Zimbabwe struggles to meet China’s bailout conditions

Zimbabwe has failed to meet conditions for access to a US$1,17 billion loan facility from the Export-Import Bank of China for the expansion of Hwange Power Station, the country’s largest coal-fired plant, it has emerged.

ZESA Holdings group chief executive officer, Josh Chifamba, told Parliament about a fortnight ago that this could result in the project taking longer than initially expected to commence.

He said Zimbabwe has fulfilled only four of the 15 conditions put in place by the Chinese for the release of the loan.
Government expected financial closure before the end of the year, but the slow pace in meeting the stringent conditions might delay the project.

The project, to be undertaken by a Chinese contractor, Sino Hydro Corporation at a cost of US$1,5 billion, would see the power station adding two more units to give a combined generation capacity of 600 megawatts (MW). It had been expected that the project would be completed within 42 months.

Under the deal, which was signed in 2014, the Zimbabwe Power Company (ZPC), a subsidiary of ZESA Holdings, was to get US$1,17 billion or 80 percent of the funds through concessionary funding from China Exim Bank.

ZPC was to provide the balance.

Chifamba said work was on-going to finalise conditions precedent (CPs) to the loan disbursement.

“Outstanding conditions precedent to loan effectiveness include the ratification of the preferential buyer’s credit facility by Parliament, debt service reserve agreement between government, China Exim Bank and Hwange Electricity Supply Company (HESCO), a special purpose vehicle established to build unit 7 and 8 at Hwange Power Station,” he said.

He said the agreement would outline the operation of the debt service reserve account between government, China Exim Bank and HESCO.

The agreement would also outline the operation of the Escrow account, security cession agreement between government and HESCO transferring the reserve account to China Exim Bank.

He added: “Shareholder agreement between ZPC and Sino Hydro to HESCO has to be met. There should be an implementation agreement between government and HESCO outlining the incentives for the project (in terms of taxation) and guaranteeing Zimbabwe Electricity Transmission and Distribution Company’s failure to pay. A power purchase agreement between HESCO and ZETDC is still to be signed. The coal supply agreement between HESCO and Makomo Resources and limestone supply agreement between HESCO and PPC (Zimbabwe) are still outstanding.”

Chifamba said conditions met so far included an agreement transferring engineering, procurement and construction (EPC) contract from the ZPC to HESCO, water permit, environmental impact assessment certification for power plant and transmission infrastructure construction and investment between the ZPC and Sino Hydro Corporation.

In December last year, ZPC signed a loan agreement with the Exim Bank of China to provide US$997 million for the project.

This followed an EPC contract signed in October 2014 with Sino Hydro Corporation of China, the winning bidder, to undertake expansion work on the power station.

The contractor has done pre-commencement works which include topographical surveys, geotechnical survey and coal analysis to enable designs of the power plant and transmission infrastructure.

Zimbabwe has experienced crippling power shortages, with national demand at peak periods estimated at 1 400MW, against available generation of about 1 000MW.

Work to expand Kariba by the winning bidder, Sino Hydro, is currently underway and will add 300MW to the grid. Currently, the project is 62 percent complete with the first unit set to be commissioned in December 2017.

The power utility is also working on re-powering small thermal power stations in Bulawayo, Munyati and Harare. Government is also pursuing the establishment of solar power plants and has identified possible sites in Gwanda, Munyati and Insukamini in Bulawayo.

Contracts have been awarded to Intratrek Zimbabwe-owned by Wicknell Chivhayo and technical partner Chint Electric, No. 17 Metallurgical and ZTE respectively.

But there is no significant progress at the sites.

Zimbabwe is also planning a Mutare Peaking Plant and mini-hydro power station along the Gairezi River in Manicaland.

Helcraw Electrical and Angelique-BHEL consortium are under taking the projects respectively. Financial Gazette