The Auditor General says government acquired a US$232,181,138.85 loan from Eximbank of China through Star Times without a repayment plan.

And the Auditor General says ZNBC and Topstar have failed to pay an interest of US$2,321,811.39 which was due on July 15, 2017, on the loan acquired.

Meanwhile, the Auditor General has revealed that ZNBC has unpaid statutory obligations to ZRA and NAPSA amounting to K458,824,474.

The Auditor General stated that ZNBC and Topstar had failed to pay an interest of US$2,321,811.39 which was due on July 15, 2017, on the loan acquired without a proper paper trail.

“On 12th May, 2016, ZNBC and Star Times Communication Network Technology Co. Ltd of China (Star Times) entered into an agreement to invest in and establish a joint venture limited liability company called Topstar Communications Company Ltd. ZNBC was to own 40 per cent shareholding in the company while Star Times was to have 60 per cent during the initial 25 years of existence of the company. After the 25 years elapse, the shareholding would be revised. ZNBC will maintain 40 per cent, Star Times will have 30 per cent, public institutions 20 per cent while the general public will have the remaining 10 per cent…the following was observed: i. Failure to make cash contribution in Topstar joint venture. Article 4.1 stated that ZNBC was going to pay US$40,000 as initial capital contribution to Topstar…The Board of ZNBC observed at their meeting of 12th May 2016 that ZNBC did not have such money to contribute towards the venture. As at time of audit in September 2017, there was no evidence that the amount had been settled,” read the report.

“ii. Weaknesses in the joint borrowing with Topstar Communications Company Ltd. On 26th December 2016, the Government of the Republic of Zambia signed a Preferential Buyer Credit Loan Agreement with China Eximbank under which the bank was to avail to the government a credit facility of US$232,181,138.85. the loan proceeds were to be used in the supply, delivery, installing and commissioning of a National Digital Terrestrial Television Broadcasting System in Zambia under Phase II and Phase III of the project.”

The Auditor General expressed concern that ZNBC and Top Star acquired the loan without a proper business and repayment strategy.

“As a condition precedent to lending agreement becoming effective, the government was required to sign an on lending agreement with ZNBC and Topstar Communications Company Ltd, a company in which ZNBC is joint venture partner with Star Times, and avail the signed copies to the Eximbank of China. On un-specified date, ZNBC and Topstar Communications Company Limited jointly signed an on lending credit agreement with the Minister of Finance for the purpose of Financing Zambia National Digital Terrestrial Television Migration project under the following terms: 36.5 per cent of the loan proceeds amounting to US$84,746,610.75 were to be apportioned to Zambia National Broadcasting Corporation and the rest to Topstar Communications Company Ltd, ZNBC and Topstar Communications Company Ltd were to repay the loan at an interest rate of 2% per annum at fixed interest rate on principal amounts withdrawn and outstanding, the loan repayment period was fixed at 20 years with five grace period on repayment of principal amounts, the principal amount would be repaid to the government in equal semi-annual instalments after the grace period,” the report read.

“The following were however observed: a. Acquisition of loan without business and repayment strategy. Best practice requires that prior to acquiring a loan, an organisation should have a strategy for repayment of the loan which among others should stipulate the timeframe for receiving loan proceeds, their application, expected cash inflows and outflows, net present values, rates of return, payback period and market viability of the expected revenue sources. It was, however, observed that there was no such strategy regarding the loan that ZNBC acquired. In this regard, it was further observed that while the on-lending agreement required that the ZNBC and Topstar should make the first payment of interest on 15th July, 2017 amounting to US$2,321,811.39, the project works were still ongoing, resulting in failure to honor the first interest payment.”

Auditor General also revealed that ZNBC and Topstar had not opened two Escrow bank accounts meant for collecting and transferring revenue generated under the project to be used for loan repayments, as per stipulation.

“Failure to produce Escrow Account Management Agreement. Article 4.02 of the on-lending agreement provided that ZNBC and Topstar Communications Company Ltd would establish and maintain two Escrow bank accounts. The two accounts would be used to collect and transfer the revenues generated under the project and other incomes and apply them on loan repayments. Further, Article 6.12 of the Government Loan Agreement with Eximbank of China provided that an Escrow Management Agreement would be signed by the government, the Eximbank, ZNBC and Topstar Communications Company Ltd. However, as at the time of the audit in September 2017, no such agreements had been signed. Further, neither the agreement between the government and China Eximbank nor the on lending agreement specified which revenues and incomes would be left for the operations of ZNBC and which ones would be for loan repayments,” read the report.

