Corrupt Dema project escalates to US$250m

Source: Corrupt Dema project escalates to US$250m – The Zimbabwe Independent September 16, 2016

The cost of the corrupt Dema Power Plant project — which has raised controversy — has escalated to US$250 million over three years as the country faces power cuts over a US$734 million debt to electricity suppliers.

By Elias Mambo

This comes as government has waived duty on fuel in a bid to contain costs of the extortionist deal pushed by Zanu PF cronies under Sakunda Holdings’ rubric.

Sakunda, which has partnered President Robert Mugabe’s in-law Derrick Chikore, was awarded the contract, initially pegged at US$194 million a year, without going to tender. A senior military commander is also involved behind the scenes in the murky project.

Government reduced the Dema deal to US$83 million per year, following the Zimbabwe Independent’s exposé of how the project would cause a spike in electricity tariffs while crippling the Zimbabwe Power Company and the Zimbabwe Electricity Transmission and Distribution Company.

Presenting his mid-term fiscal policy review statement last week, Finance minister Patrick Chinamasa said government had put a waiver on the import duty for fuel used at the Dema plant so that costs remain at US15,45c/kWh instead of US18c/kWh.
“Government has already waived duties and levies on fuel used as input towards generation of electricity at Dema, thereby reducing the final tariff from the diesel power plant to US15,45c/kWh,” Chinamasa said.

“The Zimbabwe Electricity Transmission and Distribution Company signed a three-year Power Purchase Agreement with Sakunda Holdings for supply of 100MW from the Dema Emergency Power Plant, to be reviewed every 12 months.”

The tariff, however, remains high when compared to imports from the Southern African Power Pool as well as electricity produced at other power stations locally.

Electricity generated at Kariba costs US4,11c/kWh, while that from Hwange Thermal Station costs US6,97c/kWh.
Engineers at ZPC have argued that it would have been cheaper to expand capacity at existing power stations rather than setting up the costly Dema Power Plant.

Zimbabwe imports electricity from the Zambia Electricity Supply Corporation at a cost of US5,18c/kWh, Mozambique’s Hidroeléctrica de Cahora Bassa (HCB) at US5,66 c/kWh, South Africa’s Eskom at 13,32c/kWh) and Lunsemfwa of Zambia 8,00c/kWh.

APR Energy Holdings won the tender for the project last year, but the company was later sidelined in favour of Sakunda after the intervention of the Office of the President and Cabinet.

The deal — which carries serious financial, technical and operational risks — is largely seen as a brazen crony arrangement at the expense of Zesa and its clients.

The Dema project consumes 12 million litres of diesel per month to produce 100MW.

APR has since revealed Zesa could have saved approximately US$200 million over three years had it explored alternatives such as the use of liquid petroleum gas instead of diesel-powered generators at Dema.
APR chairperson and chief executive officer John Campion told the Independent that diesel-powered reciprocating engines were “not the most practical or cost-effective option available to ZPC or its customers.”

“Had the options for power generation truly been open-ended, we would have recommended a solution using state-of-the-art mobile gas turbines that could run on conventional fuels such as diesel, as well as lower-cost and widely available alternatives such as liquid petroleum gas, naphtha and kerosene. The turbines’ ability to switch seamlessly between fuels allows power generators to adjust fuel supply based on cost and availability,” Campion said.

“The primary cost factor for fossil-powered generation is fuel, and current economic forecasts widely agree that global petroleum prices are rebounding. However, with the growing availability of natural gas worldwide, prices for gas liquids such as LPG are expected to remain flat through at least to 2018, resulting in an anticipated cost differential of approximately 50% compared with diesel.

“Based on these assumptions, ZPC could save approximately US$200 million over three years while operating 200MW of turbine-powered generation on LPG.”