The government in the last 10 years signed road contracts valued at K127 billion without a clear foresight on how these commitments would be liquidated, Parliament has heard.
Meanwhile, as at 30th June, 2021, arrears payable to contractors and consultants accumulated to K9.68 billion.
Delivering a ministerial statement on the debt status of the road sector, Finance Minister Dr. Situmbeko Musokotwane revealed that the government further obtained expensive loans from NAPSA and NATSAVE valued at K4.2 billion as a way of raising funds, but these initiatives did not clear all the arrears to the huge over-commitment.
Dr. Musokotwane says the total arrears plus the loans brings the total to K14.7 billion dollars as of 30th June 2021.
He says this approach is unsustainable and that his Ministry directed the National Road Fund Agency in consultation with other road sector agencies to develop a ten-year debt service sustainability plan which will outline how the government will implement road infrastructure in a more sustainable manner.
Dr. Musokotwane said if approved by Cabinet, the debt sustainability plan will ensure that government does not incur debt unnecessarily without any viable repayment plan beginning in the year 2022.
Below is the full statement
MINISTERIAL STATEMENT ON THE ROAD SECTOR DEBT STATUS AS AT 30 JUNE 2021
1. Madam Speaker, I wish to thank you for giving me this opportunity to brief the House on the Debt status of the Road Sector. I wish to start by giving a composition highlighting the five main key players in the road sector.
2. Madam Speaker, the five main players are as follows:
1) National Road Fund Agency (NRFA) falling under the Ministry of Finance and National Planning;
2) Road Development Agency (RDA) falling under the Ministry of Housing Infrastructure and Urban Development;
3) Road Transport and Safety Agency (RTSA) falling under Ministry of Transport and Logistics; and,
4) Ministry of Local Government and Rural Development (MLGRD); and,
5) National Council for Construction (NCC) under the Ministry of Housing Infrastructure and Urban Development.
3. Madam Speaker, the Road Development Agency is responsible for the procurement and implementation of road works in the country.
In collaboration with the Ministry of Housing Infrastructure and Urban Development, the Road Development Agency (RDA) signs contracts with various contractors for major road works mainly on trunk, main and district roads including bridges.
The Ministry of Local Government and Rural Development is responsible for feeder and urban roads in the country.
The National Road Fund Agency (NRFA) is responsible for funding of the road works.
4. Madam Speaker, funding to the road sector in Zambia is derived from both local and external sources.
The local funding source includes fuel levy, inland and port of entry tolls, road license fees, registration and examination fees, weighbridge fines. The external funding is derived from loans and grants from co-operating partners such as the World Bank, African Development Bank, #European Union, funds from contractors financing initiatives and public private partnerships.
5. Madam Speaker, during the last ten (10) years, Government signed road contracts valued at K127 billion without a clear foresight on how these commitments would be liquidated.
As at 30 June, 2021 arrears payable to contractors and consultants accumulated to K9.68 billion.
Further, Government obtained loans from NAPSA and NATSAVE valued at K4.2 Billion as a way of raising funds, but these initiatives did not clear all arrears due to the huge over committment.
6. Madam Speaker, the breakdown of all the contract commitments, debt arrears, and loans as at 30 June, 2021 is as follows:
1) Road Development Agency (RDA) has 690 running contracts valued at K111.46 Billion.
2) Ministry of Local Government and Rural Development (MLGRD) has 315 contracts valued at K16.15 Billion.
3) The contract commitments is therefore 1,005 contracts and valued at K127.61 Billion.
A total of K 9.68 Billion is also owed to contractors as debt arrears.
7. Madam Speaker, the following are the commercial loans obtained by (NRFA) totaling to about K5.06 Billion:
1) NAPSA loan, K 3.8 Billion;
2) First NATSAVE loan, K260 Million;
3) Second NATSAVE loan, K500 Million; and,
4) INDO-ZAMBIA loan: K500 Million.
Further, Madam Speaker, the total of arrears plus loans as at 30th June, 2021 is K14.7 billion.
8. Madam Speaker, it is clear that this approach is unsustainable and obviously requires serious adjustments. My Ministry has therefore directed the National Road Fund Agency in consultation with other road sector agencies, to develop a ten (10) year Debt Service Sustainability Plan (DSSP) which will outline how Government will implement road infrastructure in a more sustainable manner going forward.
This ten (10) year plan will:
1) Prioritise payments of all debt arrears due to routine maintenance, small and medium contractors and thereafter ensure timely monthly payments to all routine maintenance contractors.
2) propose the refinancing mechanism of the costly NAPSA and NATSAVE I loans within the next six (6) months, which will result in significant savings when all loans are fully repaid within five (5) years.
3) prioritise the planning and provide adequate funding towards implementation of periodic maintenance and rehabilitation road works, before considering the costly upgrading over the ten (10) year period.
4) Prioritise the annual planning and provide adequate funding for implementation of 80% complete upgrading road projects for completion within the first two years of the ten (10) year period.
5) Propose to the implementing agencies, RDA and MLGRD, immediate termination of the dormant road contracts, to stop the intangible costs, such as interest claims on delayed payment of interim payment certificates (IPCS). The termination costs will be part of the debt arrears in the DSSP.
9. Madam Speaker, the 10 year debt service sustainability plan will in addition propose an overall suspension for the debt arrears, in terms of:
1) The proportion redeemable through the road sector ten (10) year annual work plan;
2) The proportion likely to be suspended now and to be redeemed during the second five (5) years, thus after all the five year loans above have been fully redeemed;
3) The proportion which could be negotiated at sovereign level; and,
4) The proportion which could be a candidate of the medium to long term bonds till adequate funding is available to redeem fully the arrears.
10. Madam Speaker, the Debt Service Sustainability Plan, if approved by Cabinet, will ensure government does not incur debt unnecessarily without any viable repayment plan beginning the year 2022.
My Ministry will table the debt service sustainability plan for cabinet approval before 31st December, 2021.
11. Madam Speaker, The Public Private Partnership (PPP) Unit under the Ministry of Finance and National Planning has been directed to immediately engage RDA and NRFA to identify potential road projects across the country that could be financed and implemented under the PPP arrangement.
This is expected to create relief on the Treasury going forward.
12. Madam speaker lastly but not least, the National Road Fund Agency in collaboration with RDA and MLGRD has been guided to develop a transparent, effective and fair payment mechanism for the period October 2021 to December 2021, in line with the National Road Fund Act Number 13 of 2002.
Going forward, with this system in place, I do not expect contractors owed to lobby for payments as this is breeding ground for corruption which the new dawn Government shall not tolerate at all costs.
I THANK YOU, MADAM SPEAKER
Dr. Situmbeko Musokotwane, MP
Minister of Finance and National Planning.