President Emmerson Mnangagwa was in 2018 a buoyant man as he welcomed a historical transaction between a consortium from Zimbawe and neighbouring South Africa, and the National Railways of Zimbabwe (NRZ) to deliver rolling stock to the rail agency estimated at over $400 million calling it a mega deal.
Government called off the deal and called for fresh tenders after it cancelled a 400 million U.S. dollar deal involving the Diaspora Infrastructure Development Group (DIDG) and South Africa’s Transnet in October.
The cancellation followed DIDG’s failure to provide proof of funding for almost two years.
A US$236m lawsuit by the Diaspora Infrastructure Development Group (DIDG) will dent National Railways of Zimbabwe’s (NRZ) prospects of securing international funders, Business Times can report.
DIDG are demanding US$236m in damages after the government terminated its US$400m recapitalisation of the rail parastatal.
The damages have to be paid within 10 days after taking receipt of correspondence, according to a September 1 letter to NRZ board chairman by DIDG’s lawyers Atherstone and Cook.
The lawsuit according to sources close to the ongoing battle will increase NRZ’s risk in the eyes of funders considering that the state-owned rail company is already battling political risk associated with being a state enterprise in Zimbabwe.
Cabinet terminated the multi-million dollar contract last year arguing DIDG lacked the financial wherewithal to implement the project.
But to date Transport and Infrastructure Development Minister Biggie Matiza has been advised of the ramifications associated with unprocedurally terminating the multi-million dollar transaction.
“This is going to be a tall order and from the look of things the government is banking on the merits of its case at the courts but the bigger battle on the funders where no funder is willing to take a risk on an asset that can wake up one day being attached,” the source said.
“This means NRZ’s recapitalisation plans going forward are on shaky grounds because already some funders like China Exim-bank at the advice of Sinosure are not willing to take the risk.”
Business Times heard this week that international financiers for instance China Exim-bank have already expressed reservations around the impact of the DIDG claim.
Regional banks such as Afreximbank, Nedbank, Absa, Standard Bank, CBZ, Ecobank and TDB, together with asset and wealth management firms that include Old Mutual, Imara Asset Managers, the National Social Security Authority, Harith Pan African Infrastructure Development Fund had already mobilised over US$1bn to finance the project.
DIDG chairman Donovan Chimhandamba said “the case was before the courts” while NRZ chairman Martin Dinha requested questions in writing.
He had not responded to written questions.
The consortium, which won the tender to recapitalise NRZ in 2017, is claiming damages to the tune of US$236m split into two parts, namely project costs and “reasonable profits” that DIDG projected to reap if the deal had come to fruition.
In a letter dated September 1, DIDG lawyers warned that if the amount stipulated is not paid within the given timeframe, DIDG would institute proceedings “without further notice”.
According to latest reports, NRZ has announced its intention to defend the US$236m lawsuit filed by DIDG. Government, however, has since moved on by engaging Russia’s Union Wagons in a bid to revive the rail company that requires more than US$1bn to realise a complete turnaround.
Sources have however said that NRZ failed to provide US$1.5m deposit for 100 wagons valued at US$10m, raising questions on how the rail parastatal would deliver a US$1bn deal with the Russians.
The 100 wagons were supposed to have been delivered in January 2020. In contrast, DIDG delivered 14 locomotives and 200 wagons in February 2018 demonstrating the speed and capacity of the diasporans with less complicated financing structures.
At its peak, the NRZ employed over 17,000 workers in the late 1980s.
Today the staff complement has dwindled to 4,600.
Freight declined to 2.6m tonnes in 2016 from 18m tonnes in 1998.
DIDG’s intervention boosted the volumes to 3.6m tonnes in 2018.