Claims and counter-claims characterised submissions before the commission of inquiry into the 2007 sale of the Zambia National Commercial Bank (Zanaco) to Rabobank of the Netherlands. The commission sat in Lusaka all through last week.

The opening shot was that the pre-privatisation valuation undervalued the bank. The wrong valuation method used valued it at between $8.1-million and $8.8-million when the correct method would have valued the 49% stake at between $18.4-million and $23.4-million, it was said.

Chiteta Chinambu, a former Zanaco board member, told the inquiry that the government deliberately stifled operations by imposing lending restrictions through the Bank of Zambia (BoZ). Zanaco made a loss because in the run-up to the sale all decisions were subject to Zambia Privatisation Agency approval.

"The bonds held by government were non-performing and it was agreed that interest on them would be paid after privatisation. The government was trying to kill the bank until it found a strategic partner," he said.

Zanaco was grossly undervalued but the investor was not to blame, he added. ZPA should not have used the net book asset value method of valuation. The commission heard the ZPA rejected a higher offer of $28.2-million from a local company, Zambezi Consortium Ltd (ZCL).

"We had prepared a highly competitive bid ... In our bid we offered to pay $28.2-million," said Bwalya Chiti of the ZCL.

ZCL said the privatisation was "politicised" and complained of having been irregularly excluded. Peter Njungu, a compliance officer with Zanaco, urged the government to reclaim the stake because the Dutch bank was in breach of the management services and shareholder agreement. "We have found ourselves in an awkward situation where management has continued to increase salaries for staff employed after privatisation. There are salary discrepancies," he said.

It was also given in evidence before the commission, led by Justice Minister Sebastian Zulu, that there was no documentary proof of Rabobank having paid for the 49% stake. MD Martyn Schouten said there was no violation of provision or restriction and the transaction was neither irregular nor illegal - Rabobank bought the stake and rights through a competitive tender.

"Rabobank is the single largest shareholder in Zanaco. It is just logical that the strategic investor should have an important responsibility in the management of the business," he said in response to concerns about Rabobank's dominance on the board.

Management was aware that Zambian shareholders were not represented on the board and that had been an AGM item in the past.

Rabobank Netherlands corporate affairs director Arnold Kuijpers, who led the negotiating team in 2007, said the transaction was above board and had credibility. The sale was done to save the bank.

Rabobank paid Zambia $8.25-million through the international swift bank after the purchase agreement was signed in 2007, he said. He added that Rabobank feared the inquiry would damage its reputation. Andrew Chipwende, director-general of the Zambia Development Agency , successor to the ZPA, told the inquiry Rabobank was the preferred bidder because the two local companies - the ZCL and the Industrial Credit Company - did not meet the minimum criteria.

He said the "market comparables" method was used to value Zanaco not the net asset value as claimed.

The ZCL had failed to comply with the rules by not declaring that one of the individuals in the consortium was a politician at the time.

"Government wanted a strategic partner who would grow the bank and not run it down," he said. "Government wanted a long-term investor as opposed to one who would exit after some time," he added.