ZPC in $4,5m payment storm amid tender violation

Garikai Fadzi

The Zimbabwe Power Company and a Harare based law firm are at odds over non-payment of $4,5 million owed by the power generation utility for services rendered in registering a Security Cession Agreement with a Chinese firm to the to the Registrar of Deeds.

This was after Chinese firm, Sinohydro Corporation was awarded the Hwange power expansion project tender, Units 7 and 8 to add up to 600 Megawatts to the national grid.

The tender for this project was awarded to Sinohydro at a contract price of over $1 billion.

According to documents in possession of Business Times, in order to obtain funding for the project, the financier (China Exim Bank) entered into a preferential buyer credit loan agreement with the Ministry of Finance and Economic Development on behalf of the Zimbabwean government.

This agreement was later novated to Hwange Electricity Supply Company (Private) Limited (HESCO) through an on-lending agreement.

To enable HESCO to access the funds availed under the Preferential Buyer Credit Loan Agreement, it entered into a Security Cession Agreement with China Exim Bank.

In terms of this agreement, HESCO agreed to cede and assign the proceeds, receivables, book debts and accounts related to the project, which are or may become due and owing to it in favour of the cessionary, China Exim Bank.

“The security under the loan agreement to be ceded is in the sum of $997 723 224,20.

Clause 3 of the Security Cession Agreement provides that HESCO shall, within 30 days of the signing the agreement, register it at its own cost at the Registrar of Deeds and timely deliver the original of the registration certificate to China Exim Bank,” the documents say.

The registration of the Security Cession Agreement was a condition precedent to the disbursement of funds under the first drawdown.

In April 2018, Sinohydro advised ZPC that there was an urgent need to register the Cession Agreement with the Registrar of Deeds.

China Exim Bank also advised ZPC that it had completed its credit approval processes and was ready to disburse the first drawdown in favour of ZPC, subject to registration of the Security Cession Agreement.

Sinohydro approached its legal practitioners who advised that the filing and registration of any documentation with the Registrar of Deeds is exclusively done by a registered Notary Public and Conveyance as required by the Deeds Registries Act [Chapter 20:05].

The legal practitioners further advised that the fees for the registration of a Security Cession Agreement were regulated by statute, that is, 2 percent of the value involved.

The Sinohydro lawyers advised that the cost for the registration of the Security Cession Agreement would be 2 percent of the value involved.

This would amount to $19 954 464,48, which is 2 percent of the value involved of $997 723 224,20.

Concerned by the amount of fees payable, Sinohydro requested ZPC to instead engage its own lawyers to carry out the registration.

A few months ago, ZPC company secretary and legal advisor, Norah Tsomondo, wrote a letter to another law firm (name supplied) requesting them to advise how much it would cost to register the Security Cession Agreement.

The law firm, which has previously offered unspecified advisory services to ZPC,responded to the request and advised that their fees were in terms of Part 11 item 2.6 of the Law Society General Tariff for Legal Practitioners which stipulated that the fees would be 2 percent of the value involved, that is, $19 954 464,48.

Tsomondo proceeded to negotiate the fees with the law firm without advising HESCO or ZPC managing director in violation of the Procurement Act and Regulations which required the involvement of the accounting officer in any direct procurement of goods and services.

The law firm proceeded to register the Security Cession Agreement on May 24 2017.

It is not clear whether Tsomondo had confirmed with the lawyers how much in fees was payable although she had advised her superiors it would cost $100 000 to register the agreement.

After registration of the agreement, the law firm submitted an invoice of $4 501 166,50.

Tsomondo is the only one with the power to instruct external lawyers to handle business of ZPC.

She has a legal duty under the Public Finance Management Act to protect the company from incurring undue financial prejudice and bound by the provisions of the Procurement Act to obtain at least three quotations from any service provider before choosing a service provider with the most competitive offer.

Tsomondo told Business Times that everything was above board.

“We are in the process of finalising this issue internally and as far as l know, this is still an internal matter,” she said, adding, “Everything l did was above board.”

It is understood that ZPC finance director Hubert Chiwara has declined to pay any amount in excess of $100 000 citing irregularities in procuring the services.

Tsomondo invited the lawyers for a meeting with Chiwara and the ZESA group legal advisor Saidi Sangulu in an attempt to request the lawyers to reduce its fees to at least $100 000.

According to minutes of the meeting, the lawyers indicated they would consider a written request for the review of the fees but was not prepared to accept any offer as low as the proposed $100 000.

No firm commitment to pay anything has been made by ZPC although indications are that if the lawyers accept the ZPC offer, it will be paid.

ZPC acting managing director, Patrick Chivaura said the matter was being looked into.

“As you know, l assumed my position in May. The issue happened before l came in, but l can confirm that we are looking into it,” he said.

ZPC now faces a risk of litigation by the lawyers, should they remain adamant in their claim for $4,5 million.

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