Diaspora and Infrastructure Development Group (DIDG) is demanding US$236 million from the National Railways of Zimbabwe (NRZ) as compensation after cabinet controversially terminated the consortium’s US$400 million contract to recapitalise the moribund rail operator, it has emerged.
Cabinet terminated the multi-million-dollar contract last year arguing DIDG lacked the financial wherewithal to implement the project.
As revealed by this newspaper in its exclusive series of the botched deal, Attorney-General (AG) Prince Machaya advised Transport minister Joel Biggie Matiza on the legal ramifications associated with unprocedurally terminating the multi-million-dollar transaction, which had attracted the interest of various regional banks, waiting with over US$1 billion in the wings.
According to documents seen by the Zimbabwe Independent this week, the consortium, which won the tender to recapitalise NRZ in 2017, is claiming damages to the tune of US$235 984 757, split in 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 by DIDG’s lawyers Atherstone and Cook, addressed to NRZ board chairperson Martin Dinha, DIDG contends that the termination of the US$400 million recapitalisation bid was irregular, and as such demanded payment of the US$236 million damages from NRZ within the next 10 days of taking receipt of the correspondence.
It reads: “As indicated in our letter dated 17 August 2020, we represent our above named clients (DIDG) in connection with your unlawful termination of the above tender. As indicated in our letter of August 17, 2020, our clients contend that the cancellation was unlawful and as a result of the unlawful cancellation, our clients have suffered substantial damages. We are pleased to advise that our clients, with the assistance of its financial and legal advisors, have finalised the quantification of the damages they have suffered as a result of unlawful conduct.
“The amount of damages suffered by our clients is in two parts. Firstly, there are damages relating to direct project costs which damages represent the amounts outlaid by our clients, and in addition it also includes the amount our clients reasonably project will become payable to its advisors. Under this head, the total due claimable from yourselves is US$15 506 456,00. Secondly, our clients are entitled to claim reasonable profits that they would have earned … under this head, our clients are claiming a total amount of US$220 478 301,00. Our client therefore claims a total amount of US$235 984 757,00.”
At the time of going to print, Dinha had not confirmed whether he had taken receipt of the letter.
Through the correspondence, Atherstone and Cook warned that if the amount stipulated is not paid within the given timeframe, DIDG would institute proceedings “without further notice”.
Prior to the termination of the deal, which South African President Cyril Ramaphosa tried to salvage in negotiations with President Emmerson Mnangagwa during the Zimbabwe-South Africa Bi-National Commission held in May last year, DIDG had sourced 13 locomotives, 200 wagons and eight passenger coaches for the insolvent state enterprise as part of the recapitalisation project.
In another letter seen by the Independent, DIDG has also written to the financial institutions which had committed to bankroll the project, notifying them of the damages the consortium was now claiming from NRZ, arising from the termination of the deal.
The regional banks, namely Afreximbank, Nedbank, Absa, Standard Bank, CBZ, Ecobank and TDB, together with asset and wealth management firms that include Old Mutual, Imara Asset Managers, National Social Security Authority (Nssa), Harith Pan African Infrastructure Development Fund, had mobilised well over US$1 billion to finance the project, which was primed to transform Zimbabwe’s shambolic rail network into modern infrastructure. Under the transaction, Afreximbank was the mandated lead arranger, with the primary responsibility of mobilising the required funding.
“DIDG has appointed Atherstone and Cook, led by Innocent Chagonda, to lead the effort of recovering the damages we have suffered. To this effect, DIDG lawyers have served NRZ with our damages claim to the amount of US$235 948 757,00 …
“The damages include direct project costs and lost income,” part of the letter dated September 2 and undersigned by the consortium’s executive chairperson, Donovan Chimhandamba, and chief financial officer, Washington Mashanda, reads.
At the time the deal was terminated by cabinet in August, Atherstone and Cook managing partner, Innocent Chagonda, told this newspaper that the cancellation of the bid was irregular and would attract steep penalties for the insolvent rail operator. He warned that the damages, running into hundreds of millions of dollars, would render NRZ unattractive to investors.
“My client has been trying to make the NRZ board see the consequences of re-tendering the deal. Re-tendering the deal will expose NRZ to a huge and embarrassing lawsuit and the possibility to put an injunction on any future tenders and therefore scaring away potential suitors. If they (government) make good their threat, there will be room to file for damages,” Chagonda said on November 29 last year.
NRZ is currently saddled with a US$575 million debt overhang.
The double whammy of mounting debt woes and damage claims by DIDG come at a time the rail operator recorded its lowest freight volumes in history, which plunged to 2,7 million tonnes, missing the set target of 4,2 million tonnes. At its peak, the rail operator was moving 18 million tonnes annually.
A recent forensic audit conducted by Baker Tilly Gwatidzo Chartered Accountants shows that the embattled state enterprise could have been prejudiced of millions of dollars, rendering it a non-going concern.
With a legal showdown between NRZ and DIDG now set, Matiza last month ordered the NRZ board to fire the management at the parastatal and inject the entity with “fresh blood” by October, in a move he said would revitalise the embattled rail operator.
Though the board had appeared hesitant to implement Matiza’s directive, Dinha has since highlighted that the entity would shed a number of their managerial positions, which he said were gobbling the state enterprises resources.
Following the termination of the DIDG bid, NRZ has started scouting for fresh suitors, with Russian firm Union Wagons among the frontrunners tipped to revive the embattled rail operator.