PRESIDENT Robert Mugabe’s in-law, Derick Chikore, brother to Simba who is married the president’s daughter Bona, has an interest in the dodgy US$194 million-a-year Dema Diesel Power Plant which will result in a spike in electricity tariffs, while financially crippling the already struggling Zimbabwe Power Company (ZPC).
By Elias Mambo
The project, which is under the direct supervision of the Office of the President and Cabinet, is the latest in a string of scandals rocking state power utility company, Zesa Holdings.
Zesa now has four subsidiaries after its unbundling, which include electricity generating entity ZPC, power distribution unit Zimbabwe Electricity Distribution Company (ZETDC), investment arm Zent, and telecoms bandwidth provider PowerTel.
After exclusively reporting last week the costly US$194-million project would prejudice ZPC and trigger higher tariffs, the Zimbabwe Independent can now reveal that Mugabe’s relative by marriage, Chikore, is partnering Kuda Tagwirei of Sakunda Holdings in the murky project.
Tagwirei refused to comment on the matter yesterday, but Chikore confirmed the deal.
“Yes, we are working together and we are already on the ground,” Chikore said.
This makes the deal — which carries serious financial, technical and operational risks — a brazen crony arrangement at the expense of Zesa and its clients.
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 cost. The economy would also suffer if power charges go up to subsidise corruption.
Documents seen by the Independent show Sakunda was awarded the 200-megawatt project despite not participating in the tender process in the first place. The project initially went through the normal tendering process and was awarded to APR Energy Holdings, but the company was later sidelined in favour of Sakunda after intervention by the President’s Office, senior government officials say. Despite having a higher cost structure than any of the companies which had submitted bids, Sakunda was still awarded the project through the back door.
Sources familiar with the project said this week the awarding of the multimillion-dollar-project to Chikore and Tagwirei was also a payback time gesture to the local fuel dealer who occasionally bails out the bankrupt ruling Zanu PF, including during the 2013 elections. The sources also said the fact that the Chikores were Mugabe’s in-laws played a critical role in swinging the project to Sakunda without going to tender. Government initially flighted an advert inviting companies to build the emergency power plant last year. According to the adjudication report seen by the Independent, only three companies, Altaaqa Alternative Solutions Global FZE, Aggreko and APR, submitted proposals by November 17 2015 when the tender closed.
The adjudication report reveals APR won the tender because it was fully compliant with its mandatory and technical requirements.
“It is (therefore) recommended that the tender for the provision of emergency power through designing, building and operating a scalable and modular 200MW emergency plant, Tender No. ZETDC/HO/SFT/01/2015, be awarded to APR Holdings Limited,” the report says.
The awarding of the tender to APR was subject to negotiations on the price, dry fixed monthly capacity charge, dry variable non-fuel energy charge, wet fixed monthly capacity charge and wet variable energy charge.
APR also offered to employ and train local personnel. The company’s payment terms included that “all costs are to be recovered through the tariff based on billing subject to the billing conditions (no advance payments)”.
Other terms were that: “The costs are to be recovered based on a monthly billing system within 30 days of invoicing; financial security is required in form of a stand-by letter of credit by an APR approved bank; mobilisations costs are not required in advance and that withholding tax of 10% on APR revenue (excluding fuel) be included in the tariff.”
The document also says the adjudication team “recommended Scenario 4 — Wet variable energy charge whose price was US$0,271 per kWh delivered (excluding duty)”. It states the scenario was recommended due to the fact that “it offers the lowest tariff and hence increasing the chances of customers servicing the bill; should an exemption on withholding tax be granted, it will further reduce the tariff”. The scenario also “removes the risk of supplying fuel which is subject to price volatilities and also removes the risk of ensuring guaranteed supply of fuel which comes with penalties”.
The report further shows Aggreko, which is now partnering Sakunda in the Dema project, was initially disqualified because the “bidder is non-compliant with mandatory technical requirements of the request for proposal”. Aggreko was also disqualified as its costs were higher than what ZPC wanted.
ZETDC sources said the Zimbabwe Energy Regulatory Authority (Zera) was later ordered by the President’s Office to approve a tariff of 15,45 US cents/kWh for the power purchases agreement.
Zera then wrote to Sakunda on May 20 advising the company’s tariff structure had been approved.
“Zera advises that a tariff of 15,45 cents/kWh for the power purchase agreement between ZETDC and Sakunda for 100MW (tender document says 200MW) diesel-fired power plant was approved by the Zera board at its meeting of May 3 2016,” reads the letter. “The approval is subject to the concurrence by the minister in terms of Section 53(6) of the Electricity Act (Chapter 13:19). Once consultations are concluded, Sukunda will be informed.”
This is, however, contrary to what the tender specifications required because ZETDC rejected companies that could have provided the same amount of energy at lower rates. APR, which had won the tender, was charging 12 US cents/kWh compared to Sakunda’s 15,45 cents/kWh. Despite initially winning the tender, APR was sidelined reportedly after the President’s Office intervened under political pressure from the top backing Chikore and Tagwirei to overturn the tender results as well as reject technical advice from the energy experts who warned the project was costly.
As reported by the Independent last week, ZPC officials preferred that funds to be channelled out as repayment of debt for the Dema investment be directed to permanent national projects, particularly the Hwange Thermal Power Station and the Kariba Hydro Power Station expansion activities. Besides, ZPC produces cheaper electricity in Kariba and Hwange.
Documents 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 show, 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 corrupt activities.
Despite being shady, Chief Secretary to the President and Cabinet Misheck Sibanda last week toured the project.
“We have come to inspect this project, which is a government-approved project. In the wisdom of cabinet, it was decided that we should move towards emergency power generation to augment the scarce power generation we have in the country,” he said.
Senior government officials said the Dema project has divided cabinet as some ministers feel it is now unnecessary because the supply and demand or market circumstances have changed mainly due to company closures and resultant lower energy use. They also feel its cost is extortionate.
“This project has divided cabinet as some ministers consider the cost and impact on the consumers,” a cabinet minister said. “While a few support it, the majority of ministers feel it is not necessary and would in any case result in an alarming increase in power tariffs which will affect the government and the ruling party ahead of the 2018 elections.”
Efforts to reach Energy minister Samuel Undenge and Sibanda for comment were unsuccessful.