by Golden Sibanda
Zesa Holdings will this week sign a power purchase agreement with Namibia’s power utility, Nampower, to secure a $160 million loan from Stanbic South Africa. The Stanbic loan was extended to Zesa’s generation unit, Zimbabwe Power Company, to finance development costs relating to expansion of Kariba South. This follows signing of the $354 million engineering, procurement and construction deal between ZPC and Sino Hydro, the Chinese firm awarded the contract to expand Kariba South’s capacity by 300 megawatts.
Kariba South, which ordinarily should be a peaking load station, but now used to carry base load due to serious deficits, has a capacity of 750MW.
A source told The Herald Business last week that the agreement would be signed this week as part of key conditions for release of the loan funds.
“The bank said that for us to give you the funds, show us another source of revenue you will use to pay back if the project fails to perform. So, we had to sign the PPA to make the project bankable,” he said.
Apart from proceeds of the power exports to Nampower, ZPC will pay back the loan from China Eximbank using proceeds from domestic sales of electricity.
The agreement to be signed this week is for 80 megawatts at load factor of 50 percent, which means effectively ZPC will supply only 40MW.
The loan from Stanbic will be used to finance development cost for expansion of Kariba South at an estimated total cost of $533 million. Sino Hydro only obtained funding for engineering, procurement and construction.
Development cost includes funding a trust account for servicing the loan from China Eximbank, to fund cost of the EPC, technical consultancy fees, ZPC contribution to project cost and regulator’s licence fees.
The exact cost for the expansion of Kariba South has been an issue of conjecture with fundamentally incorrect claims that the project cost had been corruptly inflated from the initially project cost that was agreed.
Such distorted information include claims made by former Finance Minister in the inclusive Government, Tendai Biti, informed by the misconception that the EPC contract cost included costs of project development.
In fact, the total cost came down from an initial $700 million estimate of KPMG to $533 million after the cost of the EPC cost was determined. Depending on project management, this figure may go up or down.
When the $533 million project cost was publicised, it ignited rumour that certain costs in the winning tender bid, excluding development costs, had been corruptly added to the project cost.
The development costs will entail $5 million inflation adjustment, $48 million to spruce up the existing plant infrastructure, $28 million for the escrow account and $15 million for advisors (legal, financial, technical).
Other costs include $53 million for interest during construction, $4,4 million for Parks and Wildlife Management Authority, $1,2 for Zimbabwe Energy Regulatory Authority fees and $15 million ZPC costs.
Expansion of Kariba is expected to take between 36 months and 42 months. This will ease power shortage at a time demand outstrips supply.
Zimbabwe generates about 1 300MW against demand at peak periods of 2 200MW. The deficit is managed through power rationing and imports.
Fears were that growing demand for power, when the economy overcomes current challenges, will constrain future economic growth prospects. Herald
COMMENTS
Something is not right with the figures given in this report because things do not balance out.If Zesa is supposed to raise $160 millions to the contract,therefore the balance is $533-$160=$370 millions instead of $354 millions,ie $16 millions not accounted for.
If you add the amounts mentioned for various works it comes up to $164.6 millions.Subtract this figure from the total contract amount,ie
$533-$164.6=$368.4 millions,which is well above the amount Sino Hydro company is contributing ie $354 millions.Where is the $13.8 millions going to and for what use?The writer of this article did not sit down and check the accuracy of the figures given to justify earlier queries from the public.
Now that we know the type of contract which is EPC LSTK [Engineering Procurement and Construction-Lump Sum Turn Key].The next question is do we have experienced engineers within Zesa to supervise this Chinese company to deliver on its contractual promises?This article is silent on this vital part of the project implementation.We cannot afford silly mistakes after paying this huge bill for 300 megawatts.
Now that we are to export 40 megawatts to Nampower,this will lead to more load shedding within the country.Where will they get extra energy within the 36-42 months during construction?This report is also silent on this vital point.Is this due to ignorance on his side or its just political mischief to please certain powers whilst trying to blame those who questioned the figures earlier on?
ps-correction should be $373 millions
Sinohydro were recently kicked out of BW. They did SSK international airport and anyone who has flown through that airport will attest to the poor workmanship done there. And now we are talking of not just a building, but a power-plant. God bless us.
Our govt will always blunder and be cursed ,they look for the cheapest and easiest to be bribed!
This is what I am worried about and the figures do not balance out.@mambo please check my figures in case I missed something,since you seem to have some close links with Zesa personnel or you have past experience with them.
There is also another article related to this contract with different figures as if there are two contracts in parallel.Maybe I am confused but I doubt it.
it the boggles the mind. zim needs at least 2200mw at peak and is generating 1300mw bringing in 300mw does not meet demand….why does zesa/zim want to sell that which they desperately need? so we are failing to plan and planning to fail. we have ruled out any recovery of local industries that is why we want to make money from power instead of from manufacturing…….what are we smoking