Zambia ends railway deal with SA investor

2012-09-15 13:39

State seizes control of national railway system from company in which Nedbank, Sanlam and Old Mutual have significant stakes

South African companies Nedbank, Sanlam and Old Mutual suffered a blow this week when a company with a railway freight and passenger concession in Zambia – in which they hold significant stakes – was nationalised by the Zambian government.

On Monday a letter was delivered to the offices of New Limpopo Bridge Projects Investment Limited saying the concessions of the company had been repossessed by the government with immediate effect.

According to New Limpopo spokesperson Tom Plaistowe, the company was taken by surprise.

“There have been regular engagements with the government in which the company convinced the government every time that all obligations were met.”

New Limpopo tried unsuccessfully to convene a meeting with the Zambian government this week.

Zambian Finance Minister Alexander Chikwanda announced what was in effect a nationalisation of the railways, citing mismanagement of the Railway Systems of Zambia Limited, owned by New Limpopo.

It is unclear what implications this move may have on other South African businesses in Zambia.

Companies such as Shoprite, Truworths, Woolworths and Spur have outlets in Zambia.

In a television address, Chikwanda added that the rolling stock used by New Limpopo led to the railway system’s deterioration.

Zambian President Michael Sata was a proponent of nationalisation during his election campaign and, since he was elected last year, the government has reversed the sale of two banks that were sold under the previous administration led by Levy Mwanawasa, who died in office in 2008.

In May this year, Sata said: “We are not nationalising anything, but anything which was privatised with corruption, like Zamtel, we will move in.”

Zamtel is a major telecoms company that was sold to a Libyan company. This sale was reversed by Sata.

Shortly after his election in September 2011, Sata reversed the sale of Finance Bank, which was due to be sold to South Africa’s FNB. Government officials and civil society claimed at the time that corruption had played a role in the initial sale.

Sata also hinted at nationalising another Zambian bank, Zanaco, but this has not been confirmed.

The concession to operate the railways was won by New Limpopo Bridge Projects Investment Limited, a holding company based in Mauritius, in 2003 after a tender process that was overseen by the World Bank.

The company was given the right to run railway services for 20 years, with the option of an extension for a further 10 years.

Zambia Railways is one of the biggest railway networks in southern Africa and comprises 900km of main-line railways and 300km of branch lines.

The Zambian government said the railways had had too many derailments and fatalities – necessitating this move for the state to take control.

According to Chikwanda, New Limpopo underinvested in the railways and passenger service is not up to scratch. He said freight services on the lines connecting mines had also been stopped.

Plaistowe said New Limpopo had invested more than double of the required investment into the railways. He said freight services on the lines that connected mines were stopped because it was more cost effective to transport freight between mines by road.

“Those were short-haul routes and mines preferred the road because it was cheaper.”

The railway network operated by New Limpopo stretched for 1 200km from Sakania, on the border of the Democratic Republic of Congo, to Victoria Falls in Zimbabwe. It included Zambia’s Copper Belt, which was a crucial source of income for the country.

The World Bank released a report in 2010 that states that the investment made by New Limpopo was in accordance with its concession contract.

The Zambian government has made no investment in the railways since the concession agreement was signed on Valentine’s Day in 2003.

The government took over the operations of the company, including offices and railway stations in Kabwe and other areas, while the government said it intended to search the New Limpopo head office in Lusaka, Plaistowe said.

Former finance minister Situmbeko Musokotwane told The Post that the cancellation of the pact would result in the government being dragged to court by the South African investors.

Nedbank confirmed the takeover.

“Nedbank, as shareholder in New Limpopo Bridge Projects Limited Investments, which is the holding company of Railway Systems of Zambia Limited, confirms that the company has received notice of the repossession of its freight and passenger concession by the government of Zambia.

“(New Limpopo) is actively seeking a meeting with the relevant authorities in this regard.”

Sanlam said it would respond in due course and Old Mutual did not respond by the time of going to the press.

New Limpopo would not disclose its shareholding breakdown, claiming the information was confidential.

Zambian rail network to get $120 million revamp
Zambia will invest $120 million (R990 million) to revamp a railway line linking Africa’s top copper producer with South Africa to move transport from road to rail, its finance minister said on Friday.

Zambia exports the bulk of its copper through the port of Durban in South Africa, but most mining companies transport the metal by road because railway transport has been unreliable.

Finance Minister Alexander Chikwanda told a media briefing that $120 million of the $750 million Zambia raised through a debut eurobond on Thursday would be spent on the rail infrastructure.

“The matter of investing in Zambia Railways is of top priority and urgency,” he said.

Increasing use of rail will reduce the amount of money spent repairing roads damaged by heavy trucks, Chikwanda said.

The government this week cancelled the lease of the railway line awarded to private company Railway Systems of Zambia, accusing it of mismanagement.

Mining companies operating in Zambia include Canada’s First Quantum Minerals, Vedanta Resources, Glencore International and Barrick Gold.

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