Zambian Airways saga: follow the loans paper trail

The government as expected has recruited the state owned papers in the fight against the POST (using the Zambian Airways situation). Story makes interesting read but surely the creditors of Zambian Airways should be left to fight their own battles. GRZ should only be concerned about the debts owed to public institutions such as National Airports, NAPSA and ZRA.

The PANEL.

By A Correspondent
THE gloves are off, the guns are out and blazing and the war is on. After enduring months of insults and bad reports, President Rupiah Banda responded with a rare but strong attack against his attackers.
President Banda’s attack was particularly targeted at Zambian Airways shareholders, who include Post editor, Fred M’membe, for their alleged part in the loss of US$30 million, some of which was taxpayers’ money. Mr Banda condemned the paper’s constant corruption allegations against his Government.
The Post is an institutional shareholder in Zambian Airways. Mmembe is one of the directors. Investigations have targeted the directors of the airline for causing the loss of $30 million.
The airline faces civil litigation aimed at recovering $30 million. Its chief executive officer, Mutembo Nchito, faces possible criminal charges ranging from fraud, theft, tax evasion, money laundering, and exerting undue influence on public officials to force them to authorise and release the loans.
The directors are facing charges under the law that are deemed ‘directors’ offences for false accounting to obtain the loans from the bank.
In an address to MMD cadres who marched to State House in support of his leadership, in the face of internal and external political attacks, President Banda stated that he would tolerate no nonsense from the party or cliques.
He charged that he is Republican President of Zambia and was now MMD acting president and would, therefore, not allow indiscipline in the party. To this effect, he fired two deputy ministers, whom he said, enjoyed wide coverage in The Post, for their purported good leadership. These were Lameck Chibombamilimo and Jonas Shakafuswa.
Mr Banda declared that he fought for national independence, and would not allow people’s freedom to be taken away by a clique. He demanded that the airline’s shareholders repay the $30 million they borrowed in questionable circumstances when they ruan Zambian Airways.
The president may be excused for sounding so strong against the shareholders in question because of the large sum of $30 million lent to Zambian Airways even when it showed signs of insolvency.
Mr Nchito as chief executive officer of Zambian Airways, with the help of Ministry of Finance and National Planning, appeared to have targeted public bodies such as Napsa, ZSIC, DBZ, and ZCCM-IH. He also ignored obligations due to ZRA, National Airports Corporation and Napsa.
The airline was bankrupt. Its books were bad. The books were so bad that an expert termed them ‘crimson red’.
The airline had no assets of worth, and it had been running consistently at a loss for many years and was insolvent. Despite its insolvency, the airline obtained loans and acquired debts totalling over $30 million.
Investigations are revealing that the obtaining of a string of loans was tied to the campaign quoting a ‘wide range’ of people demanding for the Government to turn Zambian Airways into a national carrier, and these people found ready media coverage.
The loans were allowed to pass because of its underlying status in the country as a ‘National Airline’ or one to be converted as such.
Creditors were duped that the ‘Government’ does not need to provide security for any loan. The assurances were given that once the airline was turned and taken over as a national carrier, the Government would assume the debts.
The directors ran a vigorous and parallel campaign demanding that the Government takes over the airline (with its debts) and make it a national airline. The take-over by the Government would have disguised this fact.
In all this, no explanation was given how the previous loans were utilised and investigators will be interested to establish that the loans went into the airline.
How did the airline’s chief executive officer Mr Nchito do all this? How did he obtain loans from banks and financial institutions in the face of stringent banking and financial regulations? The answers to this question will be very revealing.
Take for example the $5.5 million DBZ loan syndicated and guaranteed with Investrust and Intermarket Banking Corporation.
The loan was reportedly obtained by Zambian Airways by offering two planes worth $200, 000.00 each but valued at $1.2 million by the airline itself. Despite showing marked features of bankruptcy, and therefore not eligible for such a loan, DBZ (a public company) and the two banks, disbursed the loan of $5.5 million to Zambian Airways.
