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Alba Iulia
Wednesday, November 25, 2020

Zesco sued by Maamba Collieries over US$300 million debt as US$ 500 million dollar “ghost loan” is revealed

Headlines Zesco sued by Maamba Collieries over US$300 million debt as US$ 500...

Energy Minister Mathew Nkhuwa has confirmed that Maamba Collieries has opened arbitration proceedings in the London High Court against Zesco to recover $300 million owed for the supply of electricity.

Africa Confidential, in its latest publication revealed that a judgment in favour of Maamba Collieries could eventually force the liquidation of Zesco assets to meet the bill and further increase the already high risk of sovereign default.

Mr Nkhuwa told a media briefing that government is aware of the arbitration process between Maamba Collieries and Zesco in the London High Court but his Ministry has not been served with summons from either the company, or the court.

And Africa Confidential reports that Zambian bondholders are mystified by a ghost loan of a staggering half a billion United States dollars that the PF contracted between December 2019 and January 2020.

The creditors are further perplexed that the PF are refusing to reveal who lent them the money (which is unrelated to China or any of it projects) and the purpose it was used for, reports Africa Confidential in its latest edition released on 20th October 2020.

In a virtual meeting with bondholders in early September 2020, the Zambian government requested for a six months moratorium for a coupon payment but there was no quorum reached by the bondholders resulting in the decision being pushed to 13th November a day before 30 day grace period on the bond payments ends.

Public finances already cannot meet the bond coupon payments, making it unlikely that the state can bail out Zesco.

A judgement in Mwamba’s favour could eventually force the liquidation of Zesco assets to meet the bill and cause other debt dominos to fall, further increasing the already high risk of sovereign default.

Zesco’s debts are guaranteed by the state.

Public finances already cannot meet the bond coupon payments, making it unlikely that the state can bail out Zesco.

Electricity debt compounds default risk State electricity supplier Zesco’s assets are in danger of being liquidated to pay a debt of US$300 million to Maamba Collieries Limited for electricity supplied by its coal-fired power station, which is integrated with a coal mine.

Maamba invoked clauses in its contracts to force arbitration over the debt, which will take place in London after communications were made in the middle of this year.

Zesco is expected to respond in the next three weeks.

Maamba believes the court will favour it in the case, as it is a simple debt from a failure to pay for a service.

The hearings will take place ‘soon’, a source said, although Zesco will want to draw out the case as long as possible.

Typically, arbitration cases take a long time, and a judgment is unlikely until after the election next August.

Unless conditions improve radically for Zambia while the arbitration proceeds, the repercussions for Zesco and the government could be disastrous.

A default by Zesco could trigger cross-default provisions for other Zesco loans, meaning lenders could accelerate loan repayments – which neither Zesco nor the government can pay.

If Zesco cannot meet the arbitration court’s award, Maamba could seize Zesco assets to get its money.

This could worry major Chinese lenders including China’s Exim Bank and the Industrial and Commercial Bank of China (ICBC), which together lent US$1.7 billion for the Kafue Gorge Lower Hydro project.

The loan is ring-fenced and insured, however, and the asset could not be touched if Zesco remains a going concern.

Although the Eurobond and the Zesco debts are separate, both place demands on the Treasury that it cannot meet.

Zesco’s crisis comes after years of the government keeping electricity prices low to boost the Patriotic Front’s electoral prospects.

Lenders and international financial institutions, such as the African Development Bank, have pleaded with Zesco to cut a workforce which critics have called a ‘welfare system’ used to provide unproductive employment.

Zesco also, PF sources said, employs PF cadres in order to finance their and the party’s work.

This makes them effectively ‘ghost’ workers inflating the wages bill while contributing nothing to the company.

The AfDB in particular has been urging reform of Zesco’s employment policy.

And the news of the arbitration proceedings came just as holders of Zambia’s US$3 billion in bonds met on 20 October to consider its plea for a six-month standstill in coupon payments.

There was no quorum so the decision will now be taken on 13 November, one day before the 30-day grace period on the bond payments ends.

Many not in favour of the deal simply abstained, say sources.

The reprieve gives the government more time in which to improve its case for the standstill by offering evidence it is tackling key concerns such as Chinese debt and mending fences with the International Monetary Fund.

