ZPC eyes $1,2bn financial closure for Hwange

Source: ZPC eyes $1,2bn financial closure for Hwange | The Herald March 1, 2017

Business Reporter
THE Zimbabwe Power Company is targeting financial closure for the $1,2 billion Hwange Power Station capacity expansion project by April this year, well placed company sources said.

This comes after ZPC, through a tender process conducted by State Procurement Board, awarded the contract for the 600MW capacity expansion of Hwange to Sino Hydro of China.

The funding will enable ZPC to add to 2x300MW generators, commonly referred to as Hwange 7 and 8 to increase power output from the country’s biggest thermal power plant.

State-owned China Export and Import Bank will finance the cost of the engineering, procurement and Construction contract through a Chinese Government backed project loan.

ZPC had initially hoped that it would seal the funding agreement with Sino Hydro by the second half of 2016, but missed the targeted timeline due to unfulfilled conditions precedent.

The Herald Business understands that there was a total of 14 conditions precedent, including the need for Sino Hydro to hold 36 percent equity in the power project for a defined period.

This was to ensure full involvement and commitment of the contractor before, during and after completion of project, guaranteeing shared responsibility between all the parties.

A special purpose vehicle to take charge of and manage the assets of the power station will also be formed, as part of the conditions precedent, during course of the project.

A senior ZPC executive who commented on condition of anonymity said that discussions were progressing well with the bulk of conditions precedent having now been fulfilled.

“Only two of the conditions (precedent) are still remaining. The Ministry of Finance and Economic Development is now looking at the two outstanding conditions. The target is April; we should be done (with financial closure by that time). Otherwise, it is progress well. Most of the conditions have been cleared,” the source said.

The outstanding issues relate to an implementation agreement and on-lending agreement, which must be approved by both the Government of Zimbabwe and of China. It is expected that once the Ministry of Finance and Economic Development has given the thumps up, the project would need to go through a similar process in Beijing.

The Hwange Power Station capacity expansion programme is part of widespread efforts by Government, through State owned power utilities, to close the power deficit. The efforts include ongoing expansion of the generation capacity of Kariba South Power Station. The contract for the 300MW extension was also awarded to Sino Hydro. ZPC said recently that the project is on course to start producing power by December.

Zimbabwe is currently able to generate an average of 1 100MW against peak demand for power, depressed due to challenges besetting the economy, of 1 400MW. Until last year, power utility ZESA holdings had to rely on rolling power cuts and insufficient imports to manage the power deficit.

Last, the power utility concluded agreements with regional power utilities to increase imported power to close the deficit. However, Zimbabwe which uses a basket of foreign currencies is losing significant amounts of its limited stock of foreign currency to import power, but a series of public and private led initiatives already underway may see it exporting excess power beyond 2018.