By September 2008, predictably, the loan was not performing. DBZ board consisting of director general Dr Abraham Mweenda, board members S. Beyani, R. Phiri, A. Musukwa and C. Habasonda decided to place Zambian Airways under receivership.
The board recognised that Mr Nchito had provided very weak security and receivership was inevitable since the loan was not being serviced.
The airline’s chief executive officer is then reported to have called for an urgent meeting where he came up with an ingenious proposal; turn the debt with DBZ into equity. Let the bank buy the shares by turning what the airline owed DBZ into shareholding.
He is also said to have pledged to bring more external security to the company, downsize and restructure the management of the airline, and reduce on unprofitable routes.
He informed the board that he would bring a strategic equity partner and allow the airline to be managed by Comair or Airlink.
He also stated that the airline’s books would be ‘clean’ since Zambia State Insurance Corporation (ZSIC) was expected to inject a $4 million into the airline which would allow Zambian Airways to buy the leased planes and clear outstanding lease amounts. The ZSIC bid, however, eventually failed.
In October 2008, while the country was steeped in election fever, Mr Nchito was busy working on the conversion of the $4 million DBZ debt into equity.
The DBZ board had consistently opposed this restructuring of its debt. The board expressed unwillingness with such an arrangement, and part of the current investigation aims at establishing that undue political influence was then brought to bear on the board members.
The DBZ board continued to refuse to buy shares in Zambian Airways. The board insisted on recovering the $4 million due by retaining the debt structure.
However, there was a presidential election in the air, President Mwanawasa who was deemed to be friendly to the airline and its associates was no more. The potential successor, Ngandu Magande had failed in his presidential bid, the board chose to be prudent and excercised caution.
Mr Nchito, however, desperately pursued the conversion of the debt to shareholding structure to escape the intended receivership action by DBZ and avoid paying the loan entirely.
He informed the DBZ board that he was bringing on board his business partners and Zambian Airways shareholders, The Post. The Post brought to the table a reasonable proposal.
The Post apparently drew up documents to allow DBZ exit from the syndicated loan and committed and undertook to assume and settle the other loans that DBZ had guaranteed and was outstanding with Investrust and Intermarket Banking Corporation totalling $2.1 million.
Mutembo and Nchima Nchito and Fred Mmembe then drew up and signed a document called ‘Common stock Equity Facility’ to finally convert the DBZ debt facility Zambian Airways owed, to equity facility. At this stage DBZ were deemed to be Zambian Airways latest shareholders! And the Zambian Airways directors had managed to escape paying the $4 million.
Minister of Transport and Communication Dora Siliya, in her ministerial statement to Parliament stated that DBZ did not buy shares in Zambian Airways and had insisted that the loan was still outstanding and had to be paid back.
In effect, the Government deems this purported conversion of the $4 million to shareholding as illegal and constituting a blatant fraudulent activity.
The biggest losers in this matter are leaders of civil society groupings that were blindly used to prevent the investigations of $30 million loss, and undermined the good standing of their institutions.
The PF leader, Michael Sata has been caught wrong footed. He called for President Banda’s Government to “silence criminals in Government and not The Post” (The Post Feb 21, 2009). One would think criminals are criminals wherever they are.
The invitation for non-governmental organisations (NGOs) to run parallel investigations is a diversionary tactic to characterise these criminal investigations as a campaign to silence critical media. Sadly, even respectable institutions of professionals such as the Zambia Institute of Chartered Accountants (ZICA), were drawn in the defence of criminal activities, and may live to rue their rash reaction.
Law Association of Zambia, Southern Africa Centre for the Constructive Resolution of Disputes and Transparency International Zambia supported the parallel investigations.
Whilst the NGOs were active during the calls for the probe of Ms Siliya, there is a deafening silence over the disappearance of the $30 million.
It is even ironical that an organisation such Transparency International Zambia formed to fight graft and theft of public funds could promote activities that might prevent the recovery of this money and are part of a charade to pervert the course of justice.
It is clear that the leaders of these NGOs are in an alliance that serves the interest, of those of their own clique rather than the interests of their members and the country. This smacks of double standards.

