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