Up to now, the bondholders were unconvinced by the presentation Lusaka made to back the request for delay.

Instead of winning their confidence and sympathy, it confirmed their belief that Lusaka was guilty of gross financial mismanagement, one of them told Africa Confidential.

It was this, not Covid-19, as the government claims, that is to blame for the current credit squeeze, the source said.

Zambia has admitted that it cannot maintain payments on its Eurobonds or the bulk of its other external debt, raising the prospect of its de facto default becoming a formal one on 14 November.

On 14 October Zambia missed a $42.5m interest payment on the $1bn Eurobond due in 2024, the Treasury having stated the day before that it would be defaulting on all commercial loans, including Eurobonds, if creditors did not agree to its earlier demand for the standstill.

Two further Eurobond coupons fall due on 20 January and 20 March, making a total – including the missed $42.5m payment – of about $120m.

Zambia says it would use that six-month deferral to work out a plan with its advisors, Lazard Freres, and the IMF to make the debt sustainable.

But bondholders doubt this can be done, and previous claims by Lusaka about co-operation with the IMF have proved exaggerated.

Zambian officials have produced an analysis of its debt sustainability, but without IMF help.

Treasury sources say they are keeping it quiet because the outlook is so dire.

Finance Minister Bwalya Ng’andu previously promised to reduce the $7bn disbursement ‘pipeline’ of previously agreed loans by $5bn, but we understand the cut may amount to $1.3bn or less.

The bondholders were briefed on Zambia’s debt position on 22 September when Lusaka made its plea for the ‘standstill’ on payments.

The bondholders were shocked to find that $575m in unexplained new debt – not related to China or its companies’ projects – was incurred in December 2019 and January this year.

Lusaka refused to name the new creditors when answering bondholder questions on 7 October and instead only provided a breakdown of which amounts were on commercial terms and which on non-commercial terms.

It lumped the loans together with Chinese loan disbursements made during the same period to conceal – so the bondholders believe – the identity of the new creditors.

The government has become cagey about details of its debt.

Annual Economic Reports now only reveal the total contracted each year by lender without referencing individual projects, which was the norm prior to 2018.

AERs earlier than 2019 have been removed from the finance ministry website.

The 2019 AER shows $617m in ‘supplier credits’ in the table of loans contracted.

No such reference appears in any of the previous AERs seen by Africa Confidential and it is unclear who the creditors are.

Part of that sum may have come from Chinese dam-builder Sinohydro, which funded at least $400m of the Kafue Gorge Lower Hydro project – a 750MW power station now nearing completion – while Zesco was still trying to secure financing, a lawyer familiar with the figures said.

The presentation to bondholders also admitted that arrears worth $1.29bn were owed by parastatals, mainly Zesco, to domestic creditors.

This huge sum seems not to have been included in Zambia’s public debt and should be, Standard Bank said in a memo on 13 October which Africa Confidential has seen.

While other countries such as Angola have succeeded in requesting Chinese banks to have commercial loans included in the Group of 20 Debt Service Suspension Initiative (DSSI), Zambia has failed to do so, leaving arrears piling up – in particular to China’s Exim Bank.

The Treasury said in its statement of 13 October that it would only continue to pay foreign currency denominated debt for a few ‘priority projects’ without detailing which.

Until a few days ago Zambia was at least three months in arrears on its debt payments to the World Bank, Africa Confidential understands, which could have triggered a halt in funding for World Bank projects.

But Zambia cleared the debt to the World Bank just before it missed the Eurobond payment.

This indicates that a policy of prioritising Eurobond payments was abandoned because of the magnitude of the sums due.

Stalling World Bank social projects would damage the ruling Patriotic Front in next year’s election because these projects have high profiles and affect large numbers of Zambians, while Eurobond defaults can be spun as government defiance of greedy bankers unwilling to fund Covid relief.

