Public corporations

The nature of accounting

Parastatal organizations are
generally organizations which a
government considers necessary to
render essential services and in the
management of which the
government wishes to be involved.

 The establishing legislation for all

these public agencies are similar and
we will look at the National Railways
Act 13.09 revised edition 1996.

Statutory accounting
requirements
Section 24 of the railways act states
that it shall be the object of the
railways so to exercise its function
and conduct its business as to ensure
that its income, taking one year with
another , is not less than sufficient
to enable the railways to meet the
expenditure of the railways properly
chargeable to the revenue account.

 In other words the railway is

expected to break even.
This is the single most important
feature relating to the accounts of
public sector agencies in Zimbabwe.

 Apart from the breakeven requirement

other points of interest are as follows;
The railways derive funds by statutory
appropriation from the Consolidated
Revenue Fund, from its own operations and
by borrowing(section 32)
The railways have a statutory
responsibility to provide for depreciation
and to meet loan repayments on due
dates(section 32)

 Surpluses of income over

expenditure are to be paid into a
general reserve(section 32)
Deficiencies are met by
government(section 32)
Annual accounts are required to be
submitted to the minister of
transport(section 29)

 Appointment of external auditors

require ministerial approval(section
30)
Railways have power subject to
ministerial approval to borrow and
invest(section 32)

Forms of accounts
Section 29 of the act states the railways shall
keep proper accounts relating to all its
operations, undertakings and property
including such particular accounts as the
minister of transport may direct
Capital for the public agencies is obtained from
government vesting loans and grants, and from
loans raised from the private sector and
secured against the revenues of the
undertaking.

 The accounts of public agencies are

produced for the information of
parliament

Constraints on economic operation

Income to cover operating costs of

public agencies is generally derived
from fees and charges.

Public agencies
performance
majority of state-controlled entities
made losses amounting to millions of
US dollars in 2011 due to
undercapitalisation, high overheads
and lack of customer confidence.

 According to a report presented to

cabinet in 2012 by State Enterprises and
Parastatals minister , the companies
were struggling to perform because of
cash-flow problems, inability to attract
investors and access lines of credit due
to unattractive balance sheets.

 Parastatals which recorded huge

losses include the National Railways
of Zimbabwe (NRZ), Grain Marketing
Board (GMB), Industrial Development
Corporation (IDC) and TelOne, while
those performing well only managed
to make marginal profits.

 NRZ recorded revenue of US$91,6

million in 2011, representing a 17%
increase from US$78,4 million in
2010. But of the revenue, more than
US$45 million was gobbled up by
administrative and general expenses
while finance costs were US$4,4
million.

 NRZ, which requires over US$2 billion to

resuscitate operations, recorded a loss before
tax of over US$60 million with low capacity
utilisation, high overheads and operational
inefficiencies cited for poor performance.
The available number and state of
locomotives, wagons, coaches and other
critical equipment is insufficient to meet the
demands of the productive sectors of the
economy.

 GMB has not posted a profit in the past decade

due to sub-economic prices the company was
charging which were not supported by a
corresponding subsidy.

The parastatals 2010/11 first quarter

management accounts show the value of assets
amounts to US$150,7 million compared to total
liabilities of US$19,9 million, indicating that
although the firm was technically solvent it sits on
a huge asset base comprising properties, plant and
equipment which cannot be converted to cash.

 Sub-economic prices charged by the

GMB translated into disinvestment
resulting in inadequate working
capital. The introduction of the multicurrency system worsened the
situation as no additional capital was
injected into the GMB

 GMBs poor performance was

attributed to undercapitalisation, lack
of logistics fleet to collect grain and
lack of lines of credit.

 Although fixed telephone operator,

TelOne realised total revenue of
US$158,9 million in 2011, the
company still recorded a US$7,5
million loss.

 The company is failing to perform due to a

US$285 million debt inherited from the disbanded
Post and Telecommunications Corporation, while
an outdated billing system compounded the
situation. Some of the major problems facing
TelOne are shortage of skilled human capital,
particularly switching technicians for both
analogue and digital systems while power outages
affect the uptime of exchanges countrywide.
Obsolete equipment is also a problem.

 IDC recorded US$153,3 million from

the sale of group products while
gross profit stood at US$32 million
and after-tax losses were at US$10,9
million in 2011.

 Agribank struggled throughout 2011

due to lack of liquidity to enable it to
underwrite meaningful business and
generate positive earnings.