Martin Kadzere
Some State-owned enterprises are reportedly struggling to repay loans obtained from the China Export – Import Bank (China Eximbank) between 2013 and 2018 to fund various national capital projects, Business Weekly can reveal.
Semi-concessional loans were contracted by the Government for on-lending to various State-owned entities to implement critical projects including expanding electricity generation and upgrading international airports and telecommunication infrastructure – key economic enablers.
Loans were extended to the Airports Company of Zimbabwe, the implementing entity for upgrading Robert Gabriel Mugabe International Airport and Victoria Falls International Airport, both funded to the tune of about US$300 million.
Zimbabwe Power Company (ZPC) implemented the expansion of the Kariba South hydroelectric plant and added two units at Hwange Thermal Power station funded to the tune of approximately US$2 billion.
TelOne, the State-owned fixed phones operator, accessed nearly US$100 million to finance its network modernisation programme.
NetOne, the State-owned mobile operator also benefited from a substantial amount for its three-phased broadband network expansion.
Analysts have noted that some of the projects only gained momentum from 2017 onwards, and that while the benefits of the loans will likely start materialising in the future, the burden of arrears plus interests will be choking to the companies.
According to the Public Debt Report 2024 released recently by the Ministry of Finance, Economic Development and Investment Promotion, the arrears only are currently at approximately US$220 million by end of October.
This has resulted in arrears on interests of a staggering US$83 million, constituting about 61 percent of the principal arrears.
While the Treasury directed the State-owned entities to establish dedicated sinking funds for debt servicing, only ZPC had effectively implemented this for the Hwange 7 and 8 expansion projects as of October 2024.
For Hwange 7 and 8, ZPC, a subsidiary of ZESA Holdings held US$48,46 million in its escrow account with zero arrears.
The two additional units at Hwange, each with a capacity of 300 MW, were commissioned in August 2023. This US$1,5 billion project has significantly boosted Zimbabwe’s power generation capacity and grid stabilisation.
However, ZPC had total arrears of nearly US$37 million for Kariba South expansion projects, comprising US$10,06 million in interest arrears and US$26,88 million in principal arrears.
The Kariba South expansion project, commissioned in March 2018, added two units with a combined capacity of 300 megawatts to the existing power plant, boosting it .
The US$533 million project has faced significant challenges due to inconsistent water levels in Lake Kariba. Low rainfall resulting from climate change has severely impacted power generation at the expanded plant.
According to the Treasury, the Airports Company of Zimbabwe had US$2,3 million in its escrow account with no arrears for R.G.M International Airport Expansion Project.
However, it faces US$74 million in arrears for the Victoria Falls Airport Expansion Project, including US$70 million in principal arrears and US$4,76 million in interest arrears.
With three phases of expansion, NetOne had US$300,000 in its escrow account and total arrears of US$89 million, comprising US$25,4 million in principal arrears and US$64,1 million in interest arrears.
Total arrears for TelOne amounted to US$17,85 million, consisting of US$13,8 million in principal arrears and US$4 million in interest arrears.
“Given the various challenges affecting these state-owned entities, Treasury has directed these entities to open dedicated sinking funds, where revenues from their operating activities are ringfenced towards servicing of the respective debt payment obligations,” said the report.
“Despite the introduction of this policy framework, it is noted that, only the Zimbabwe Power Company has managed to ringfence substantial resources into the sinking fund for the Hwange 7 and 8 Expansion Project, as at end October 2024.”
Given that the loans are under a recourse arrangement, it means that in case of default, the lender may seize State assets that were used as collateral for the loan.
“Treasury will continue monitoring the performance of these facilities, as well as their respective sinking funds to ensure non-recourse to the fiscus, given the current tight fiscal space,” said the report.
Analysts have, however, noted that with some of the entities now under the Mutapa Investment Fund, there is a possibility for them to turn around, become profitable and thus be able to repay the loans.
All the entities which implemented the projects are now under Mutapa.
The creation of Mutapa, analysts say, would insulate the company from “ministerial interference,” which has been a significant factor affecting the operations of state-owned entities, and remove bureaucratic hurdles in the implementation of critical decisions such as disposals.
As the entities become commercially viable and profitable, they will reduce their dependence on Government support and freeing up resources for other priorities.
Meanwhile the Government faces a significant US$738 million debt maturity in 2025, adding to the already challenging fiscal landscape. This follows US$177 million in maturities scheduled for the last quarter of 2024.
Recognising the constrained fiscal space, the Government is actively pursuing a restructuring of these US-denominated Treasury bonds.
The primary objective is to reduce debt service payments to sustainable levels, ensuring the Government can fulfil its debt obligations without compromising essential public services and economic growth.
