Zimbabwe News and Internet Radio

Government cancels Essar’s licences

By Phillimon Mhlanga

Government has cancelled Indian conglomerate, Essar Africa Holdings’ power generation licences after the company ditched the country due to government bickering over its investment in integrated steel company, Ziscosteel (Zisco).

Gloria Magombo, Zimbabwe Energy Regulatory Authority (Zera) chief executive
Gloria Magombo, Zimbabwe Energy Regulatory Authority (Zera) chief executive

Essar unceremoniously exited from Zisco in 2015 after endless battles to resolve Zisco’s indebtedness and other issues.

A conflict in the then inclusive government led by President Robert Mugabe’s ZANU PF and former Prime Minister Morgan Tsvangirai’s Movement for Democratic Change between 2009 and 2013 had also reportedly precipitated collapse of the Essar deal, whose departure had stunned government as it appeared to have been unexpected.

The inclusive government had bickered over handing over Essar the mineral rights over iron ore deposits that had been part of its deal to acquire Zisco.

The Zimbabwe Energy Regulatory Authority (ZERA) this week confirmed that they had cancelled Essar’s licences, together with that of Rusitu Power Corporation, a smaller, mini-hydro project that was meant to generate 0,75 megawatts (MW).

ZERA’s chief executive officer, Gloria Magombo, said in response to questions from the Financial Gazette’s Companies & Markets that Essar’s licences were cancelled in 2016 after the project promoters missed their set targets.

The cancelled licences were for a 600 MW thermal power plant in Hwange and another one for 60 MW, which was said to be for “captive power” at the Zisco plant.

Essar also had a retail licence cancelled by the regulator.

“ZERA monitors and evaluates each licenced project on a quarterly basis against timelines and expected milestones submitted by the project promoter. Through such rigorous exercise, the authority is able to identify projects that are having challenges and those that are progressing well,” Magombo said.

Essar took over Zisco, once one of Africa’s largest integrated steelworks, which had been rebranded NewZim Steel, in 2011. Essar had proposed to build a 600MW power plant for its new blast furnace. The takeover of Zisco resulted in the launch of two entities, NewZim Steel (Private) Limited and NewZim Minerals (Private) Limited.

NewZim Minerals was earmarked to takeover vast iron ore deposits formerly held by Zisco but the deal was stalled by bickering within the inclusive government, which ended with elections in 2013 that delivered a landslide victory for ZANU-PF, which went on to form its own government.

Well-placed sources said more independent power producers (IPPs) are likely to lose their licences as government deals with IPPs holding licences for speculative purposes.

Power shortages in the country prompted government to open the sector to private investors resulting in a number of IPPs being licenced to complement the country’s integrated power generation and distribution company, ZESA Holdings.

The move by government was seen as a noble idea to deal with severe power shortages in the country, but the majority of the promised projects have not taken off the ground, close to a decade after they were granted licences due to the heavy capital outlays required.

Thirty IPPs with a capacity to generate more than 5 000 megawatts (MW) of electricity were licenced. Industry players said funding for the proposed projects has been elusive.
Major IPPs licenced include the controversial Dema Power Plant, which is owned by Sakunda Holdings. The plant, whose establishment last year was a subject of contention between government and ZESA, generates electricity from diesel generators, and has been selling about 100MW of electricity to ZESA monthly.

More than 10 years ago, the Zimbabwe Stock Exchange listed resources firm RioZim proposed to construct a power plant to generate up to 2 000MW of power at Sengwa. This is more than Zimbabwe’s installed capacity at the moment.

But it appears RioZim will not build a power station soon.

Others that have also not done anything include China Africa Sunlight (120MW), Lusulu Power Plant (2 000MW) and Eunafric Power Station (120MW).

Of all the proposed power projects, only coal miner Makomo Resources’ proposed 600MW power station to be constructed in Hwange is likely to take off the ground soon after the company recently announced that it had secured US$1 billion for the construction of the thermal power station.

A Chinese firm, Sino Hydro, recently carried out a feasibility study for the Makomo project on behalf of the miner and construction is expected to begin at the end of the first quarter of this year. It is forecast that the project will be completed within 36 months.

There are, however, nine small IPPs that have been commissioned and are already operational. Although their combined potential output is 121,82MW of electricity, about 2,45MW is currently being fed to the national grid from Duru, Nyamingura, Pungwe A, Pungwe B and Pungwe C power projects.

The other four – Border Timbers, Triangle, Hippo Valley and Green Fuel’s Chisumbanje power stations – largely generate electricity for own use and only feed surplus to the national grid. The country is struggling to provide enough electricity due to reduced power generation at power stations in Kariba, Hwange, Bulawayo, Munyati and Harare.

Currently, Zimbabwe is generating about 1 000MW on average against a national demand at peak periods of about 1 600MW. To cover for the shortages, the power utility has been importing about 350MW from Eskom of South Africa and 50MW from Mozambique’s Hydro Cahora Bassa. Financial Gazette