The Minister of Economic Planning and Development Hon. T. Mashakada
Chairperson,
Organisers of the Zimbabwe Euromoney Investment Conference 2012,
Captains of the Business Sector,
Colleagues from Zimbabwe,
Distinguished Guests
Ladies and Gentlemen
It is a great pleasure for me to be part of this event, the Euromoney Conference, and hopefully to share some ideas in the next few minutes on State Enterprises and Parastatals in Zimbabwe.
SEPs , as demonstrated in both developed and emerging economies, have an important role to play in attaining sustainable economic growth.To this end, in Zimbabwe we have adopted strategies aimed at restructuring of public enterprises.
These key economic reforms will strengthen the role played by the public enterprises sector in economic growth and development. The vision of Government with regards to restructuring is guided by the following principles:
· enhancing the efficiency and effectiveness of public enterprises;
· attracting foreign direct investment;
· mobilizing capital and expertise from the private sector;
· reducing the public sector borrowing requirements;
· accessing globally competitive technology; and
· creating export market for newly restructured entities
The initial phases of the privatisation in Zimbabwe were fairly successful as evidenced by the restructuring success stories that saw successful completion of privatisation of Commercial Bank of Zimbabwe (CBZ), Dairiboard Zimbabwe Limited, AICO (formerly Cotton Company of Zimbabwe), Zimbabwe Renaissance Company, Caps (Pvt) Ltd and recently Ziscosteel.
It should however be noted that when the relative stability in the economy was achieved in 2009, Government renewed its commitment to the implementation of restructuring as part of its policy on public enterprise management. The recently launched Zimbabwe Mid Term Plan 2011-2015, underscores restructuring as a policy aimed at turning around the performance of State Enterprises and Parastatals (SEPs).
As part of these efforts the Government made two decisions, one, it approved the Restructuring Framework and Procedures for the SEPs reform process, and secondly in April 2011 identified 10major Parastatals that were then prioritized as first candidates for restructuring on a case by case basis.
The entities included in the priority list are; Cold Storage Company (CSCL),Air Zimbabwe, National Railways of Zimbabwe (NRZ),Agribank, Zimbabwe Electricity Supply Authority (ZESA)-(ZPC),Grain Marketing Board (GMB),NetOne, TelOne, Ziscosteel and Noczim.
These entities targeted for restructuring are key players in the sectors they are operating in particular: energy and power generation, steel production, beef processing, banking, petroleum, infrastructure and distribution, grain distribution, transport and telecommunications.
Great opportunities present themselves for consideration by both local and foreign investors wishing to take the lead in establishing partnerships/joint ventures with the first 10 Zimbabwean SEPs identified for restructuring. Firstly, in the energy sector there are opportunities to partner Zimbabwe Power Company, a subsidiary of the Zimbabwe Electricity Supply Authority (ZESA) in power generation and distribution. The current generation capacity does not meet the national demand for power but Zimbabwe is endowed with a wide variety of conventional energy sources for electricity generation, of which the main ones are coal, hydro and coal-bed methane. The demand for power in Zimbabwe has grown significantly since the last major investment in 1986. At present, the maximum demand is over 2200MW against the domestic supply of around 1300MW. As a result Zimbabwe is struggling to meet its energy requirements, at a time when industrial demand for electricity has increased.
The Zimbabwe Power Company (ZPC) has been mandated by the Government to implement the generation capacity expansion projects of 600MW at Hwange Power Station and 300MW at Kariba South Power Station. ZPC has also identified a number of power generating projects which require at least an estimated USD 3.5 billion as per the last feasibility studies.
KSPS is currently comprised of six generating units each with the capacity of 125MW, giving a nominal installed capacity of 750MW. The Power Station extension is a vital addition to the Zimbabwe power system as it will add 300MW of capacity to ZPC which, when operated with the existing plant, will bring KSPS to allow KSPS to operate as a 1 050MW peaking power plant.
The estimated cost of the Engineering Procurement and Construction (EPC) is US$550 million (estimated within +/-40%). The project is considered viable and has a lead-time of three years.
The project to develop Units 7 and 8 at Hwange Power Station was identified as a least cost and therefore should be the first to be implemented in Zimbabwe amongst the large scale base load generation projects. The HPS expansion project envisages the addition of two units of 300MW each on existing site which already has six units with total capacity of 920MW, bringing total generation capacity at HPS to 1 520MW. The estimated EPC cost of the HPS expansion is US$1.32 billion at a +/-40% accuracy level. The design specifications will determine the accuracy of the EPC cost estimates. I therefore would like to invite you as investors to partner with us in these history defining infrastructure projects.
Secondly in the pipeline is the Batoka Gorge Hydro Electric Plant Project which will involve the construction of a dam together with hydro power plants on the Zambezi River, 54km downstream of the Victoria Falls. It is estimated that the project would have a capacity of 1600MW, to be shared between Zimbabwe and Zambia, and for Zimbabwe this would be covered by constructing four generating units of 200MW each. The project is estimated to cost US$2.2 billion. The two governments are already engaged in a search for investors for this regional project.
Third, there is even greater scope for serious investors that can partner with the National Railways of Zimbabwe (NRZ). In the past decade, the capacity of the railway network to provide services has been severely eroded. Track infrastructure, signalling and telecommunication system deteriorated over the years due to lack of regular repairs and maintenance because of financial constraints of NRZ. Investment opportunities exist in the Parastatal for the purchase of new locomotives and wagons, repair of the rail system, repair and replacement of the signalling system among other investment opportunities. The restructuring proposal for NRZ envisages the split of the entity into three distinct self-financing entities i.e. Infrastructure, Freight and Passenger Companies whose operations and management will be totally divorced from each other. This option is meant to foster accountability, efficiency and economic and financial viability of each of the entities as cross subsidisation will be eliminated. Rehabilitation of the network and rebuilding the services offered by the rail network is therefore a major priority of the country with a strategy of allowing private players.