From the Times of Zambia (05/03/2009)

Quick updates

Chiluba’ s Wife sent to jail
Only disppointement is the relatively short sentence imposed.

Regina Chiluba, the wife of second Republican president Frederick Chiluba has been sent to jail.Mrs Chiluba has been imprisoned for three and half years simple imprisonment.She has been found guilty of two out of the six counts she was facing. One of the counts she has been found guilty involves a motor vehicle.This is in the case in which Mrs chiluba charged with six counts of failing to account for property believed to have been stolen or obtained unlawfully.
In the first count, she is alleged to have, between January 1997 and September 30, 2002, in Ndola, failed to account for possession of property on stand number NDO/14 purchased at US$80,000.
In the second count she faces a charge of failing to account for stand number KIT/643 bought at US$48,000 cash, using money suspected to have been stolen or unlawfully obtained.
In the third count, she faces a charge of failing to account for stand number KIT/645 purchased at US$60,000 cash.
In the fourth count, she is alleged to have failed to account for a motor vehicle, an Isuzu KB registration number AAT 2603 suspected to have been stolen or unlawfully obtained.
In the fifth count, she is alleged to have received from Dr Chiluba, a 61-inch Toshiba colour television set, serial number 69140018 model number PJ 98 B with knowledge that the same had been stolen.
In the sixth count, she faces a charge of failing to account for possession of K474 million cash suspected to have been stolen.

http://www.zambianwatchdog.com/?p=1358

Chibombamilimo, Shakafuswa expelled from MMD

Following their public sacking by the president, the two have now been expelled from the MMD. It seems the MMD has pressed the self-destruct button by allowing RB to literally act as judge and jury in this case.


Fired deputy ministers Jonas Shakafuswa and Lameck Chibombamilimo have been expelled from the MMD.MMD National Secretary Katele Kalumba announced in Lusaka Tuesday afternoon that the two, due to their arrogance, have continued to bring the MMD into disrepute and ridicule.Mr. Kalumba said that the MMD National Executive Committee unanimously, on that basis, resolved to expel the two MPs. This entails that there will be two parliamentary bye-elections.And Mr. Kalumba has said that the MMD will soon deal with Former Finance minister Ngandu Magande for his allegedly attempt to shield Zambian Airways from paying dues. [WATCHDOG].

Veep warns Govt ‘moles’

VICE-PRESIDENT George Kunda has warned that civil servants who leak confidential Government information will not be protected. Mr Kunda was speaking when winding up debate of expenditure of Cabinet Office. He said under no circumstances were leakages justifiable. “It depends on the type of information leaked, but some of the information, especially things to do with the security of the nation, is a serious offence,” he said. Mr Kunda said most of the people who leaked information did it for their own gain and to achieve an agenda. “It is unfortunate that these same whistle blowers only leak information that people want to hear and they suppress the explanation. These types of whistle blowers will not be protected,” he said.

Source Daily Mail 25-02-09

Whistle blowing is always a difficult topic of discussion. For instance when the current British Prime Minister was in opposition, he thrived on using leaked documents to embarrass the government of John Major. There is even video footage of him justifying the leaks. However, as PM he has a zero tolerance against whistle blowing.

I am sure the VP is using a lesson learnt from the Gordon Brown School of politics by trying to clamp down on whistle blowing. However the situation in Zambia is different. While the UK has some of the best political journalists capable of digging and investigating stories, Zambia has a heavy reliance on the POST. The other papers are basically GRZ/MMD propaganda tools. As government rarely volunteers to release bad news, the POST has to rely on sources in high places to obtain some of these stories

The PANEL

Tackling corruption

The POST reported yesterday (24/02/09) that the MMD deputy national secretary instructed a permanent secretary to expedite payment to named suppliers who had made contributions to the party. This has been followed with a hard hitting editorial in today's edition. A few paragraphs are reproduced below..

What we are seeing in the conduct of Jeff Kaande, the MMD deputy national secretary, should be and is a source of great concern. It is clear that the MMD is surviving on the basis of a corrupt system of bribe taking and protection money collection. It is very unfortunate that a party functionary in a multiparty democracy has the audacity to put on paper what people would fear to think. He is directing through the name of the party, a permanent secretary to facilitate payments to suppliers because they have promised to give money to the party. How can this be correct? How can this be the way to run a country? What are we reducing ourselves to? It is clear that unless something is done, unless we all heighten our vigilance, Zambia is fast becoming a confirmed kleptocracy.

We have always said that corruption and abuse of power is a deadly cancer, a tax on the poor people in our country. What the MMD is doing is an important illustration of what we have always said. The MMD cannot do without corruption.

