10 April 2014

Zimbabwe: Govt Accrues Massive Power Debt

GOVERNMENT has accrued over US$114 million in interest on its Federation-era debt to Zambia inherited after the taking over of power generation assets that had been shared between the two countries, the Financial Gazette's Companies & Markets (C&M) can exclusively reveal.

Documents seen by this newspaper last week show that an inter-governmental committee of officials representing the Zimbabwean and Zambian governments in February this year ratified the interest payable at a meeting in Livingstone, Zambia.

The interest component, which the Zimbabwean government had not been keen to publicly release, is a direct result of a debt to Zambia which amounted to about US$71 million.This principal amount of about US$71 million was for the shared cost of the Kariba Dam construction and associated infrastructure.

The debt also included the sale of assets belonging to the Central African Power Corporation (CAPCO), a power firm jointly owned by the two countries when they were still part of the Federation of Rhodesia and Nyasaland, which was dissolved in 1963. CAPCO was running the Kariba power project for the two countries but was disbanded in 1987.

For Zimbabwe, which has been battling to repay the debt, meeting the interest payments on that debt burden alone presents a formidable challenge.Failure to repay might result in the interest compound increasing and Zimbabwe will be confronted with a higher bill in the future.

"The total amount of interest payable was ratified as US$114, 827,078," the document said. "However, the schedule of payment of the agreed interest would be considered at ministerial level by the ministries of finance."

It is also understood that the two countries' Finance Ministers met in April 2013 in Washington during the IMF/ World Bank Spring Meetings. During that meeting, the then finance minister, Tendai Biti is said to have proposed to his Zambian counterpart that he would submit a payment schedule to the Zambian government, but this was not done.

Investigations by C&M indicate that Finance Minister, Patrick Chinamasa has now been requested by his Zambian counterpart to come up with a firm proposal on the interest payment schedule.

Zimbabwe has to date paid US$40 million towards expunging of the principal amount of about US$71 million in accordance with the payment schedule as per the settlement agreement of February 9, 2012. This was paid through power utility ZESA Holdings, which is wholly-owned by government. The final instalment of about US$31 million was expected to be paid by March 31, 2014. Efforts to get a comment from Chinamasa were fruitless.

Energy and Power Development Minister, Dzikamai Mavhaire told C&M: "We have some money which we are supposed to pay to Zambia. Chinamasa has made an undertaking which I have also signed that we will pay the balance (US$31 million) before the end of March, which seals the credit."

Mavhaire said government's commitment would help pave way for the construction of the proposed 1 600-megawatt (MW) Batoka Gorge Hydroelectric Power Station.

Zimbabwe and Zambia in February 2012 signed a Memorandum of Understanding to jointly construct Batoka Hydroelectric Power Station with each country expected to get 800MW of electricity from the project, a development which would help boost power supply in the two countries. Zimbabwe needs about 2 200MW of electricity at peak periods but has the capacity to generate about 1 200MW.

The agreement on the Batoka project, situated about 54 kilometres downstream of Victoria Falls on the Zambezi River was, however, dependent on Zimbabwe's commitment to pay off the US$71 million debt it owed Zambia over CAPCO. Plans for the project were initially mooted in 1993, but the Zambian government was reluctant because of the outstanding debt which it wanted Zimbabwe to clear first.

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