Fourth, in the aviation sector the national carrier Air Zimbabwe has been battling to remain competitive owing to financial constraints that have faced the Airline over the years. The airline requires financial injection to acquire new aircrafts and other operational expenditures, for the airline to raise the needed capital from internally generated resources it has proved to be difficult and therefore the airline requires a strategic partner who comes in with fresh capital injection. Air Zimbabwe has been unbundled into Air Zimbabwe (Pvt) Ltd and National Handling Services (NHS). An interim Board has been appointed to establish the new airline which should resume operations as soon as possible.
Fifth and in the same sector, the Civil Aviation Authority of Zimbabwe (CAAZ) will require substantial additional resources to build a sustainable company with a clear competitive advantage through provision of world-class facilities and customer service. The work plan will involve the rehabilitation and upgrading of aviation infrastructure at the airports and the restructuring programme to attract much needed private sector funding for rehabilitation and upgrading of airport facilities to accommodate the projected growth in passenger and freight movements. The Government is already working on a restructuring process that entails the splitting of CAAZ into two companies responsible for Civil Aviation Regulation and Airports Management Company in line with international aviation trends.
Sixth, the fixed telecommunication provider Telone is facing an uphill task of rehabilitating the telecommunication infrastructure and to expand the network as well as bringing modern technologies in the sector in line with global trends.
TelOne has historical financial challenges that have hindered the expansion of its network, as its landline network connects around 300 000 customers out of a population in excess of 12 million people. TelOne was recently granted a Global System for Mobile communications (GSM) mobile permit and will be the fourth mobile operator in a market of some four million subscribers.In this regard, the fixed network company will be looking for strategic partners.
Seventh, NetOne, the mobile company needs financial and technological capacitating through strategic partnerships to catch up with its competitors in the subscriber base and technology.
Eight, recently, the Government has approved the Agribank`s recapitalisation through engagement of a strategic partner(s), which provides opportunities for investors targeting the banking sector in Zimbabwe. The Bank therefore intends to be capitalised through engagement of a strategic partner or partners. The proposed capital raising exercise will be achieved through restructuring and broadening of the shareholder base of the bank by incorporating a Strategic Investor/Investors. The Bank would expect the Strategic partner to provide equity finance and be able to mobilise lines of credit in order to return the bank to profitability and to be self financing.
The Tender documents for the engagement of legal and technical advisors have been approved by the State Procurement Board (SPB). The Tender documents have since been advertised in the media and gazetted on the 16th March, 2012. Government will fund the Transaction Costs.
Another Government owned bank that will follow soon in the restructuring process is the POSB.As Government we need POSB to contribute to the fiscus in the form of dividends as other commercial banks are operating profitable. We are therefore looking for a strategic partner who will introduce more capital and lines of credit.
Nineth, there are also investment opportunities in the Grain Marketing Board (GMB) commercial operations. The Agro-processing and Farmer Support Services, Business Unit provides opportunities in the manufacturing of stock feeds and coffee processing. While, the Commodity Trading Business Unit has the potential of marketing grain to local and international markets if investors provide the necessary capital.
Tenth, still in the agricultural sector, the Cold Storage Company (CSC) provides investment opportunity in meat processing. CSC is also considering a joint venture with a partner who has the capacity to provide capital on the basis of the joint venture business to be operated from selected CSC abattoirs.
The CSC will facilitate access by the JV to selected CSC abattoirs through a ease arrangement.
Given the attractiveness of some of these assets, the Government has considered engaging investors who will assist in strengthening the technological base, access to foreign markets and a stable financial base. With new investment in many of the privatised enterprises, it is expected that entities will improve their performance, realise their expansion drive and create new jobs.
Government is fully aware of the vast investment opportunities in the public enterprises and hence it has committed itself to unlocking value in these enterprises. The unveiling of new investment opportunities in infrastructure expansion and rehabilitation is one of the key areas where foreign investors are being called to explore through strategic partnerships and Public Private Partnerships (PPPs).
The Government is currently crafting Public Private Partnerships Regulatory and Legal Framework that will see the creation of the PPP Unit as a central unit responsible for coordinating, implementation and monitoring of Public Private Partnerships (PPPs) projects in Zimbabwe.
The Government has noted the need to improve the legal, institutional and regulatory arrangements and has therefore started reviewing of the legal and institutional framework for State Enterprises and Parastatals aimed at improving the effectiveness, autonomy and accountability of these SEPs.
In this regard, Government promulgated the Corporate Governance Framework for State Enterprises and Parastatals which gives the guidelines on how SEPs are directed and controlled. The framework emphasises the need for Boards to adhere to principles of Good Corporate Governance which include the following among others; accountability, transparency, openness, responsibility and fairness.
In conclusion, I reiterate that Government has once again rekindled its desire to restructure SEPs in order to stimulate economic growth. As the country follows the principles of a democratic developmental state, government promulgated various macroeconomic policies which afford investors, both local and foreign, vast opportunities for investment ready for take-up. I therefore call upon interested investors to seriously consider and urgently express their interests in these sectors which in essence form the economic backbone of our country .
Let us all unite to revive our SEPs for the restoration of our economic glory and assume our rightful position among progressive nations.
I Thank You
Hon. Gorden Moyo
22 March 2012
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