ZPC breaches Kariba power deal

Source: ZPC breaches Kariba power deal | The Herald June 27, 2017

Business Reporter—
THE Zimbabwe Power Company has been breaching a contract by not depositing proceeds of the power purchase agreement for the expansion of Kariba South Power Station into an escrow account. According to Accountant and Auditor General Mildred Chiri’s report on parastatals and State enterprises for 2016, a section of the PPA agreement submits that all proceeds from the power purchase agreement shall be deposited into the Power Purchase Agreement proceeds account as defined in the agreement.

In terms of the agreement KHPC sells electricity to the Zimbabwe Electricity Transmission and Distribution Company (ZETDC) and the Zimbabwe Power Company (ZPC).

“Contrary to the terms set out in the escrow agreement, ZPC Power purchase agreement proceeds have not been paid into the said account by ZPC. ZPC confirmed a netted inter-company balance implying that the power proceeds payable to KHPC are being set-off against inter-company receivables from KHPC.

“This constitutes non-compliance with the agreement in question. However, ZETDC proceeds are being paid through the PPA proceeds account,” the report says.

The auditor general’s report also noted that ZPC did not service its foreign long term loans with about $271 million of the long term loans now being overdue. ZPC’s major customer, Zimbabwe Electricity Transmission and Distribution Company, was failing to recover amounts owed to it by their customer, which was affecting its ability to pay amounts it owes the company. This resulted in ZPC failing to meet its obligations as they fall due. ZETDC says it is owed over a billion dollars by customers in unpaid bills.

State power utility Zesa Holdings, through its power generation arm, contracted Chinese electrical power engineering company Sino Hydro to expand Kariba South Power Station’s generating capacity by 2x 150 megawatts. Proceeds from sale of the power were ring-fenced into an account to ensure guarantee compliance with conditions of the loan agreement.

The tender for the extension of the power plant’s generation capacity was awarded to Sino Hydro at an engineering, procurement and construction contract cost of $355 million, but the full cost of developing the project might rise to $533 million including consultancy and fees payable to regulators.

Zimbabwe Power Company (Private) Limited (ZPC) formed a special purpose vehicle, Kariba Hydro Power Company (Private) Limited (KHPC) on August 1, 2014 for the purpose of generating electricity and implementing the project for the addition of units 7 and 8 at Kariba South Power Station. The SPV is wholly owned.

The capacity expansion of Kariba South is meant to bridge Zimbabwe power deficit, with demand at 1 400MW against supply of just over 1 000MW.