Zimbabwe: Zellco Fails to Pay U.S.$14 Million

Mergers, Acquisitions and Financial Results

Zellco Cellular has failed to pay about US$14 million owed to NetOne within the agreed period, prompting the mobile phone operator to terminate the contract.

According to NetOne, Zellco was given 14 days' notice to settle the debt. April 14 this year was the deadline, in accordance with the provisions of the Service Provider Agreement. Zellco did not pay on time, forcing NetOne to cancel the contract. Zellco had been in breach of contract for the past three years.

In an interview with Herald Business, NetOne managing director Reward Kangai said Zellco has been challenging NetOne in the courts over settlement of the debt. Efforts to engage the company to honour its obligation to the parastatal proved fruitless. This compelled them to invoke the provisions in the agreement pertaining to breach of contract. "Zellco owes us over US$14 million and it had 14 days to remedy the breach but we did not see any effort on their part towards remedying the breach," he said..

"Instead, they have been engaged in litigation against us, when we were only pursuing monies owed to us by Zellco.

"We even offered them an opportunity to submit a proposal for terms to settle the debt (on a without-prejudice basis) soon after the aborted cancellation on April 6 this year. But they did not do that and instead sought an injunction barring us from cancelling the agreement. Zellco has been in breach of the agreement since 2009."

On April 5 this year, NetOne issued a statement via SMS, notifying customers regarding the termination of Zellco's service agreement. But Zellco took legal action over the matter. An interim relief was granted in favour of Zellco, forcing NetOne to retract the statement, which it did.

Zellco, through its lawyers, in correspondence dated April 19, said it viewed the move by NetOne "as not only ill-conceived and ill-advised but (also as) a blatant attempt to circumvent the net effect of the provisional order even before it has been confirmed".

Meanwhile, NetOne has urged all former Zellco customers to update their personal information with NetOne and at the same time to deal directly with it in respect of bill inquiries and payments.

NetOne invested in Zellco in the late 1990s through a debt conversion agreement which saw it acquiring a controlling 60 percent stake, with TeleNetwork Services holding the 40 percent balance. Zellco was however taken over by a consortium of local businesspeople who acquired the 60 percent stake from NetOne in 2009.