90 COMMENTS

  1. What will take effect after the process looks to me like litigation and not arbitration, Nkhuwa must tell the truth otherwise he’ll go back to Chingola crying. I’m just waiting for the opportune time to cut his finger. CEC is also in Court his SI

  2. Why is this government so thirsty for cash? People and companies pay for the electricity they use but government always missapplay the funds why? Same thing with financial lenders GRZ collects the money but fail to give it to the lenders. A broke government tefintu

    • Coxy Kaluba This govt is being run by wicked thieves who are too much thirsty for self preservation . These leaders in PF cannot sunction a life style audit on all public office bearers to determine how they are doing what…. How can they get huge sums of money in loans from international lenders only to externalize the same money back to the same owners meanwhile back home the economy is on its knees.

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  3. We have failed to manage our affairs in this country, Companies and ordinary Zambians pay for electricity every day and now they fail to pay back Nkongole- Pure Lack of leadership

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  4. Yaba, half a billion borrowed, don’t know what for or from whom? Or where the money went?
    And you want to give the executive power to borrow without parliamentary approval with Bill 10?
    Also, this minister saying his ministry hasn’t received summons isn’t aware that legal suits against ZESCO would be against ZESCO and Attorney General?

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  5. Mfwiti mfwiti….now it looks like our true debt stock needs a commission of inquiry not the privatization issue. The world bank, IMF and the Chinese can provide us with concrete details..
    2022 is on course to be a very rough year for Zed

  6. zambia is like that man who borrows money to keep up appearances , you can’t be borrowing to buy suits and perfumes yet your house is a dilapitated ramshackle. I know some pf cader will scream about the roads, but the question i will pose is of what quality and at what cost? are zambians getting value for the loans they are contracting on behalf the country, will zambians say these are loans worth repaying or will they start begging for clemency from the debtors?

  7. Who owns Maamba collieries and why so unpatriotic? Could it be dark forces trying to stifle the economy further after Covid effects?

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  8. In other words Maamba Colliers will become the owners of Zesco, our company. This minister of Energy owe us an explanation and must stand trials with his superiors in court. We asked you to manage Zesco on our behalf and not run it down.

  9. Ghost loan?? Ok this article looks more politically inclined and that affects me less. The main issue is Zesco has never been managed propely for a long time and privitising this utility company would be the best solutions. It’s over employed, pays huge salaries and yet this increases the cost of production which is born by ordinary citizens. The cost of power in Zambia is too much and something has to be done regardless of political affiliation.

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  10. Zesco just like ctrl 99 is a black hole for cash. Don’t expect private capital to go into electricity generation as long as their customer is zesco. Unbundle the damn thing or better still let the Chinese get it in exchange for their loans.

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  12. Why do we spend time debating issues (especially negative ones)? It seems bloggers believe that when it is written it true. Let us learn to be critical about issues? For example ask ourselves – who writes articles in AC? What is their motive? What are they trying to communicate? What is their motive? What has happened to previous alarming stories in the same publication?

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  13. Hehehehehehe…..

    Ati humble hard working leader ???

    Where is KZ ???

    You see all those PF caders showing off whiskies and brandies yet they don’t work , you think they pick money on streets ???

    I told you , lungu and pf have a hudge wage bill to keep their unemployed thugs happy

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  14. The never ending self inflicted challenges in Zambia. We are at it again. Signs of a failed state. The monies were taken to fulfil bye elections so that people are blinded from the real truth.

    Remember, you can deceive voters but you cannot deceive an economy. The truth will always come out…….

  15. The consequences of the outcome of the process started by Maamba Power Plant point to litigation and not arbitration. As usual the PF and Nkhuwa think they can cheat their way out of issues. We advised you to repeal the Law that declares Zesco as the single electricity buyer to allow other players to sell directly to consumers but you don’t want to listen. Nkhuwa’s SI against CEC is another headache. Zesco will sink us all. These actions won’t be without consequences. I can see Nkhuwa going back to Chingola crying. I wish to remind him about his offer to have his finger cut, we’re waiting for the opportune time. Takalaba mwebwa

  16. Next time when someone says that they have no vision, please leave them alone. Failure at every level. What can we point to say our country is doing well? Nothing! With $27billion even a grade 7 can build infrastructure. We want productivity.

  17. Best advice to government is to
    Sell the country to the highest
    Bidder.As we have daily countries
    Asking for their money.

