THE Zimbabwe Electricity Supply Authority (Zesa) has been forced to enter into a joint venture with a Chinese firm, Sinohydro Corporation, after it failed to raise the required US$350 million deposit to secure a US$1,2 billion loan from the Export-Import Bank of China for the refurbishment of Hwange 7 and 8 thermal power station, the Zimbabwe Independent has learnt.
The joint venture will be managed through a special purpose vehicle called the Hwange Electricity Supply Company (HESC), as a precondition for the release of the funds.
ZPC sources said while the development was good as it would guarantee the release of funds, the company will however not have its way in controlling the power station as Sinohydro will be involved in the day-to-day running of the station long after the completion of refurbishment.
“Sinohydro will run the stations for longer before handing them over to Zimbabwe. The other alternative is that once Zimbabwe has raised its deposit it can refund Sinohydro,” said a senior Zesa official.
Ministry of Energy and Power Development sources this week said the deadline for the submission of the loan application, as well as the requisite deposit was May 31.
“Zimbabwe submitted its application by May 31 without the US$350 million deposit, so we are hoping the contractor, Sinohydro, will provide the deposit,” the source said.
Zesa has been failing to raise the deposit for more than a year. Last year, President Robert Mugabe blocked Vice-President Phelekezela Mphoko’s attempts to broker a deal between the power utility and Botswana’s Capital Management Africa (CMA) where his son is a shareholder.
Mphoko’s son, Siqokoqela, tried to facilitate a costly US$350 million loan deal to be used as the requisite deposit at the China Exim Bank.
Zesa senior managers said Mphoko, using his son Siqokoqela’s links with CMA, wanted the power company to access a US$350 million loan at a usurious 20% per annum interest rate.
Last year, Finance minister Patrick Chinamasa said it will take 20 years for Zimbabwe to repay the loan.
Chinamasa published the loan agreement in the Government Gazette detailing its terms, including the 20-year repayment stipulation with a grace period of seven years at an interest rate of 2% per annum. The loan has a commitment fee of 0,25% per annum on the undrawn amount and management fee of the same percentage.
In January last year, China offered Zesa a US$1,2 billion loan for the refurbishment of the Hwange Thermal Power Station. The Chinese loan requires that government raise a substantial guarantee, of at least 15% plus other charges, before accessing the facility, hence efforts to raise the US$350 million.
Chinese President Xi Jinping signed for the release of US$1,2 billion for Hwange, with a repayment interest rate of 2% annually when he visited Zimbabwe in December 2015.
The power utility is in a serious financial crisis as it is owed close to US$1 billion. It is also struggling due to mismanagement and corruption.