Zim plans power import cuts with US$440m deal
GOVERNMENT has lined up a plan to reduce power imports by significant margins under a multimillion dollar deal to expand generation at the Hwange thermal power station, where vital projects are already underway to build fresh capacity.
The only setback is that the deal, which involves borrowing US$440 million from international funders, will aggravate Zimbabwe’s poor debt profile.
But Finance minister Mthuli Ncube said last week it presented the country with an opportunity to address drawbacks stemming out of a long drawn power crisis.
The 38-year-old coal thermal power plant was built to generate 920 megawatt (MW) at full capacity.
But following a decade of neglect and decay, output has plummeted to less than 300MW, according to official data, which showed this has had dire implications on the economy.
Last week, the Treasury boss approached Parliament, telling legislators to approve the transaction and give him headroom to save on power imports.
“Due to its age, the plant now has high and frequent emergency shut downs for unplanned repair works,” Ncube said.
“Cognisant of the above, the Zimbabwe Power Company (ZPC) approached Treasury to secure resources to undertake life extension with the purpose of restoring the power station’s capacity back to 880MW and to further extend the life of the power station by a further 20 years. The total cost of the rehabilitation programme is estimated at US$440 million. US$125 million has so far been secured from Standard Bank and Exim Bank (of India) — so it is US$50 million from Standard Bank and US$75 million from Exim Bank. An additional US$310 million has since been secured,” the minister said.
In response to ZPC’s request for funding for the project, Ncube said the government negotiated and signed a US$310 million line of credit agreement with the Export and Import Bank of India, which was concluded on February 24, 2020 for Hwange One to Six thermal power station life extension project.
“The line of credit from the Export and Import Bank of India has the following terms and conditions; the loan amount is US$310 million, the interest is 1,75% per annum, there is a commitment fee of half a percent (1/2%) on the undrawn balance, the management fee of 0,5% and this is a once off payment and there is a default rate of 2% should there be any default. There will be a reduction in power imports thus reducing demand for foreign currency,” the minister said.
Zimbabwe imports over half of its power requirements from South Africa and Mozambique.
Zimbabwe’s State-run power utility Zesa Holdings on Friday asked the mining industry to help with funding for settling almost US$70 million in debts to regional power firms in order to avert a power crisis.
Acting chief executive officer, Patrick Chivaura told delegates during the Chamber of Mines of Zimbabwe’s annual conference that Zesa stopped paying for imported power from Mozambique and South Africa in October last year due to foreign currency shortages.
The regional power utilities, Eskom of South Africa and Mozambique’s HCB, responded by cutting exports to Zimbabwe, he said.
“We have not been able to pay for our imports since October last year,” Chivaura said.
Demand for power is projected to increase in the coming year after the Confederation of Zimbabwe Industries indicated last week that it would be ramping up production in the coming months.
The CZI said Zimbabwe’s industries were busier in 2020 despite Covid-19 induced lockdowns, which grounded the economy for about seven months.
It said capacity utilisation increased to 47% during the period, from 36,4% the previous year after firms were able to access cheaper foreign currency from the auction system introduced by the Reserve Bank of Zimbabwe in June.
“Capacity utilisation rose by 11 percentage points to 47% in 2020 from 36,4% in 2019 (due to) improved foreign currency availability, increased sales and re-tooling,” CZI chief economist Tafadzwa Bandama said.
She projected capacity utilisation to rise to 61% this year, saying the economy would be helped by an aggressive vaccination programme that kicked off a few weeks ago.
Zimbabwe imports over half of its power requirements from South Africa and Mozambique.