Confusion surrounds what is happening at the Gwanda solar project. The tender was awarded to a company where a convicted criminal is one of the directors. Although Parliament ordered work to stop, the company is back on site. Below is the full report from Parliamentary Portfolio Committee on Mines and Energy chairman Temba Mliswa.
HON. MLISWA: Thank you Mr. Speaker Sir. I would like to commend the House first of all for passing the Mines and Minerals Amendment Bill in Parliament. I think the Speaker and the entire administration of Parliament did a good job in being with us during the time. It would be amiss of us not to appreciate the good work of the Mines and Energy Committee for such a sterling job.
Electricity is central to human and economic development. This is recognised in national and international policy documents that include the 2030 Agenda for Sustainable Development and the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (ZIMASSET). For over two decades, local electricity generation has failed to meet demand, leading to a gap which has been filled by imports. Demand for electricity is set to increase in light of the new political dispensation ushered in November 2017. Substantial investments are expected and these have a potential to increase demand for electricity. Unfortunately, Zimbabwe which is sitting on several power projects, with a capacity to generate over 2000 MW, will continue to experience power shortages constraining the much needed economic reforms.
At peak, the country consumed 2 200 MW and as at March 2018, demand stood at 1500 MW. Only one project, the Kariba South Expansion, with a generation capacity of 300 MW, was connected to the national grid in March 2018. Against this background, the Committee on Mines and Energy sought to investigate the challenges the country is facing in developing and increasing its local generation capacity given that the country is endowed with a variety of energy sources that include coal, coal bed methane, water, solar and wind.
The Gwanda National Solar project was identified as a case study due to a number of factors that include: it’s granting of national status, the committal of public funds for pre-commencement works and the controversy surrounding Intratrek, the Contractor for the project. Generally, the Committee observed that since2013, when the project was first put to tender, until the end of the Committee’s enquiry in May 2018, no meaningful progress had been in its establishment largely due to bureaucratic bungling and corruption, among other issues.
The Committee conducted oral evidence sessions with the following: the Minister of Energy and Power Development, Hon. Ambassador S. K. Moyo, the Permanent Secretary of Energy and Power Development, Mr. P. Mbiriri, Zimbabwe Electricity Supply Authority (ZESA) Holdings Board and its Management; the Zimbabwe Power Company (ZPC) Board and its Management; the Managing Director of Intratrek, Mr. W. Chivayo; Mr. Tokwe, a lawyer representing some shareholders of Intratrek, officials from the Procurement Regulatory Authority, the former Minister and Deputy Minister of Energy and Power Development, Mr. E. Mangoma and Eng. M. Mutezo respectively.
In order to verify the evidence gathered in the meetings, the Committee conducted on a site visit to Gwanda on the 28thof February 2018.
3.1 The Tender Process in Selection of the Contractor
The first tender for the project was opened in 2013 and won by China Jiangxi Corporation. The solar plant was projected to cost around 183 million dollars with a capacity to generate 100 MW. Intratrek was among five other bidders that participated and lost.
The State Procurement Board, during that period was regulated by the repealed State Procurement Act Chapter 22:14. The Committee noted with concern that certain procedures and provisions of the Act were violated during the award for both the first and second tenders. These were the areas of contention:
3.1.1 Negotiation of Submitted Bids
The Committee was informed by the Chief Executive Officer of the Procurement Regulatory Authority, Mr. N. Chizu, that some provisions of the repealed State Procurement Act were violated during submission of bids in the first tender. The project was advertised in June 2013 and the award was given to China Jiangxi Corporation for International Economic and Technical Corporation in January 16, 2014. Before conclusion of the award, ZPC’s Accounting Officer Mr. N. Gwariro, recommended an additional award of the tender to China Jiangxi and Intratrek.
This was in contravention of section 31 (1) (n) of the Procurement Act Chapter 22:14 which prohibited the negotiation of submitted bids. ZPC’s accounting officer was penalised and ordered to pay a sum of $900 by the State Procurement Board. The Committee also noted that late former Executive Chairman of State Procurement Board (SPB), Mr. Charles Kuwaza was complicit in allowing negotiations on submitted bids to take place.