Let us ask ourselves a question: if in order to get money from government for supplies made, the owner of the business first has to belong to or pretend to be MMD; second, he has to pay something to this party or its key leadership, how is this country going to develop? How is business going to be conducted? It means that to make a profit, the business people have to factor in the cost of corruption. And this cost has to be borne by the poor people of our country who are denied those resources. The business of governing and providing service to our people is not an easy one. It is very demanding and very taxing. The people who have accepted this responsibility need to apply themselves 100 per cent or else nothing will be achieved. How are we going to build roads, bridges, schools and hospitals if all that the party in government thinks about is how to raise money for itself and for this or that through corruption? It is clear that unless we deal with the problem of corruption and uproot its basis, development will be slow in coming to our country. From what we have seen just in the first 120 days of Rupiah Banda’s government, it is difficult to see where they are going to find time to govern and bring development to our people when all they seem to be doing is scheming how to make money for themselves, how to steal.

FTJ once said Zambians are docile. I think this is probably one of the few truthful statements he made. Which other civilized country would accept the sort of plunder of national resources and rampant corruption we are witnessing? Every year the Auditor General releases a report which catalogues corruption, lack of accountability and blatant theft of public funds but nobody gets punished. How do we stop this drain on our meagre resources?

The PANEL

The Zamtel Saga

I am not sure GRZ was prepared for the negative press surrounding the award of a contract to value Zamtel assets to RP Capital of the Cayman Islands.

Once again the country is grateful to the POST for breaking this story on 6th February. This is definitely a story GRZ would not have wanted to see the light of day.

The privatisation of Zamtel is always an emotive story but it has been spiked by the manner in which the contract was awarded and also the cloud of secrecy surrounding the deal. There are genuine issues this sad story raises.

Why was the contract awarded to RP Capital without following laid down Tender procedures? One would have expected such a contract to be advertised widely and bids invited from a wide range of organisations.

I know a number of Zambians have views and ideas on how Zamtel can be rejuvenated and prepared for eventual privatisation. However, it seems GRZ has not made an effort to engage this community and solicit input into this matter.

Zamtel is a key asset if Zambia is to achieve rapid economic growth and start fighting the high levels of poverty afflicting our people. It controls the only international telecommunications gateway and handles all voice and fax calls on landlines. In addition to this, Zamtel has potentially profitable operations in the Internet service provision and Mobile telephony. Given this scenario, GRZ would not have problem finding buyers to take over these units even in the current economic environment.

I welcome the decision of the acting Chief Justice to constitute a tribunal as stipulated by our constitution to investigate the allegations levelled against the Hon. Minister. It is important that such a tribunal is able to carryout a thorough and professional job. However, the people of Zambia will not accept findings of the tribunal which do not seem to be backed by evidence.

This event is also a test to the new president. How does he handle perceived wrong doing and corruption by one of his ministers? So far he has stood firmly behind Miss Siliya. But for how long? Allegations seem to be increasing by the day.

Zambia shall be saved!


The PANEL

Dead Aid: Time to turn off the aid tap?

I have just been listening to a fascinating interview featuring the author of a new book called Dead Aid. The book is written by a Zambian economist, Dambisa Moyo. Her basic argument is that aid is easy money. If governments had to rely upon private financial markets they would become accountable to lenders, and if they had to rely upon taxation they would become accountable to voters. Aid is like oil, enabling powerful elites to embezzle public revenues. She catalogues evidence, both statistical and anecdotal.

The Independent has a review of this book.

I am sure Dambisa's point of view is shared by many people. Although she focuses her firepower on government to government aid I would suggest that aid given to NGOs and other charities should be brought under the same spotlight. It is time for African governments to become responsible and start looking at life without the donor community. India and China seem to have prospered without perpetual dependence on foreign aid.

Donor aid has also led to the development of a very lucrative NGO industry in Zambia. It seems like a prerequisite for any donor funded project is a fleet of expensive 4X4 vehicles and endless seminars and conferences. Why?

There is also a responsibility on donors to make sure that their aid is not misused. They are accountable to their taxpayers and also owe it to the poor and vulnerable people of Africa to ensure that this aid is put to good use.

The PANEL

The Accidental President

Zambians went to the polls on the 30th of October to elect a successor to the late Levy Mwanawasa. After a hard fought campaign, the race to plot 1 was won by Rupiah Banda (RB) having secured 40% of the votes. His closest rival was Michael Sata with 38% of the votes. Many analysts have commended the efforts made by the Electoral Commission of Zambia and Justice Florence Mumba in particular to ensure that the polls were free and fair.

