Source: Minister in fresh energy scandal – The Zimbabwe Independent May 27, 2016
…approves US$194m uneconomic Zesa deal
ENERGY minister Samuel Undenge is lurching from one scandal to another — this time he neglected or ignored technical and expert advice that the US$194 million-a-year Dema Diesel Power Plant deal would leave Zimbabwe Power Company (ZPC), already financially struggling, in deeper dire straits.
The latest scandal comes at a time when the minister is reeling from the US$200 million Gwanda solar power project in which dodgy tycoon and convicted fraudster Wicknell Chivayo was unprocedurally paid US$5 million without a bank guarantee.
Undenge also inherited dubious corrupt deals in which the country’s energy projects were given to shady businessmen who have criminal records, ranging from fraud to drug trafficking.
The deals were inflated by more than US$500 million, raising suspicions that Zimbabwe Electricity Supply Authority (Zesa) managers and senior government officials, including ministers, are benefitting from the shady contracts.
Undenge this week issued a press statement distancing himself from the flawed tendering processes, effectively blaming Zesa subsidiaries’ managers.
“In terms of State Procurement Act, tenders relating to state enterprises or parastatals are administered by the head of the appropriate state enterprise,” he said.
However, officials at ZPC told the Zimbabwe Independent this week that Undenge approved the Dema Diesel Power Plant project, a public-private partnership deal between government and Sakunda Holdings, despite advice it was too expensive and unsustainable.
ZPC would be obliged to pay US$16,1 million upfront every month for electricity generated at Dema.
The 200-megawatt project did not go through the tender process as it was deliberately designed as a public-private to avoid tendering. This was also calculated to keep it shadowy to protect prominent individuals lurking in the background.
Undenge met senior ZPC officials on Monday last week and gave the project the nod despite objections from informed engineers.
ZPC officials preferred that the funds to be given to those behind the murky deal be channelled to permanent national projects, particularly the Hwange Thermal Power Station and the Kariba Hydro Power Station expansion projects.
Documents seen by the Independent show the Dema deal will cost a staggering US$194 million a year if Zesa buys 1,072 gigawatt hour (GWh) at a cost of 18,06 US cents per kilowatt hour (18,06c/kWh).
By comparison electricity generated at Kariba costs 4,11c/kWh, while that from Hwange Thermal Station costs 6,97c/kWh, making expansion projects far cheaper.
The Dema deal, documents say, will have serious cash-flow implications on ZPC, hence its recent application to increase the tariff by 49%. This means Zesa’s struggling customers, already battling with huge bills and poor service delivery, are now being asked to subsidise corruption.
Documents show ZPC will pay US$16,1 million in advance every month for the Dema project which could run for three years, further escalating the unaffordable cost.
In addition, ZPC is importing electricity from South Africa, Mozambique and Zambia at high prices, which has also contributed to the proposed increase in power charges.
Zimbabwe imports electricity from the Zambia Electricity Supply Corporation at a cost of 5,18c/kWh, Mozambique’s Hidroeléctrica de Cahora Bassa (HCB) at 5,66 c/kWh, South Africa’s Eskom at 13,32 c/kWh) and Lunsemfwa of Zambia 8,00c/kWh.
The costs are significantly lower compared to producing electricity using diesel generators, hence further objections from ZPC. The power utility prefers expanding local electricity generating infrastructure or increasing imports than engaging in a costly and crippling diesel power generation project.
The documents also highlight the impact of the Dema project would have on the company and the Zimbabwe Electricity Transmission and Distribution Company (ZETDC). They indicate the Dema project and the power imports can only be sustained through a significant power tariff hike, further punishing customers.
“ZETDC proposed to increase the end-user average tariff from 9,86USc/kWh to 14,69USc/kWh. The proposed tariff increase (49%) is mainly for the purposes of securing additional revenue to procure emergency power from Eskom, Lunsemfwa and 200MW diesel plant to be installed in Dema to augment low projected production at Kariba South Power Station,” one document says.
“The emergency power suppliers are insisting on upfront payments as security for these more expensive sources. This situation poses a serious threat to ZPC’s already precarious ability to collect revenue from ZETDC, given the recent collections trend.”
Besides the Dema project which will gobble US$16,1 million monthly, Eskom already gets paid US$6,3 million, HCB US$3,5 million and Lunsemfwa US$1,4 million.
Documents also say ZETDC is owed more than US$1 billion by customers and thus clients are unlikely to afford the proposed tariff increase.
“That said, the prospects of improved revenue collection for ZPC are low, especially bearing in mind that the emergency power suppliers are insisting on upfront payments. The customers have also indicated that they may not be able to afford the proposed increased tariff (as evidenced by the already existing US$1 billion debt), further worsening the projected collection rate and posing additional risks to ZPC, ZETDC and the rest of the economy,” the document says.
The document further says projections were that ZETDC would collect US$55,9 million every month, but would pay US$35,7 million of the total to emergency power suppliers and the Zimbabwe Revenue Authority, leaving US$20 million to be shared between ZPC and ZETDC.
“ZPC would receive a monthly average of US$10,1 million, compared to US$22 million in 2015. This situation would not favour ZPC as it would further shrink the company’s cash-flows and ability to meet its obligations,” the document says.
ZPC sources also said the Zimbabwe Energy Regulation Authority had not licensed the Dema project even though it has already been approved by the minister and his officials.
“The Dema project was only allowed to go through due to political influence and vested interests by government authorities,” one official said. “Sakunda has received the first batch of 40 diesel-powered generators to be mounted at the plant just outside Chitungwiza, while 100 more will be transported by road from South Africa.
“Furthermore, Zera had not yet licensed the deal when it was taken to cabinet where it was just rubberstamped.
Contrary to his claims in the media, the minister gets involved directly, especially in this process as he has been meeting ZPC management every Monday when that should be the role of the board.”
Contacted for a comment yesterday, Undenge said he was out of Harare and could not say anything on the deal.
“Currently I am out of Harare and I cannot give you any comment,” he said.