The Committee was told by officials from the Procurement Regulatory Authority that minutes and board resolutions by SPB clearly showed that attempts were made to frustrate and push out the original winner of the bid, China Jiangxi. Mr. Chivayo told the Committee that he was not pleased that locals had not won the tender. In an effort to push the empowerment agenda for locals, the Committee noted with concern that Mr. Chivayo was not willing to approach the court to get redress. In his own admission, Mr. Chivayo stated that“…., after the award I then went to the Minister, Hon. Mavhaire and I explained to him that in the beginning the whole solar project was my brainchild,……” In the process the first tender faced a number of challenges and had to be cancelled. However all these allegations could not however be independently verified.
3.1.2 Vetting of Bidders
A second tender was then floated and Intratrek won the bid in 2015. Despite winning the tender the Committee noted that this was done in violation of the law.
Section 34 (f) of the State Procurement Act, outlined the need for the Board to conduct vetting of participants based on criminal record and previous conviction of both the company and its directors. Mr. W. Chivayo, the Managing Director of Intratrek, in his own submission mentioned that he was once convicted and imprisoned on charges of fraud. The Committee noted that this violated section 34 (f) of the Act read together with section 173 of the Companies. These provisions were not taken into consideration as a basis for disqualifying the bid by Intratrek. Section 173 (1) (d) of the Companies Act clearly states that any person should be disqualified from being appointed a director of a company
“…who has at any time been convicted whether in Zimbabwe or elsewhere of theft, fraud, forgery or uttering a forged document or perjury and has been sentenced therefore to serve a term of imprisonment….”. Furthermore, Section 44 (1) (a) (iv) of the Public Finance and Management Act outlines that an accounting officer for a public entity has to establish and maintain “a system for properly evaluating all major capital projects prior to a final decision on the project”. In principle this also entails looking at the eligibility and suitability of the contracting party.
In his evidence to Parliament, Mr. Chivayo’s professed ignorance on regulations barring persons with previous convictions from being Directors of a company. In his own words, he said “first of all when you participate in a tender, there is no clause that specifies or outlines issues of business people with previous convictions. Previous convictions do not mean you cannot go about with your life and participate in business…..At no stage were we ever asked or told that if you want to participate in this tender, make sure you have never gone to jail”. Clearly the procurement authorities were at fault by not invoking these critical provisions in our law in disqualifying Intratrek. These provisions in the law are safeguards meant to protect the interests of all contracting parties and shareholders so there was misrepresentation of facts. The omissions by the regulator proved that no due diligence was done to protect public interest.
3.2 Role and Profile of Intratrek Private Limited in the Gwanda Solar Project
Intratrek was formed in 2012 and the majority shareholders included Mr. Chivayo, Mr. Yusuf and other minority shareholders. Mr. Chivayo was appointed as the Managing Director. The Committee noted with concern that a year after the formation of Intratrek, Mr. Chivayo, who had neither any knowledge nor experience in power projects, submitted a bid to construct a national a solar project. Mr. Chivayo in his oral evidence to the Committee explained that he knocked on the doors of influential people that include, former Ministers of Energy, Mr. Mavhaire, Mr. E. Mangoma, Dr. S. Undenge, the late Mr. C. Kuwaza CEO of the then SPB and the Chief Secretary to Cabinet to persuade them to give the award to his company. The basis for Mr. Chivayo’s argument was that local business people should be given preference over foreign investors. It was very clear to the Committee that Intratrek did not have the technical or financial resources to establish a generation plant but its financial and technical muscle was anchored on a foreign investor known as Chint Electric. The Committee observed that Intratrek was merely a briefcase company and Mr. Chivayo was being used as a front to secure and attract investment. The benefit to the investor, are categorised tax exemptions for partnering with a local business people.
When the Committee asked Mr. Chivayo if Intratrek won the project on merit, he responded confidently that Intratrek deserved the award. This was in contradiction to Mr. Chivayo’s earlier statements where he mentioned he sought to get the award because Intratrek was an indigenous company. In his own words Mr. Chivayo stated “This is why I was awarded, it was not about being local, it was about the company that was going to come in and install. Have you ever done projects of this magnitude? It was not about me it was about Chint Electric, it has done over 4 000 megawatts in solar farms right around the world, including China and more than 56 countries….”