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  18. Very sad. My invention of a kinetic motor powered by ever present GRAVITY will revolutionise the way electricity of the future will be generated. Electricity generation of the future will be “personalised and generated on site next to place of electricity use.
    This idea will eliminate the problems being experienced by Mamba Collieries of nonpayment for their generated electricity by ZESCO.
    This is very embarrassing for the Zambian government owned ZESCO which at the same time is busy wooing private investors in green power investment. What a shame! ?

  19. Let the poor consumers (residential) not suffer by increasing the already increased tarrifs. So even with hiking tarrifs by 300% in two years time things can’t still be okay with Chesco.

  20. We have been telling you people….

    When you saw lungu dancing spontenouly , even without music , you thought he was humble ????

    Lungu was dancing each time he remembered of how much Zambia could borrow….

    Ati humble , kansi muntu avinilla nkongole…..

  21. $500 million dollar ghost loan.
    This is the $15 billion which the UN debt statistics report picked up.
    Bwalya Ngandu lied that its money owed by private institutions in Zambia.
    That $15 billion including Zesco’s debts are guaranteed all by the state though Edgar Lungu who signs for them.
    ECL and the PF have totally messed up the country

  22. There is nothing good out of a man who says he has no vision. By the time Lungu is done with Zambia it will take years for us to recover. 2021 for those still doubting and calling Lungu humble think twice otherwise we shall be in trouble .

  23. This is the manifestation of putting a drunkard/ thief in charge of a country. PF have destroyed and mismanaged the economy.

    The people who will suffer the the general masses. Should HH come into power the first thing that needs to be done is accountability of finances and secondly investigating lungu and his minions of looted wealth.

    All should be jailed to the maximum considering people’s lives have been impacted to unprecedented levels.

  24. I remember ZESCO recently bidding the highest to buy Lungu’s wooden Sculpture on a political fund raising venture on the Copperbelt. That is just one of them, a lot more damage has been done to the poor Parastatal all these PF years.

  25. ati a working government malabishi…what do you expect when you have a bandit President Edgar Chagwa Lungu stealing everyday and investing in properties overseas…Zambia will be black out no electricity and Lungu will be staying at one of his mansions overseas…donchi kubeba

  26. I believe the current generation are educated enough to make good decisions and choices that will affect the governance of the country going further. We have learnt a tough lesson in the past 9years. I know at some point the country will hit rock bottom and we have to start building it up again from there. We are in this mess not because we don’t have people working hard everyday but because we had leaders that could not find the right fit on how our national resources could be utilized to improve the livelihoods of all people.

  27. WHERE IS MOTOR MOUTH TODAY ????????????
    ZRA CANT PAY VAT OBLIGATIONS
    ZESCO CANT DEVELOPE PROPERLY
    NAPSA CANT PAY BENIFICERIES
    NHIMA NOT FUNCTIONAL
    SKILLS DEVLOPEMENT
    ALL GIVEN TO PF FOR FUNDING

  28. WHERE IS MOTOR MOUTH TODAY ????????????
    ZRA CANT PAY VAT REFUNDS
    ZESCO CANT DEVELOPE PROPERLY
    NAPSA CANT PAY BENIFICERIES
    NHIMA NOT FUNCTIONAL
    SKILLS DEVLOPEMENT
    ALL GIVEN TO PF FOR FUNDING

  29. You ain’t seen nothing yet……

    wait untill 2026 if lungu wins, then will know the words….

    ” destroyed a country”

  30. This new pollutant called Maamba Collieries will soon get extinguished as the world switches to clean energy. The colliery is sitting on a time bomb. Ashes from the plant which are being buried in the ground are a danger to this small mining town.

  31. The Presidential Empowerment Fund is just a small part of the $575m ghost loan.Some of it goes to funding advocates of Bill 10,some to funding the Disaster Management and Mitigation Unit.The rest is simply for miscellaneous expenditures which include embezzlement. The Present has been issuing directives to find money for water dams,and defunct companies including payment of benefits for “liquidated” workers.
    That Zambia’s total public debt could be$27Bn is increasingly looking plausible

  32. HOW CAN WE DEVELOP, IMPROVE OUR STANDARDS OF LIVING, CREATE JOBS AND PROTECT THE ENVIRONMENT WITHOUT ELETCITY MWBANTU.
    LET’S HAVE A COMMISSION OF INQUIRY, THIS SERIOUS.

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