Zinara suffers $50 million prejudice

Source: Zinara suffers $50 million prejudice | The Herald February 22, 2017

Takunda Maodza: Assistant News Editor

GROUP Five, a South African firm contracted to upgrade the 800km Plumtree-Mutare highway in a $206 million deal, reportedly swindled Government of close to $50 million, it has emerged.The Johannesburg-headquartered construction concern allegedly coerced Zimbabwe National Roads Administration (Zinara) to pay Value Added Tax amounting to $28 million.

However, Zinara board chairman Mr Albert Mugabe yesterday said there was nothing sinister in the way the deal was hammered.

“It’s not untoward in agreements of this nature for the contracting parties to review and engage on the word and spirit of the agreement. Given the quantum in this set of agreements, it’s prudent to regularly compare processes brought into effect by agreement and ensure that they reflect the intention of the contract. I am aware that such an engagement is underway, but I cannot confirm that it speaks specifically to the issues that you have highlighted.”

However, impeccable sources said the South African firm over stated its bills by over 10 percent, further prejudicing the State.

The Herald is reliably informed that the scandal was picked by an audit ordered by the Ministry of Transport and Infrastructure Development.

“According to findings of a recent audit ordered by the Ministry of Transport and Infrastructural Development, Group Five applied undue pressure and bullied Zinara into reimbursing it a $28 million Value Added Tax (VAT) fee which it had paid to the Zimbabwe Revenue Authority,” a source told The Herald.

Group Five was liable to pay VAT as per contract.

The company reportedly threatened to abandon the contract if Zinara did not reimburse the VAT it had paid Zimra. Zinara has made several efforts to recover the money from Group Five without success.

In a letter to Group Five project director Mr Ham Coetzee dated January 23, 2017, Zinara chief executive officer Engineer Nancy Masiyiwa Chamisa, demanded a refund from the company.

It reads: “Pursuant to numerous meetings between the parties and a comprehensive review by Infralink and Zinara on matters arising from Group Five’s engagement as EPC Contractor to the project, and as a result have identified that Group Five appears to have been imposing additional billings on Infralink (the employer) and by extension also on Zinara, which are clearly irregular and not permissible.”

Infralink is a 70 and 30 percent joint venture between the Zimbabwe National Road Administration and Group Five Limited of South Africa.

“We note as follows – Group Five claimed reimbursements from Zinara in respect of Value Added Tax levied by Zimra on Group Five’s activities as contractor to the project. Under the EPC agreement, Group Five was employed by Infralink on a fixed contract price basis.”

The EPC contract states that the contractor pay all taxes, duties and fees as required by the laws in relation to the design, execution and completion of the works and the remedying of any defects.

It further states that the contract price “shall not be adjusted for any of these costs, except as adjusted for changes in legislation”.

Eng Masiyiwa Chamisa said “the employer was no under obligation to reimburse Group Five for taxes imposed on Group Five under the Laws of Zimbabwe”.

“Zinara has, in the mistaken but bona fide belief that it was obliged as majority shareholder of the employer to refund the VAT to Group Five, reimbursed and or undertaken to reimburse such amounts to Group Five. It is clear from the express terms of the EPC contract that, in the first instance, Zinara is not party to the EPC contract and bears no liability thereafter. Secondly, the EPC contract does not disclose a legal basis on which Group Five may validly claim reimbursement of tax from the employer,” stated Eng Masiyiwa-Chamisa in the letter to Mr Coetzee.

She added: “Accordingly, the payment by Zinara was sine causa, and Group Five has been unjustly enriched in the amount mistakenly paid, if any, by Zinara as reimbursement for VAT, alternatively would be unjustly enriched were Zinara to pay any such claims. We further place it on record that Group Five unlawfully threatened to discontinue work on the project as a result of the outstanding VAT and Zinara was accordingly placed under duress to make, alternatively, guarantee, the above payment ($28 million).

Eng Masiyiwa-Chamisa demanded repayment from Group Five.

“In the circumstances, Zinara hereby demands that Group Five repay all amounts it received, if any, from Zinara in respect of VAT reimbursement within seven days of date hereof, together with mora interest at the rate of 10.25 percent per annum from date of this letter to date of payment in full. Alternatively, any claims raised on Zinara or Infralink for such VAT refund claims are, in the circumstances, null and void, and should in future be directed for resolution to Zimra.”

Documents in The Herald’s possession also show that Group Five raised significant charges on Infralink and by extension Zinara that the road administration deems “irregular”.

“Group Five has charged Infralink an amount of $12 312 577.00 for financing charges allegedly incurred as a result of inter alia, delayed payments under the EPC contract. The EPC contract provides for financing charges to be calculated at the annual rate of three percentage points above the discount rate of the central bank in the country of the currency of payment. The currency of payment in terms of the EPC contract is the United States Dollars. The central bank for purposes of calculating the financing charges is accordingly the Federal Reserve Bank of the United States of America. Group Five has erroneously calculated the financing charges using the Zimbabwe Reserve Bank rates. This means Group Five have calculated the financing charges at 16.3 percent and in instances even higher than that, per annum, whereas the rate of 3.25 percent (being the Federal Reserve Discount rate 0.25 percent plus 3 percent) is the appropriate and correct rate of use,” said Eng Masiyiwa Chamisa in her correspondence with Mr Coetzee.

She added: “It is clear that Group Five have over charged Infralink to an extent of at least $9 857 615 in respect of these financing charges. Furthermore, in terms of the contract entered into, the contractor may only level financing charges on the amount unpaid during the period of delay, which is calculated with reference to the due date being 28 days after receipt of a statement and supporting documents in respect of the amount claimed.”

Eng Masiyiwa Chamisa demanded repayment by Group Five within seven days for any payments already made “with regards this claim and which exceed the permissible amounts in accordance to the interest rates aforementioned”.