The Committee also noted with concern that there was bad blood between the shareholders in Intratrek. Mr. Tokwe, a lawyer representing one of the shareholders Mr. Yusuf, told the Committee that Mr. Chivayo was no longer a shareholder in the company because he ceded his shares against a loan he had borrowed. Mr. Chivayo’s capacity to run the company was also put on the spotlight. Mr. Tokwe told the Committee that Mr. Chivayo “…..has never respected the corporate governance issues that related to the management of companies. That is precisely why we are here today because the shareholders have said this project is not moving, we are concerned and we risk our names being tainted…..” It was abundantly clear to the Committee that ZPC has no reason to continue doing business with a company that was fractured and dysfunctional.
3.3 The Contractual Agreement between ZPC and Intratrek
ZPC entered into a contractual agreement with Intratrek Zimbabwe with its technical Partner, Chint Electric Company on the 23rd of October 2015. The total project cost was estimated at just over 183million dollars. The Committee noted that one of the contentious issues in the contract relates to schedule 11 which touches on pre-commencement activities. The activities were pegged at 7 million dollars, of which ZPC was to contribute about 6 million and Intratrek contributing the balance of one million dollars. The initial works were identified as follows:
ZPC was obliged to provide an advance payment to Intratrek on condition that “a bank guarantee shall be provided against this payment”. During different oral evidence sessions with ZPC and Mr. Chivayo, the Committee learnt that a sum of $5 644 130.80 for pre-commencement work was released by ZPC to Intratrek, without a bank guarantee. The Finance Director, for ZPC Mr. Chiwara, submitted a file with evidence of payments made to Intratrek. The entire money was released within a period of six months from December 2015 to July 2016. When the Committee conducted an on-site visit on the 28th of February 2018, it was shocked to find that the works on site were a far cry of the disbursements made and the timelines outlined in the contract. ZPC officials even acknowledged that the works on site were not commensurate with the payments.
The Committee observed the following developments on site: two temporary housing structures and partial clearing of the ground. The following work for which payments had been released and not yet completed included: a proper access road, basic ablution facilities, communication network, electricity, water sitting and borehole drilling and storage.
Within the contract, it is a requirement that “monthly progress reports shall be prepared and submitted to the Employer….”In this case, Intratrek was supposed to submit monthly reports either as hard copies or in electronic form to ZPC of the work done. It is the Committee’s position that this was not done at all. ZPC just made payments blindly without due care on whether the money was being used for its intended purpose. In some cases, two trenches of money totalling 700 000 were released in one day and in some cases monies were released a few days apart. It is the Committee’s position that the rate and frequency at which the money was released was very suspicious. It violates basic principles of the public finance management. Section 298 (d) of the Constitution states that “public funds must be expended transparently, prudently, economically and effectively’. This should be read together with section 44 of the Public Finance and management Act which implores upon an accounting officer of a public entity to “prevent irregular expenditure, fruitless and wasteful expenditure, losses resulting from criminal conduct and expenditure not complying with operational policies of the public entity”.
It is the Committee’s position that Mr. Chivayo may have failed to get a bank guarantee because of his previous criminal conviction. At the same time, it boggles the mind on why Mr. Chivayo failed to get guarantee from his technical partner Chint Electric, which he boasted was a multi-million dollar company with a footprint across the globe.
3.4 Corporate Governance at ZESA Holdings
The ZPC has the responsibility of managing the generation of electricity in the country as outlined in the Electricity Act Chapter 13:05. However, the Committee noted with concern that the ZPC and ZESA Holdings Board and its management were found wanting in the evaluation, execution and monitoring of this project. These were the areas of concern:
3.4.1 Discord between the ZPC Board and the Management
It was clear to the Committee during the oral evidence sessions that there was discord between the management and the Board. Firstly, the Managing Director, Mr. Gwariro released over $5.6 million for pre-commencement works without the knowledge of the Board. Secondly, the Managing Director was given legal advice by the Board Secretary of ZPC on the de-merits of engaging Intratrek given the previous conviction of its director Mr. Chivayo. Instead the Managing Director acted against the sound legal advice and engaged Intratrek as its contractor. Furthermore, the Committee was informed that the Managing Director acted without consulting the Board because of pressure from politicians that included former Ministers of Energy, Mr. Mavhaire, Mr. Mangoma, Mr. Mutezo and Dr. Undege. However, Mr. Mutezo who appeared before the Committee denied exerting any influence to advance the interest of Mr. Chivayo. It was also clear from the Finance Committee Chairperson of the ZPC Board that the release of money was done without its knowledge and approval and could also be the reason why money was being paid in installments rather than a wholesome payment.
