A forensic audit into the operations of Zesa Holdings and its subsidiaries, has revealed startling details of how the power utility may have been systematically plundered and prejudiced of millions of US dollars through shoddy contracts, corruption and corporate governance deficiencies.
The audit, conducted by Price Waterhouse Coopers (PwC), also implicates several high profile individuals among them former cabinet ministers Elton Mangoma, Dzikamai Mavhaire, Samuel Undenge as well as serving and former senior executives of the group and its units.
Incumbent Energy and Power Development Minister Fortune Chasi, commissioned the probe in 2018. The report has also been submitted to the Auditor General Mildred Chari.
Undenge and Mavhaire were cabinet ministers during former President Robert Mugabe’s era while Mangoma occupied the portfolio in the inclusive Government between 2009 and 2013.
In what casts further aspersions on the 100 megawatt Gwanda solar project, the audit says the three ministers played influential roles in the awarding of the multi-million US dollar contract to Intratrek. ZESA has since approached courts of law in an effort to nullify the agreement.
Covering the period 2006 to 2018, the audit sought to unravel the rot across ZESA and its units that included ZENT, Zimbabwe Power Company (ZPC), Zimbabwe Electricity Transmission Distribution Company (ZETDC) and information technology firm Powertel.
The ministers unlawfully gave directives for deals with suppliers resulting in ZESA entering into improperly evaluated contracts and struggling to successfully implement projects. While the ministers had power to prescribe orders, the instructions had to be gazetted first.
At ZENT, ZESA’s transformer manufacturing unit, the audit revealed that electrical equipment was received from PME of India and paid for outside agreed parameters and without ZENT’s authorisation.
“We found that in some instances PME delivered excess materials to ZENT without any purchase orders
being raised or any written request by ZENT,” PwC said in the final audit report submitted to Parliament.
“The total invoice value of materials meant for engineering procurement and construction (EPC) projects, which were delivered to ZENT without orders amounted to
US$8 891 717,62.”
Notably, some purchase orders were raised upon arrival of the equipment that had not been ordered, further inflating ZENT’s liability to PME.
For instance, in one case that posed serious risk of financial prejudice to ZENT, PME’s prices for equipment were pegged 47 percent higher than other suppliers of similar materials. On occasions, PME reportedly admitted, it only took verbal “request” to place orders.
Consequently, at one point ZENT’s liability reached approximately US$39,83 million of which US$7,72 million was overdue for a period exceeding 90 days, as ZENT struggled to get funding. In instances, ZENT requested for performance guarantees 10 months after it had already paid PME while the Indian firm would be unwilling to guarantee equipment already used. The questionable transactions were done under a technology transfer agreement between ZENT and PME.
Former group chief executive officer (CEO) Josh Chifamba allegedly once directed ZENT to pay the full amount for equipment valued at over US$20 million instead of staggering payments, as agreed.
“Based on the review of supporting documentation of the sampled payments, we established that ZENT’s liability to PME increased as a result of materials delivered without orders,” PwC said. ZENT also incurred significant demurrage costs for materials it did not need.
“We recommend that disciplinary action be considered against (ZENT directors) Tichawangana and Mutasa for processing a payment of US$9,5 million for two orders to PME, (more than US$3,5 million above the agreed threshold)”.
Overpaying on obligations deprived ZENT cash flows for its other operations. PwC also recommended action against Eng Chifamba for allowing receipt of materials from PME without orders.
The audit says former Energy Minister Mangoma played central role in diverting ZESA from its original system development plan targeting small 5MW to 10MW solar project to one 100MW projects. But when Mavhaire took over he ordered this to be scaled up to 3x100MW plants.
ZESA was against large-scale solar projects because the solution was not efficient given that it guaranteed supply during off peak periods of day time, not mornings and evenings when demand hikes. The two ex-ministers also allegedly recommended Intratrek to be awarded the Gwanda project through verbal instruction to ZPC managing director Noah Gwariro, who did not object despite this being unlawful. Intratrek Zimbabwe lobbied the ministers following an initial tender in which it came second best among six bidders. Eng Gwariro absolved himself of any wrong doing saying he only took ministerial directives.
“Engineer Gwariro’s request to appoint Intratrek Zimbabwe who was ranked second in the evaluation was in contravention of Section 31 (m) of the Procurement Act,” PwC report said.
China Jiangxi had come out tops, with the lowest price of US$184 million, followed by Intratrek at US$248 million. The adjudication committee had also endorsed the Chinese firm, which eventually failed to get a contract.
Others bidders included Afriven, ZTE Corporation, 17 Metallurgical China, which were then given two other projects for 100MW each in Bulawayo and Munyati, and LanLake Power. Intratrek eventually signed the Gwanda solar project contract of US$171 million.
It emerged though that the idea of solar power, amid an acute national deficit, originated with Intratrek, which had first approached the then Energy Minister Mangoma, prompting him to consider it for Gwanda under a limited special tender after losing out in an initial tender.
On his part, the audit implicates former Energy Minister Undenge after he instructed ZPC to enter into a contract agreement for the Gwanda solar project and to process payment without a bank guarantee.
Eng Gwariro, ZPC’s accounting officer, told forensic auditors that he did not object to directives in writing which were made verbally at weekly Monday meetings held at the Ministry of Energy.
According to the audit, US$5,6 million was paid in terms of the Gwanda solar project contract of which US$3 208 million related payments done without bank guarantee, but which required such security. At the time the audit report was written, most of the works paid for were not complete.
Vehicle scheme abuse
Also, the employment contract between ZESA and Eng Chifamba did not have a specified threshold or purchase limit for vehicles for him. In that regard, the onus to define an executive car suitable for the CEO was subjective and open to abuse.
PwC said in what created possible abuse of ZESA vehicle policy abuse, between 2012 and 2017, Eng Chifamba had four cars bought for him; a Mercedes Benz S350 (US$209 000), Toyota Landcruiser (US$175 000), Mercedes Benz GL 350D (US$126 700) and Toyota Fortuner 3L Diesel (US$65 700).
The audit revealed further gross abuse of ZESA personal issue vehicle policy stating that in 2016 only two out of 15 executives had personal issue vehicles while the rest had been acquired by their users. But for not having personal issue vehicles, executives were entitled to mileage claims, which saw ZESA pay over US$224 000 in 2017 only, which was enough to replace vehicles for four executives at US$50 000 each. Interestingly, it also emerged that the bulk of the companies designated by the technically insolvent State power utility as vehicle suppliers to the group were in fact suppliers of spares parts.
Hefty management remuneration
Further, management pampered itself with hefty salaries and benefits while refusing to implement a 2012 collective bargaining agreement entitling the least paid worker to paltry US$275 per month plus a few benefits.
While ZESA said the industry minimum salary of US$275 for the least earner was unsustainable, management paid themselves handsome basic salaries plus 30 percent basic salary housing allowance, 35 percent basic salary retention allowance, 25 percent basic salary retention allowance, 20 percent basic salary responsibility allowance, holiday grant of 10 percent of gross salary payable every November and cafeteria allowance of thirds basic salary every month.