GOVERNMENT has agreed to settle the US$27 million debt to a Chinese bank to avoid scuttling a US$400 million deal for the expansion of Kariba South power station. The debt stems from farming equipment two local firms received from China on credit in 2007 and was guaranteed by the Chinese Export and Import Bank.
Farmer's World and the Industrial Development Corporation received the equipment and extended it to the farmers on terms, but have not been able to honour the financial obligations.
Secretary for Energy and Power Development Mr Partson Mbiriri said Government has agreed to pay the debt, but resources availability would determine the time.
He was speaking after Zesa Holdings subsidiary Zimbabwe Power Company signed an Engineering, Procurement and Construction contract with Sino Hydro of China for the expansion of Kariba South's expansion project.
Clearing the debt is critical for the purposes of attracting more foreign capital into the power sector, which requires US$5-7 billion to address Zimbabwe's critical power deficit, according to ZPC.
The EPC for the Kariba South expansion contact was signed at the Rainbow Towers by ZPC chief executive, Mr Noah Gwariro, and Sino Hydro chief representative Mr Wu Yifeng.
Sino Hydro has agreed to mobilise 90 percent of the funding required to finance the expansion of Kariba, but will require the US$27 million debt paid before the project starts.
The expansion of Kariba South would add 300 megawatts to the grid, which currently carries about 1 300MW from existing capacity against the demand of about 2 000MW.
"Government has accepted the debt, although those that benefited should have honoured their obligations," he said.
"Nonetheless, to the extent practicable, Government, acting as a guarantor for the loan, is prepared to pay the amount.
"The Ministry of Finance, looking at the revenue and balancing with demands for financial resources, will decide when the US$27 million debt will be paid."
He said the Ministry of Finance had indicated that it would be possible to pay that amount, but there had been no commitment yet as to when this would be done.
Although an engineering, procurement and construction contract has been signed, financial closure is still outstanding and will not occur until the US$27 million debt is paid.
The Kariba South hydropower expansion project, expected to add 300 megawatts to the national grid, is meant to bridge the gap between demand and supply for power.
ZPC chairman Mr Joseph Gapare said the expansion project would cost about US$400 million plus interest, but the cost of the funding remained an outstanding matter.
Mr Gapare said the loan tenor was yet to be agreed on and outstanding issues would be addressed later, on financial closure of the deal after the Chinese debt is paid.
Sino Hydro regional director Mr Yuzhi Wang said from their experience in expanding Zambia Kariba North power station, they expected to do exceptionally well in extending Zimbabwe's only current source of renewable electricity.
"I would like to extend my heartfelt thanks to the Ministry of Energy and Power Development and ZPC for giving Sino Hydro this opportunity to be involved in the power development of this good country," Mr Wang said.
He said Sino Hydro was a network of highly responsive companies with comprehensive solutions and experience in the areas of construction, design, maintenance, financing, civil engineering and infrastructure development.
Mr Gwariro said expanding Kariba South would help the country to ease the demand during the peak periods of demand for electricity.