An African Confidential report has revealed that President Edgar Lungu personally signed a sovereign guarantee for a South African company called Stag Africa to raise US$500 million on behalf of Zesco, when the utility company only requested for US$350 million.

According to the report published Thursday, the guarantee should have been signed by the Minister of Finance, but the Head of State went ahead to sign it personally.

“As its portfolio of commercial loans balloons, Zambia’s government is also increasingly relying on sovereign guarantees to quickly secure large or risky loans for its bankrupt parastatals, stoking up public debt out of public view,” the report read in part.

“Guarantees should be signed by the Minister of Finance representing the state, but other public officials are attempting to borrow without involving the Treasury. One such is President Edgar Lungu himself, who has signed a US$500 million guarantee for a loan to state electricity company Zesco from South African company STAG, Africa Confidential has learned.”

It stated that STAG agreed to finance Zesco on conditions that when the US$500 million was sourced, only US$350 million would be transferred to the utility.

“Banks were then asked to endorse the guarantee so that STAG – which is not a financial institution – could use it to raise funds for the loan. Zesco had been looking to borrow US$350 million to pay off its arrears and STAG agreed to arrange the sum on the condition that the guarantee was for $500 million, with the remaining $150 million borrowed but not transferred to Zesco. It is not clear whether any bank has complied, and Africa Confidential understands no money has yet been raised. It is unheard of for presidents to sign guarantees personally, and his signature may not even be legally valid. The deal illustrates the depths to which Lungu’s government will go to raise money. But we also hear that the hunt for credit and cash is also motivated by opportunities for huge commissions,” reports Africa Confidential.

“The current figure for sovereign guarantees is unclear. The IMF was counting about US$1 billion. Made up of Zesco and Zamtel liabilities, but Zesco’s guarantees are now far higher. It secured a US$1.5 billion loan from China’s Exim Bank and the Industrial and Commercial Bank of China (ICBC) in November last year for the Kafue Lower Gorge hydropower project, guaranteed by the Ministry of Finance. A further US$500 million is shortly to be contracted, also with a sovereign guarantee. Zesco created a special purpose vehicle for the project, and the loan is not included in Zesco’s internal loan portfolio, which in December 2017 was recorded as US$1.3 billion.”

The reported stated that Zesco’s credit rating was poor.

“Other large loans for transmission lines have been excluded, representing money borrowed by government and on-loaned to Zesco because Zesco’s credit rating is so poor. Since budget funding for parastatals was abolished in 2016, others are likely following suit. State guarantees do not yet require ratification by parliament, unlike in most other countries, adding to the problems of controlling debt,” stated Africa Confidential.