After almost a year of complex negotiations, Zimbabwe has finally struck a deal with Zambia on payment modalities for a US$114,8 million interest on the federation-era debt that Lusaka is owed by its southern neighbour.
Ministry of Finance and Economic Planning, permanent secretary Willard Manungo, revealed the latest developments to The Financial Gazette last week at a ceremony to list $65 million worth of energy bonds for the Infrastructure Development Bank of Zimbabwe on the Financial Securities Exchange alternative trading platform.
He, however, refused to disclose more details.
“The two (finance) ministers have agreed on modalities on how to deal with it. But at the moment I can’t reveal what was agreed upon, we will let you know when the time is right,” Manungo told The Financial Gazette.
The interest component originates from a US$70,8 million debt which Zimbabwe inherited after taking over power generation assets that had been shared with Zambia.
The debt was for the shared cost of the Kariba Dam construction and associated infrastructure during the tenure of the Central African Power Corporation (CAPCO), a power firm jointly owned by the governments of Zimbabwe and Zambia when they were still part of the Federation of Rhodesia and Nyasaland, which was dissolved in 1963.
The debt also included assets taken over from CAPCO, which was running the Kariba power project for the two countries, but was disbanded in 1987 and succeeded by the Zimbabwe River Authority.
Its assets were distributed to national power companies in the two countries, which are ZESA Holdings and Zambia Electricity Supply Corporations.
The principal amount has, however, since been paid off by the country’s integrated power generation and distribution group, ZESA Holdings after it pressured to pay the principal amount when Zambia threatened to pull out of a deal for the two southern African countries to jointly construct the proposed US$4 billion Batoka Gorge Hydro Power Station on the Zambezi River.
The Batoka project, upstream of Kariba Dam, is expected to produce 2 400 megawatts of electricity when completed.
The debt had been threatening co-operation between the two countries on the proposed construction of the massive Batoka power project, which was first mooted 113 years ago.
The agreement on the Batoka project, situated about 54 kilometres downstream of Victoria Falls on the Zambezi River, was dependent on Zimbabwe’s commitment to pay off the US$70,8 million debt.
In 2015, ZESA, through the assistance of the Ministry of Energy and Power Development, transferred the interest component from its books to the Ministry of Finance, arguing that the liability was a government-to-government debt.
It will be interesting to see if President Emmerson Mnangagwa’s cash-strapped government will be able to honour its promise.
Government has been struggling to pay its debts because its more than 300 000 strong workforce has been chewing more than 90 percent of the National Budget, leaving very little for projects and for payment of its debts.
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