ZIMBABWE has met all but one of the conditions precedent for a loan facility from the Export Import Bank (Eximbank) of China for the expansion of Hwange Power Station, the country's largest coal-fired power plant.
The Chinese bank had outlined 15 conditions before it could consider financial closure critical for the proposed expansion project, which is part of a strategy to add a combined generation capacity of 600 megawatts (MW) of electricity at the power station.
Once the funding has been put in place, it is expected that the project would be completed within 42 months.
ZESA Holdings chief executive officer, Josh Chifamba, told the Financial Gazette this week that 14 conditions precedent have been met, although the power utility was still in the market to raise own contribution for the project amounting to US$300 million.
"Out of all conditions (put in place by the Chinese financier), we are still to fulfil one, which is to raise money (own contribution) for the project. But, we are hoping that in the month of March, we will be able mobilise the required funding," he said.
While ZESA might have met the other 14 conditions, the one that is outstanding could turn out to be the deal breaker.
In view of the liquidity crisis besetting the local markets, it would be difficult for the power utility to meet its side of the bargain no matter how bankable the project could be.
The other option would be for ZESA to scrounge for funding offshore. But then that route is not as easy. Zimbabwe suffers a high country risk and not many investors would consider it as a safe destination for their money.
It, however, remains to be seen if Chifamba and his team would be able to mobilise funding before the end of this month.
Should they succeed, they would have performed a giant killing act.
Zimbabwe was expected to ratify the preferential buyer's credit facility through Parliament and to make a debt service reserve agreement between government, Eximbank and Hwange Electricity Supply Company (HESCO), a special purpose vehicle established to build unit seven and eight at Hwange Power Station.
Other conditions Zimbabwe was expected to meet included a shareholder agreement between the Zimbabwe Power Company (ZPC), and Sino Hydro and HESCO; a power purchase agreement between HESCO and the Zimbabwe Electricity Transmission and Distribution Company; a coal supply agreement between HESCO and Makomo Resources and limestone supply agreement between HESCO and PPC (Zimbabwe).
An agreement transferring engineering, procurement and construction contract from the ZPC to HESCO and procurement of a water permit, environmental impact assessment certification for power plant were other conditions which were fulfilled.
Sino Hydro Corporation, a Chinese contractor, won the right to undertake expansion work at the power station in 2014 at an estimated cost of about US$1,5 billion.
Expansion progress had been stalled because the country has been struggling to meet conditions set by the Chinese financier.
Financial closure depended on Zimbabwe meeting the stringent conditions for the country to access the loan facility for the project.
Under the contract signed in 2014, the Eximbank of China is availing US$997 million for the project while ZPC will provide the balance.
Sino Hydro is also executing the US$534 million Kariba South Power Station expansion project. Currently, the project is about 71 complete.
When completed, the two additional units will add 300MW of electricity to the national grid. The first unit is expected to be connected to the national grid by December this year while the second unit is expected to be commissioned in March next year.
The additional resource will ease the country's worsening electricity situation. Zimbabwe is experiencing crippling power shortages with the power utility generating about 1 000MW of electricity, which is inadequate to meet a total national demand at peak periods of about 1 600MW.
To cover for the shortfall, Zimbabwe is importing electricity from regional suppliers, especially South Africa's power utility Eskom and Hydro Cahora Bassa (HCB) of Mozambique.
The two power utilities are supplying Zimbabwe with a combined 400MW of electricity, with HCB supplying 50MW on firm basis while Eskom is supplying about 350MW on non firm basis. This means Eskom can only supply Zimbabwe when it has surplus electricity.