3.4.2 Conflict of Interest by the ZPC Board Chairman
The Board Chairperson, Eng. Kazhanje was equally at fault in his involvement in the Gwanda National solar project. Eng. Kazhanje had a working relationship with Intratrek where he provided technical services to the company on separate power projects through his owned company Terninal Engineering (Pvt.) Ltd. In terms of Section 34 (1) (a) of the Public Entities Corporate Governance law, if a board member or a senior staff member “….knowingly acquires or holds a direct or indirect pecuniary interest in any matter that is under consideration by the board, shall forthwith disclose to the fact to the entity’s board”. This should be read together with section 186 of the Companies Act where such matters should be recorded in the minutes.
The Committee requested for a copy of the minutes showing that Eng. Kazhanje made a declaration of his involvement with Intratrek. The group legal officer for ZESA Holdings, Mr. Sangulawas not at liberty to admit or deny that there was such evidence. None of the other board members were aware of the declaration of interest by the Board Chairman. The ZPC board was appointed in 2014 and Eng. Kazhanje presided over matters related to Gwanda solar project, because the award was made to Intratrek in 2015. There was a conflict of interest and there is no evidence to show that Eng. Kazhanje recused himself or declared his interests in matters related with Intratrek. In this regard, there may be need for the Zimbabwe Anti-Corruption Commission to investigate possible abuse of office by the Board Chairman.
3.4.3 Lack of Fiduciary Duty by the Managing Director at ZPC
The Committee was informed that the Accounting Officer, Mr. Noah Gwariro, released the money without the approval of the ZPC Board or Holding Company. The board members, only became aware of the matter through media reports.
Section 14 of the Public Finance and Management Act stipulates that no public funds should be released without written instructions. In the event that an accounting officer is pressured to release public funds by a Minister or Deputy Minister, knowing it violates the law, a report has to be made to the Accountant General, the Auditor General and the Secretary to the Cabinet. This provision of the Act is supported by section 308 (2) of the Constitution which stipulates that “it is the duty of every person who is responsible for the expenditure of public funds to safeguard the funds and ensure that they are spent only on legally authorised purposes and in legally authorised amounts”.
The release of the money was also in violation of the contractual agreement, which stipulated that funds for pre-commencement works should be released after a bank guarantee has been given. There were various legal safeguards at the managing director’s disposal to protect him from political pressure. The Committee believes the Managing Director was complicit in his actions and should be held liable for lack of a fiduciary duty to the company.
It was also clear that the monies that were being paid to Intratek did not have approval from the board as confirmed during oral evidence by the Finance Committee Chairperson of the ZPC Board. It was also the reason why the monies were released as installments rather than a wholesome payment to Intratek. It is important that certain amounts of payment especially involving huge amounts require board approval.
3.4.4 Negligence of Duty by ZESA HOLDINGS Board and Management
The Committee was informed by the board and management of ZESA Holdings, that it did not have the full details of the manner in which the contract was awarded Intratrek. The board and management were not knowledgeable on the circumstances leading to the release of the over US$5 million to Intratrek without a bank guarantee. The Committee found the ZESA Board and management negligent in superintending over the projects being undertaken by their subsidiary company. The attitude of the board and its management led by Dr. Murerwa and the Group CEO Eng J. Chifamba respectively, was one where they placed the onus on ZPC officials to inform them of any challenges they were facing in the implementation of the project.