And the Auditor General stated that ZNBC had unpaid statutory obligations to ZRA and NAPSA amounting to K458,824,474 and it had also not remitted Value Added Taxes in amounts totalling K552,554,336 to ZRA.

Further, the Auditor General noted that the status of ZNBC as of December 2016 was a going concern because it was recording losses.

“Going concern is the ability of an entity to continue existing and providing services in the foreseeable future. The status of ZNBC as at 31st December 2016 as a growing concern was questionable due to the following: the corporation recorded a net loss of K59,834,755, the corporation had negative accumulated funds (negative equity) amounting to K1,078,529,639, the corporation had negative cashflows from operating activities amounting to K2,499,943 and the corporation’s current liabilities were higher than its current assets,” the report read.

The Auditor General stated that ZNBC’s administrative costs were higher than the money the institution generated.

“The administrative expenses were more than the revenue generated during the period under review. In 2014, ZNBC incurred K222,603,323 in administrative activities yet it generated revenue of K99,603,323 in the same year while in 2015, it incurred K177,262,907 compared with revenue of K100,625,323 and in 2016 generated K105,575,511 against administrative expenses of K166,600,802,” read the report.

It was further reviewed that in 2017, ZNBC was run by a two-member board which was against its Act.

“The tenure of the Board expired on 16th December 2016. However, as at 31st August, 2017, the full Board had not been appointed. Instead, the corporation was governed by an interim board appointed on 17th December, 2016. The interim board was composed of two members contrary to the requirements of both the Act and the Board Charter. In this regard, with only two Board members, it was not clear how Board matters such as establishment of quorums, adoption of minutes and attending to matters that need specialist committees such as the audit committee issues could be done,” read the report.

Meanwhile, in a statement announcing the release of this report, Monday, Auditor General’s Office Head Public Relations Ellen Chikale stated that non remittance of statutory contributions had ranked high in its findings.

“In this report, Non-Remittance of Statutory Contributions ranks high at K664,155,249. The implication for this irregularity is loss of revenue to government in the case of non-remittances
to ZRA and in the case of non-remittance to LASF and NAPSA the institutions run the risk of failing to pay dues to officers when they retire from employment.
The second highest ranking audit finding is the loss on Non-Revenue Water at K196,092,932. Non-Revenue Water is the difference between the quantity of treated water distributed in the network and the quantity of water actually billed. The implication of this is loss of revenue to the Water Utility Companies as the water is lost before it is consumed by consumers. This also leads to reduced hours of water supply to consumers. The other highlighted irregularities in the report that remain of concern to the Office include unaccounted for stores which stood at K22,637,485 followed by wasteful expenditure at K15,435,151 and an unretired imprest of K13,116,978,” Chikale stated.

“The report has further raised other issues of poor financial performance and financial position on most of the institutions audited. Further, there were fourteen (14) Statutory and Parastatal Bodies that had not produced audited financial statements for the financial years ended 31st December 2013 to 2016. This was contrary to the various enabling legislations governing the institutions and good corporate governance.
The report also includes findings from the audits of Information Communication Technology (ICT) Systems that some organisations have implemented in order to improve on the efficiency and effectiveness of their service delivery to the citizenry.”

She stated that very few parastatals had declared dividends.

“On the IDC which serves as the holding company for the twenty five (25) State Owned Enterprises (SOEs), only two (2) SOEs in which IDC holds 60.7 to 100 percent shareholding, declared dividends for the year 2016 in amounts totalling K7,600,000 (Mulungushi Village Complex Limited – K0.2 Million and Indeni Petroleum Producers Limited – K 7.4 Million). In addition, out of the seven (7) institutions in which IDC had shareholding of between 14.27 to 50%, only two (2) institutions (Indo Zambia Bank Limited – K12.06 Million and Nanga Farms Limited K4.7 Million) declared dividends in amounts totalling K16.76 million,” stated Chikale.

“The Office wishes to state that, in preparing the report, Controlling Officers and Chief Executive Officers of the affected organisations were availed draft audit paragraphs for confirmation of the correctness of the facts presented and where comments were received and varied materially with the facts presented, the paragraphs were amended accordingly.”