“In the event that an indigenous entity commits any one of a number of specified acceleration events, Zimplats Holdings will be entitled to repurchase the VF shares earlier.”

In the transaction, indigenous people are being given 10 years to pay the $971 million but if they fail, they will be given 10 days within which to pay cash or they will forfeit the shares.

Financial analysts who spoke to the Daily News said this was impossible given the deal  was “skewed from the onset” and would never make money for the indigenous people.

One of the clauses in the deal says payment of the shares will come from 85 percent of the dividends declared by Zimplats over the 10 year period.

But reports indicate that Zimplats has in the last 10 years only paid a total dividend of $50 million making it almost certain from the onset that the indigenous people will not be able to pay the $1 billion repayment to secure their 51 percent.

“This deal was doomed to fail from the word go because in 10 years, Zimplats only managed to pay $50 million, how can the indigenous people be expected to pay $1 billion from $50 million” said economist Christopher Mugaga.

Clause 6 of the Zimplats deal says the mining giant is valued at $2,7 billion and has 190 million ounces of ore.

The Daily News investigations discovered that while Zimplats has valued its machinery and equipment at $2,7 billion, the resources underground have been pegged at the same value.

One of the clauses in the deal reads: “The valuation report established the fair market value of Zimplats as at 30 June 2012 at $ 2 762 000 000 (two billion seven hundred and sixty two million dollars).

“However, for purposes of the sale of the indigenisation  shares in terms of this Term Sheet, a fair market value of $2 700 000 000 (two billion seven hundred million dollars) was granted by the government and Zimplats (negotiated fair market value) At the end of the VF term, the market valuation for Zimplats will be determined by reference to the fair market value of Zimplats using the valuation methodology set out in the valuation report…”

Experts say the acquisition of the 51 percent stake should have been appropriately valued using international best practice given the understanding that the in-situ value of the resource will become the contribution of the indigenous parties to the shareholding of Zimplats.

“There is need to go back to the drawing board in coming up with the true fair valuation of Zimplats taking into account the minable mineral reserves underground,” a well-placed government source said.

Under the Zimplats indigenisation deal, 31 percent was issued to Nieeb, 10 percent to employees and the other 10 percent was given to Ngezi-Zvimba Community Share Ownership Trust.

According to the term sheet or framework — signed by government and Zimplats last month — the platinum group metals producer negotiated a fair market value of $2,7 billion.

On the amount, $100 million was deducted to cover debts, with $2,6 billion remaining as equity value.

Of the $2,6 billion, the 51 percent indigenisation stake translated to $1,326 billion.

Then, Zimplats offered a $508 million discount taking the transaction value to $818 million on which a ROGA (release of ground agreement) obligation by indigenous entities amounting to $153 million was levied, giving the ultimate value of much-vaunted $971 million.

Authoritative government sources questioned $500 million discount saying in cases where a shareholder wilfully discounts the value of his asset for purposes of selling part of the stake to a partner, questions should be raised on the sincerity and proper valuation of the asset. In such cases, the offered discount would possibly be compensated from non-disclosure.

On his twitter page the minister of Indigenisation Saviour Kasukuwere yesterday said: “Wolfs are at the door. Nothing to loose (sic) sleep over. We forge ahead with our empowerment.”

Mugaga said government has to be open about all its dealings if the country is to progress in a sustainable manner.

“There is need for a serious audit to see who is benefitting from all the indigenisation transactions that are taking place. At the moment, everything is shrouded in secrecy and that is a fertile ground for corruption,” he said.

Mugaga said lack of transparency will have negative ripple effects on companies, potential investors and the general Zimbabweans who are supposed to benefit from the indigenisation scheme.

John Robertson, another leading Harare economist, said there are no possible benefits that will accrue to the general populace.

“The policy on its own is predatory in nature as it takes away the opportunity to create employment but brings income to a few connected people in government," Robertson said.

“The indigenisation concept has legalised theft on other people’s property instead of helping thousands of young people who are currently unemployed.”

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