Zimbabwe: China Gets Tough On Zim's Debts

The Chinese government has raised red flags on Zimbabwe's creditworthiness after insisting the cash-strapped government settle all outstanding arrears before accessing additional funds for infrastructure development projects.

This comes as it emerged this week that the Chinese government has been armtwisting the Zimbabwean government to settle debts, including those owed by Zimbabwean companies to Chinese firms.

Addressing journalists earlier this week, Finance minister Tendai Biti said government had yielded to the pressure, paying about US$50 million to China since January in respect of the arrears to unlock new funding for infrastructure projects, particularly in the energy sector.

Zimbabwe paid a total US$76,5 million for servicing external loans between January and March 2013.

"Part of the reason why we have had to pay this huge outlay is that we have concluded agreements with Sino Hydro in respect of the construction of and installation of two generators at Kariba South that will cost around US$400 million, so China will not release fresh money unless we are up to date with our arrears and all of you know how important Kariba South is to Zimbabwe," said Biti during his March state of the economy report briefing.

China has announced a commitment to fund expansion of Hwange Thermal Power Station (HTPS) as part of concerted efforts to help Zimbabwe deal with an 800 megawatts (MW) power deficit.

The country generates an average 1 400 MW compared to a rising national peak demand of 2 200MW.

"We are also hoping that in the next two months government will conclude agreements towards the construction of Hwange (Thermal Power Station) units seven and eight. Part of the money we have paid is to facilitate the unlocking of those agreements, so that's the first budgetary pressure, loan repayments," said Biti.

He added: "As all of you know Hwange unit one to six are over 25 years past their sale-by-date, which is why they are operating at 40% of the installed capacity of 750MW."

Apart from the power projects, Biti said China had indicated it would only start releasing the US$45 million towards capital projects at Victoria Falls international Airport after settlement of arrears.

Last week, a ground breaking ceremony officiated over by Vice- President Joice Mujuru was held in Victoria Falls to officially mark commencement of the construction of a new runway and tower at the resort town's airport.

Giving a breakdown of the funds repaid to China, Biti said government had paid US$27,1 million to clear local company Farmer's World's debt for farming equipment and tractors which it bought from China for resale in Zimbabwe around 2006.

The company defaulted, resulting in government, the guarantor, assuming the debt.

Another unspecified amount was repaid for loans taken by the Industrial Development Corporation in 2005-6.

Government has also had to repay US$3,9 million in respect of the amount that Zisco Steel (now NewZim Steel) owes to the Chinese, despite an agreement with NewZim Steel majority shareholders Essar Africa Holdings to assume all the company's debts.

The agreement is yet to be fully consummated pending delays by Mines minister Obert Mpofu in approving one of its major preconditions; the release of ore rich deposits in the Mwanesi area, which are expected to feed the steel plant in the long run.

Another US$10 million was paid upfront to China for the supply of medical equipment that Zimbabwe wished to purchase.

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