ECONOMIST Professor Oliver Saasa says Zesco’s desire to acquire a €1.7 billion loan should not be kept secret from the Zambian people.
In an interview, Prof Saasa said a loan of that amount was substantial and raised a number of questions, hence the need for Zesco to explain why the company sought to acquire it.
“The bottom line is why are you borrowing first and foremost, under what conditions are you borrowing and thirdly do you have the capacity to service the debt when it falls due? Now at individual level, you can make a decision on your own or at company level the board of directors has to consider. For government or parastatals, state owned enterprises which includes Zesco, there is an obligation that the current Constitution provides although they didn’t pass the enabling legislations that demands this, there is an obligation in the current Constitution that government, and that would include state supported institutions, you will need to have clearance from Parliament. The reason is that where you have a record of failure or exaggerated appetite to contract sovereign debt which includes guarantees, Zambia has guaranteed debt by Zesco, because of that, there are a number of things that one can raise regarding this transaction,” Prof Saasa said.
“Firstly it should not be a secret, it should not take like forever to explain why an amount of this money, from your statement yesterday you are talking about 1.7 billion Euros which is quite substantial, that is about $2 billion. This is quite substantial and if you look at where we are now, one raises a fundamental question of how transparent is this transaction? For a parastatal which actually belongs to the people and is managed on behalf of the Zambian people, you should be able to give basic information about what it is. Of course if someone is asking for details about the conditions, you can say ‘yes we are still investigating, we are still checking and we will communicate to you’. What you are reporting, if it is true, is that they have taken too long for the servant telling the boss. It has taken too long for Zesco to tell the people through you what this is about.”
He wondered what conditions were required in acquiring the loan.
“We need to know the conditions under which this loan is taken especially in the light of the big challenge that we are having with sovereign debt, now hovering around $12 billion. That is close to $2 billion, you are talking about a big fraction of the total national debt. Secondly, we also have to understand and I can make an assumption that this magnitude of a debt has to have a guarantor, it must be secured and it is most likely that it is guaranteed by government. We don’t know this, we are speculating but under normal circumstances and knowing the financial position of Zesco, it is quite likely that this debt is guaranteed by government. If that is correct, then essentially what it means is that immediately you guaranteed, that guarantee also beefs up the already bad sovereign debt position. A guarantee essentially means that the one who guarantees takes charge in the event of default. It is like a surety when they want to give you bail. A sovereign guarantee is as good as a government getting that loan in the event there is a default. That is why we have been talking about transparency, transparency is important,” Prof Saasa said.
“We are not only talking about transparency on the mainstream government but institutions like Zesco that are actually owned by government. For you to actually approve this kind of loan, the board of directors must actually have approved it. If you look at the composition of Zesco, government is well represented. There is nothing that can be secretive about giving information on a loan of this multitude by the parastatals that is most likely to be guaranteed by the government. I am not condemning anything about getting debt but I will be interested for what use, and the use, definitely if it is something for really secured and we have a good projection that we really need it. All that we need is to know the truth and then we will be able to say ‘yes I think this is good’. Now we are talking about the process, we are not even talking about, we are fueling because they have not given the information. We are talking about the process of a sovereign debt guaranteed loan, it is important that the people need to know.”
Prof Saasa said Zesco needed to be careful with acquiring loans from commercial entities.
“There is another layer, who is Zesco borrowing from? When you do due diligence, one needs to know who is Remming Company? Have they dealt with Zesco before? What is their international standing? Has the Zambian government dealt with them? One of the things without accusing anybody, one of the things we have to be very careful especially now when we are in debt distress as a country is that the vulture fund elsewhere, where money might appear to be very attractive at their conditions and services, then you discover that you pay through your nose. Now we don’t want that situation,” said Prof Saasa.
“For this debt to be contracted, the Ministry of Finance has to actually approve it. As people we are demanding is that we need full disclosure, we need transparency and with that full disclosure and transparency, we may ultimately support what Zesco is doing but for now we will raise these fundamental questions. Especially now because of where we are with sovereign debt. The sovereign debt where you are talking about $11.8 it includes guarantees and I am aware that those guarantees are as a result of debt contracted by Zesco.”