HomeLocal NewsUS$2bn mining deal in limbo

US$2bn mining deal in limbo

THE US$2,1 billion coal mining and coal-bed methane (CBM) gas extraction venture in the Gwayi area of Lupane, Matabeleland North, which was commissioned in 2012 and is being undertaken by China-Africa Sunlight Energy Company (Caseco), is in limbo due to a lack of funding.

Silas Nkala

This comes at a time the government this week signed a US$1bn deal with Sinosteel Corp under which the Chinese firm will build a 400-megawatt coal-bed methane-fired power plant in Matabeleland North Province The joint venture between the Defence ministry’s Oldstone Investments and a Chinese company, Sha Don Sunlight Energy Investments, was supposed to culminate in the construction of power stations which would contribute 1 800MW of electricity to the national grid.

It was also expected to create 4 500 jobs when fully operational while also contributing to several downstream businesses such as fertiliser and tyre manufacturing, brick moulding and liquid gas processing.

Sources close to the deal, however, revealed that the project was now off the rails because the investor had not secured funds, although former president Robert Mugabe gave the impression that funds were readily available at the commissioning.

President Emerson Mnangagwa, who at the time was Defence minister, read the speech on behalf of Mugabe.

Government said the technical partners were coming in as investors, not contractors, thereby bringing foreign direct investment accompanied by the necessary technology and skills to ensure they guarantee the performance of investment.

Permanent Secretary in the Energy and Power Development ministry Patson Mbiriri confirmed this week financial constraints had stalled the project.

“Over the last decade, our economy was shrinking and demand for power was declining.

Given this situation, no one in their right mind would build a new private sector power station in such a situation.

A new IPP (independent power producer) power station would be a white elephant,” Mbiriri said.

“There would be no takers for such power.

For this reason, none of the proposed private sector power stations were able to realise financial closure.

No bank or investor was prepared to put their money on IPP power stations, China Africa Sunlight Power Station included.”

Mbiriri said he was hopeful that the Caseco project and other power projects which have stalled because of lack of funding will get back on track as the economy improves.

“Now that our economy is showing signs of turning around, we expect the proposed IPP power stations to start experiencing financial closure and subsequently being implemented, all because they will be assured of offtakers for the power they shall generate,” he said.

Government this week signed a US$1 billion deal with Sinosteel Corp under which the Chinese firm will build a 400MW coal-bed methane-fired power plant in Matabeleland North.

The company has also committed to set up new ferrochrome smelters at Zimasco.

Sinosteel agreed to build a ferrochrome smelter in Zvishavane and Kwekwe.

Government says the investment will create nearly 25 000 jobs. In June 2014, government indicated that Caseco would commence the construction of its Gwayi coal mine and residential complex worth US$100 million in July 2014, but this did not happen.

The first phase of ambitious US$2,1 billion energy projects was set to be developed over five years.

As part of the first phase of the project, the company was to construct a 300MW power station.

The second phase of the power project was to focus on methane gas extraction and another 300MW plant which was to be completed in mid-2017 but the timeline was also missed.

CBM has made the transition from being a marginal resource and is now a viable alternative source of gas in many countries including United States and Australia.

According to a report which provides an overview of the potential of a CBM industry in Zimbabwe, compiled by Project 263, Zimbabwe has 765 billion cubic metres of measured coal-bed methane resources.

The CBM resource in Zimbabwe exceeds the amount in the entire Southern African Development Community.

The Sadc gas resources amount to 420 billion cubic metres.

The report says Zimbabwe’s CBM has a high purity of 95% methane and can be used to produce clean water for irrigation and domestic purposes while also producing fertiliser and electricity, thereby lowering the country’s import bill.

“Unlike conventional gas, which is found at depths up to 7 000m, CBM is typically found at depths of
400–1 000m.

These shallower depths make it possible to use smaller, more mobile, truck-mounted drilling rigs compared with those used for conventional gas wells.

These types of rigs have much lower costs and therefore improve the project economics,” reads the report.

On power generation, the report says: “CBM offers an alternative source of energy for power generation.

Power generation is in fact a very convenient use for CBM because CBM supply cannot be switched on and off depending on demand, as wells that are shut-in start to water again.”

Meanwhile, former Zimbabwe People’s Revolutionary Army (Zipra) members are bitter after being excluded from methane gas projects despite government’s promise to include them during the Caseco ground breaking ceremony in December 2012.

Mugabe in 2012 promised that Zipra members will be made shareholders of Caseco coal mine in Gwayi at a time the nation was gearing for the 2013 elections.

Zipra Veterans Association spokesperson Buster Magwizi said that five years after the promise, his organisation’s members have not benefited from the project.

“When Mugabe through Mnangagwa made a promise to us in December 2012, I responded to that promise, questioning how they will make our members benefit and who were they targeting as we have a large number of Zipra members.

I did not get a response.

To date, it is not clear to us who they were targeting and who have benefited,” Magwizi said.

“They could have approached Zipra’s mainstream organisation or Zapu to engage the former fighters’ representatives who know how to organise their members and to see how members can benefit from the project.

As far as we are concerned we have never been approached.

We only heard the promise at the ground breaking and nothing else.”

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