20 March 2017

Zimbabwe: Zesa Closes in On $1,1bn Loan

Photo: allAfrica
(File photo).

ZESA Holdings says nearly all of the 14 conditions precedent for the release of the $1,1 billion loan by China Eximbank for expansion of Hwange Power Station have been met.

The power utility intends to increase Hwange Power Station's electricity generation capacity by adding two more generators each with capacity of 300 megawatts. Sino Hydro of China won the engineering, procurement and construction contract for the project.

ZESA spokesperson Fullard Gwasira said the Ministry of Finance was working on the final requirements for the release of the loan, also to be considered by the Chinese Government, since the financier is a state owned entity.

"Most of the conditions for the release of the loan on Hwange Extension project have been met and the process is now being handled by the Ministry of Finance for the finalisation of the Implementation Agreement. Until all the relevant processes have been finalised, it is premature for us to comment further," Mr Gwasira said.

He would not name the conditions precedent.

However, The Herald Business understands that part of the conditions include the requirement for Sino Hydro to have a 36 percent shareholding in a joint venture for the Hwange Power Station capacity extension project, as part of conditions from project financier. Sino Hydro was contracted to extend Hwange's generating capacity by 600 megawatts in 2014 with construction works expected to last 42 months from financial closure; which is expected in the first half of this year.

Highly placed sources at ZESA told The Herald Business that China Eximbank structured the funding deal differently from common tradition following observation of technical challenges on projects funded elsewhere.

"It was a funding requirement, the financiers sought to avoid unpleasant results from previous experiences where the contractor would leave the project soon after completing the construction," said the source recently.

For instance, Botswana now intends to sell a 600MW Chinese-built power plant after the plant experienced persistent technical problems since commissioning in 2012. Botswana's Morupule B coal-fired power station, built by China National Electric Equipment Corporation at a cost of $970 million, has broken down frequently, leading to a costly reliance on diesel generators and imports.

As such, Sino Hydro will construct, maintain and operate Hwange power station for at least five years after its completion until the next major overhaul, which would fall due after the first five years of operation. Sino will maintain interest and oversight of smooth and efficient functionality of the plant long after its completion. In terms of the deal, ZPC and Sino Hydro formed a joint venture company, but finer details regarding the JV and obligations of each part were not immediately available at the time of publishing the story.

Nonetheless, it is understood the debt will be resident at ZPC.

The same arrangement, a source said, was used for Kariba South capacity extension project, funded by Sino Hydro under a $354 million EPC contract deal, is a Government to Government arrangement between Harare and Beijing, and is being funded by China Eximbank.

The Chinese power plant specialist is also in the process of expanding Kariba South. This is by adding units 7 and 8 for an additional 300MW. The existing six generators at Kariba South have capacity to produce 750MW.

The Hwange (Thermal) Power Station is the biggest power plant in Zimbabwe with an installed capacity of 920MW.

The old plant was built in two stages and consists of 4 generating units of 120MW each and 2 units of 220MW each.

Technical problems due to funding induced inadequate maintenance; insufficient parts replacement and need for upgrades exposed the plant to frequent breakdowns.

In 2009, Namibia's NamPower agreed to help ZESA to revamp the plant's capacity under a funding-for- power exchange deal.

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