As the MMD wallow in their victory it is important to reflect on how RB became the accidental President and thereby exposed weaknesses in both the Republican and MMD constitutions. It is very clear to all (unless you are Ben Tetamashimba) that RB was not the MMD’s preferred candidate to succeed Levy. He was put forward by the MMD because he offered them the best option of winning the bye-election. Soon after the death of Levy, the big wigs in the MMD realised that the party had no funds to mount an effective campaign against the popular Michael Sata. You may recall that the MMD Chairman made an announcement in July that the party had no funds to hold an NEC meeting to discuss the party’s response to Mwanawasa’s illness. It is therefore safe to assume that a party that had no funds to hold a meeting lasting a couple of hours simply had no capacity to mount a national wide campaign. After banging a few heads together to find a way of maintaining power at all cost, the MMD realised that the republican constitution offered them a lifeline. One of the clauses of the constitution permits the incumbent president and Vice president to use public funds in presidential elections. Bingo! The MMD finally had a means to an end. Get RB to run for the presidency and use public funds for the campaign.

Armed with an unlimited supply of state machinery and image builders, there was only going to be one winner in the election. The only surprise was small margin of the MMD victory (2%) despite having given 10 bales of Chitenge material and K30 Million to each constituency (K30M X 150 = K4.5 Billion). This is according to Ben Tetamashimba and does not include the cost of chartering helicopters and hiring image builders!

It is also worth mentioning RB won the election despite having lost in the urban parts of the country (Lusaka, parts of central and the Copperbelt). In the end the election was decided by areas like Lukulu East. A remote constituency that took three days to count 7000 votes!

There is no doubt that the National Constitution Conference (NCC) needs to look some of the clauses that were found wanting in the current constitution carefully and improve them.
(a) Incapacitation of a sitting president
The current provisions simply do not work. Due to the politics of poverty currently prevailing in the country, it is highly unlikely that a cabinet will convene a medical board to examine a bed ridden president for fear of recrimination. Would it not be more practical for the constitution to explicitly state that the President will be declared incapacitated if he is unable to perform his function for 30 days (for example)? In this case the VP automatically assumes the functions of the President. The elected President will then be allowed to resume office if he makes a full recovery in a stipulated time period (eg. 90 days). If after 90 days the President is still unable to perform his duties, a vacancy should be declared and an election called with immediately.

(b) Use of public funds by the President and VP in campaigns
The spirit in which this clause was inserted into the constitution has been thoroughly abused by the MMD in their quest to form a de facto one party state in Zambia. I am sure this clause was meant to ensure that the President and his VP were accorded the same security and other logistics that went with the office during the campaign period of. This surely does not include hiring image builders and the use of govt resources to shuttle the campaign team from one constituency to another. May I suggest that in the new constitution, this clause should be qualified and with some limits set in stone? It should not be used to bankroll future MMD campaigns. If this clause is not checked, it will be impossible to remove the MMD from power in our generation!

The MMD as a party also needs to examine provisions of their constitution. The reason they found themselves in a mess is that they allowed Levy Mwanawasa to effectively abolish the post of Party Vice President. It seems the party has a habit to singing to the tune of the Republican President (politics of poverty at work once again). This is the same party that was convinced by one FTJ that he should be allowed to go for a third term and to decouple the party presidency and candidature in presidential elections. The MMD needs to go back to the democratic values on which the party was founded. I remember the hope and belief that swept the country in 1991 and propelled the MMD to power. All that is lost because it seems we replaced the UNIP PIG (party and its government) with the MMD PIG. I urge MMD members to stand up and be counted. The hour has come to rid the party of career politicians and elements promoting politics of poverty. It is unbelievable that RB who was a diehard UNIP card carrying member has been embraced as an MMD member. I just hope this marriage of convenience will not end in tears.

This election also exposed a clear lack of election strategy among the opposition. PF and UPND secured a combined total of 58% of the votes cast. The voting patterns revealed that PF and UPND could only win future elections if they joined hands. UPND is only popular in Southern Province while PF has its strongholds in Lusaka and Copperbelt but also enjoys credible support in Northern and Luapula. The two parties need to start talking about a 2011 pact now and formulate a common strategy. PF should also start planning their future and existence with the assumption that Sat may not be in a position to contest the next election due to his age and failing health.


When all is said and done, I wish RB all the best as he tries to rebuild the Country. His predecessor pleasantly surprised a lot of his critics in the way he tried to improve the lives of our people. We all live in hope that RB will exceed our expectations.

The PANEL