3.4.5 Return of the Contractor on Site
On the 23rd of April, the Committee was disappointed to learn from the Permanent Secretary of Energy and Power Development, Mr. P. Mbiriri that the contractor, that is Intratrek, had returned on site to complete the pre-commencement works. The position was supported by the Acting Managing Director of ZPC Mr. J. Chirikutsi. The reasons for Intratrek’s return were that ZPC was trying to reduce its financial exposure and secondly, the contract between the parties had not been terminated. The officials from ZESA Holding even had the audacity to thank the Committee through its enquiry on the matter. This had exerted a lot of pressure on the contractor to fulfill its part of the bargain. The Chief Executive Officer of ZESA Holdings, Eng Chifamba and management of ZPC, decided to overlook all the violations of the law made in the awarding of the contract to Intratrek. The Committee noted with concern that the parastatal was not willing to pierce the corporate veil of Intratrek but to focus on Intratrek as a legitimate company with a strong technical partner, Chint electric. It is the Committee’s position that the culture and style of doing business has not changed at ZESA Holdings under this new political dispensation. ZESA Holdings is not willing to protect its integrity and is willing to do business with companies managed by profiles that are not in sync with the law at the expense of the corruption.
3.5 Political Interference
The Committee has no doubt that there was political interference in the awarding of the Gwanda National solar project to Intratrek and in the release of public funds for the pre-commencement works without a bank guarantee. Going forward, the mind-set of members of the Executive, boards and management of State Owned Parastatals (SOPs) need to change, from one of undue care and corrupt activities to one of seeking to ensure their companies make meaningful contributions to the growth of the economy. Zesa Holdings and other public entities should be guided by the new law, the Public Entities Corporate Governance Act on on how to handle political interference.
Section 72 of the law states that “the moral duty of courage requires that a director should overcome fear in order to do the right thing; that he or she should take a position even if it makes him or her unpopular and that he or she should create an ethical environment even when faced with opposition from superiors and subordinates”. In the same vein, members of the Executive need to be principled and to be guided by section 444 of the Schedule of that same law where it states that “there must be will-power to combat corruption on the part of the top leadership of the country which should cascade down to the ordinary man and woman. The will-power should filter through to directors and managers of companies, parastatals and State-controlled companies”. –
This law should be read together with the Public Finance Management Act, particularly Section 51A which touches on the separation of roles of Ministers and public entities where it stipulates that “Government must:
(a) Not be involved in the day-to-day management of public entities and should allow them full operational autonomy to achieve their defined objectives.
(b) Let boards of public entities exercise their responsibilities and should respect their independence”.
It was made clear during the oral evidence sessions held with ZPC Board and Management that Hon Dr. Undenge, the then Minister of Energy and Power Development, used to have direct communication with ZPC management. He was purported to be the one who gave instructions on payments made to Intratek.
3.7 Investment Environment in the Energy Sector and the Ease of Doing Business
Whilst Mr. Chivayo had his own weaknesses, the Gwanda National Solar Project clearly demonstrates that a lot of work needs to be done to improve on the ease of doing business in order to attract investment to kick-start a number of power generation projects in the country. The Committee is deeply concerned that several power projects which have a capacity to generate more than 2000 MW are not moving, yet President E. D. Mnangagwa is vigorously sourcing billions worth of investment into the country and the economy will only succeed with adequate supply of electricity.
It is important for government institutions such as the Companies Registry, the Procurement Regulatory Authority, ZPC and others to ensure that they do not frustrate investors. Such regulatory bodies should act within the confines of the law and protect the government from entering into dubious agreements with briefcase business persons. Due diligence should be conducted on all potential investments. The Committee would like to encourage ZESA Holdings to vigorously look for investments from across the globe to kick-start most of the power projects outlined in the national economic blueprints. The controversy surrounding the Gwanda National Solar Project need to be cleared in order to attract new investment for the project to move forward.
The Committee is convinced that the award to Intratrek was done unprocedurally, unlawfully and there may way have been an exchange of monies between the negotiators of the deal. There is need to clear the controversy surrounding this project in order to attract genuine and meaningful investment for the project. Electricity is a critical component in spurring and stimulating economic development, hence a transformed and rejuvenated ZESA Holding is needed in ensuring that the country is able to improve and increase its local generation capacity. I thank you.