Mthuli’s privatisation plan is failing over advisory fees

TelOne Zimbabwe
TelOne: Results show good management, but legacy issues a burden

Finance Minister Mthuli Ncube had planned to sell all or part of 35 state enterprises by December this year. But, almost two years after he announced his plan, many of the transactions are still stalled at the starting line because the companies cannot afford advisory fees for consultants.

The proposed sale of stakes in telecoms assets, the state-owned POSB, ZUPCO and Petrotrade have all not gone past the first stage because these companies cannot pay transaction fees, the Finance Ministry says.

The country had expected to earn as much as US$350 million from selling majority shares in state-owned telecoms assets alone. This plan included selling fixed line and internet provider TelOne and mobile operator NetOne as a single entity.

In 2018, TelOne selected Price Waterhouse Coopers (PwC) as its lead advisor on the privatisation. However, the telco and other parastatals are failing to pay the consultancy fees.

“NetOne and TelOne have indicated that they cannot afford the over US$5m transactional fees for the consultancy services for the transaction. Following the unsustainable fees for the transaction, Government has cancelled the transactional contract with PwC Transactional Advisors and is looking at retendering or sourcing for the services of other bi-lateral or multilateral partners,” Treasury says in an update on the privatisation plan.

Zimbabwe is now seeking consultancy services from the International Finance Corporation (IFC), a unit of the World Bank.

“In this regard, a formal request has been made by the Secretary of SEPs Reforms, Corporate Governance and Procurement to the World Bank local office to ask IFC to act as Transactional Advisors since these do not need upfront payment of fixed fees as their fees are success fee based.”

However, the COVID-19 outbreak has delayed planned visits by IFC representatives in SA to discuss the request to the World Bank, the report says.

On Monday, Ncube said he was frustrated by the delays. The process, he says, is also being held back by red tape.

“I am frustrated that our state enterprise reform agenda is not moving as fast as we would like, but we are still pushing. It’s just that it’s a very complicated process, we have to work with the boards, CEOs, with the parent ministries. You have to find advisers, and the procurement process takes long just to secure those transaction advisers,” Ncube said.

“It is taking longer than anticipated.”

Privatisation: Off the rails

Ncube, under his Transitional Stabilisation Programme reform plan announced in 2018, had set a December 2020 deadline to privatise or reform state owned enterprises. However, there has been little investor interest.

A tender for partners for Air Zimbabwe closed earlier this year without attracting any credible bidders, reflecting the lack of investor support.

Last year, Ncube laid out a plan to sell the two telecoms assets as one. A special purpose vehicle (SPV) would be created, which would take up 100% of the equity in the two entities. Government would then sell at least 60% of the SPV to investors.

In October 2018, Cabinet granted NetOne approval to start negotiations on a joint venture agreement with Telkom of South Africa. There was no progress on the talks as the initial investor interest dried up.

TelOne MD Chipo Mtasa says her company needs US$300 million to recapitalise operations. TelOne holds legacy loans of US$384 million, some of which were inherited from the 2000 unbundling of the Posts and Telecommunications Corporation.

According to Treasury, a plan to sell POSB has also been halted over transaction fees.

KPMG Advisors Zimbabwe were appointed as advisors for the partial privatisation of POSB. But there has been no movement on the sale because it is unclear who will pay KPMG.

“The delay has been caused by the clarifications on who will pay the foreign currency to KPMG Nigeria who are working as a consortium with KPMG Zimbabwe,” the report says.

KPMG are also consulting on the partial sale of ZUPCO, but there are also delays.

“Contract negotiations is being stalled by the issue of payment of foreign currency to KPMG Nigeria who are part of Consortium who were appointed as Transactional Advisors with KPMG Zimbabwe.”

The plan to sell Petrotrade, the fuel distributor, has also been halted after the company was forced to cancel a contract with its selected advisors because of high fees.