BPC�s power import deal blocked
Brian Benza | Thursday June 30, 2016 18:00
Knitted together by local private equity firm, Capital Management Africa (CMA), the deal involved advancement of a $300 million debt facility to cash strapped Zimbabwe Power Company (ZPC) at ‘punitive’ interest rates of up to 20% using funds predominantly sourced from Botswana Public Officers Pension Fund (BPOPF).
The $300 million multi-faceted financing deal, which the local fund manager reportedly crafted with the patronage of influential political figures in both countries, was part of a proposed power purchasing agreement (PPA) where Botswana Power Corporation (BPC) was to import 100MW electricity from ZPC. While it is not clear how CMA was going to raise the whole $300 million (P3.1 billion), the fund managers, who sealed a P500 million private equity deal with BPOPF in late 2014, have already approached the pension fund with a proposal. BPOPF CEO, Boitumelo Molefe confirmed to BusinessWeek they have been approached by CMA with a proposal to finance the Zimbabwe deal.
“In the P500 million fund we are a limited partner so we do not have a say on where they invest the money as long as we get our returns. They have approached us for the funds for the Zimbabwe deal. They say they will be managing a power project. The proposal is currently under consideration by the investment committee, but as you know there are always limits as to how much they can drawdown,” she said.
Details of the deal are contained in the minutes of a meeting held in Harare last October between officials from ZPC, KPMG, with CMA represented by majority owner Tim Marsland and fellow shareholder, Siqokoqela Mphoko.
Mphoko, who reportedly holds a five percent shareholding in CMA, is the son to Zimbabwe’s current Vice President and former ambassador to Botswana, Phelekezela Mphoko. Minutes of the meeting seen by BusinessWeek show that CMA was to provide an upfront of $300 million funding to ZPC as a side deal to the PPA with BPC paying for the power imports on a monthly basis through a Mauritius-based escrow account.
According to reports from Zimbabwe, Vice President Mphoko tried to push ZPC into agreeing to the deal but was stopped in his tracks by President Robert Mugabe who rejected the suspicious transaction due to the connection between the former ambassador to Botswana, his son and CMA.
“The deal was blocked by Mugabe who also protested that the interest rate was too high and smacked of corruption,” read a report published by the Zimbabwe Independent.
The minutes show that in return for the $300 million loan extended to ZPC for the refurbishment of the Hwange Thermal Power Station, ZPC was going to pay back the sum at an interest rate of between 18% and 20% per annum. The minutes further reveal that ZPC was not happy with the applicable high interest rate, but Siqokoqela and his team refused to budge.
“Following calculations by KPMG, the interest rate had come to 18-20% of the capital cost. ZPC asked CMA whether it would be possible to scale down the interest, as it was of the opinion that the interest was too high.
“CMA pointed out to ZPC that they were investing their own funds in the transaction and given the funding cost, risk and the complexities of the deal the interest could not be scaled down,” read the minutes.
The minutes also show that BPC was not happy with the tariff they would pay for the power as they felt it was too high.
An eyebrow-raising part of the minutes shows how the BPC was obliged to pay the monthly instalments and would continue to do so even if Zimbabwe fails to supply the power. “CMA agreed that ZPC would be able to notify CMA within 12 hours should they not be able to supply power. However, this would not excuse ZPC from performing its obligations to supply power.
“CMA indicated that there would be no banking of energy in the PPA and that further in the event of Force Majure (Act of God) or change in law, each party would bear its own risk, that is, BPC would continue to make monthly payments and ZPC would continue to make energy shortfall payments,” the minutes say. BPC confirmed CMA has approached them with a proposal to assist the power utility to import power from Zimbabwe.
“BPC is however not in a position to disclose the details of the discussions at this point as nothing has been concluded or finalised,” said BPC spokesperson, Dineo Seleke. CMA CEO, Rapula Okaile had not responded to BusinessWeek’s enquiries by the time of going to press.
Formerly partners in Bifm Capital with BIHL, CMA is referred to, in the minutes, as a private equity firm, which manages equity funds on behalf of the Botswana government. Apart from the P500 million private equity tender it won from BPOPF, CMA has previously hogged limelight when a dispute with Botswana Building Society (BBS) ended in a marathon court case in 2012.
The same year its promoters Marsland and Rhys Carr parted ways with former partners, BIHL in Bifm Capital.
Among the assets that Bifm Capital had invested in before the dissolution of the BIHL subsidiary included P150 million in BBS as well as P250 million promissory notes in pan African focused financial house, ABC Holdings. The company has also invested in Choppies and CA Sales.
The Mphoko family is now significant shareholders in Choppies Zimbabwe.