FINANCIERS of the US$1,2 billion Hwange power generation expansion project risk losing investment capital due to government’s decision to levy tariffs in the local unit following removal of the multi-currency pricing regime this year, the Zimbabwe Independent can report.
This comes after government abruptly outlawed use of a basket of currencies, resulting in the re-introduction of the Zimbabwean dollar in a policy move that rattled business operations.
The multi-billion dollar project, which is being financed by the Export-Import Bank of China, is being implemented by Sinohydro, which also injected US$175 million in the project.
The project commenced this year and is expected to contribute 600 megawatts (MW) to the national grid by 2022.
Under the financing arrangement, Sinohydro was initially supposed to recoup its investment capital by levying tariffs in hard currency through a 35% stake it holds in a special purpose vehicle (SPV) with the Zimbabwe Electricity Transmission and Distribution Company (ZETDC).
The Chinese state enterprise injected US$175 million to acquire its 35% stake in the SPV.
Sinohydro vice-president for East and Southern Africa Wu Yifeng told the Independent this week that the state-owned enterprise could significantly lose out on its investment because of the move to charge tariffs in the local currency.
When the billion-dollar deal was consummated, parties to the arrangement agreed that tariffs would be levied in forex, to allow the Chinese state enterprise to recoup costs.
“About the tariff structure, I have a lot of issues to talk about. We signed an SPV with ZETDC which also addresses the question of tariffs. At the time of the agreement, the tariffs were (pegged) in US dollars. At that time Zimbabwe was still using the US dollar,” Wu said.
“But now everything has changed. And if people were paying a tariff of US 10cents per kw/hr two years ago and now they are paying 10 cents Real Time Gross Settlement (RTGS) it means if we revert back to US dollars that translates to US 1cent. If things remain like this it means there is no return for us. The project will break down.”
Zesa is currently levying 45c/kWh, translating to US$0,5/Kwh from non-exporting businesses.
Wu said Sinohydro was engaging government to address the tariff structure before the project becomes operational.
“I challenge your newspaper to urge government to review the current tariff structure. It is not normal and it is not fair to investors. Sinohydro invested US$176 million cash as equity for this project. If the tariff structure remains as it is, then we are ruined,” Wu said.
“It is our responsibility to express our concerns to government but they told us not to worry. If government signed an agreement with an investor then government has the responsibility to satisfy the agreement. So we are worried, but we will see.”
The Hwange expansion project, which would see the installation of additional units, namely 7 and 8 at the thermal power station has been buffeted by the acute shortage of foreign currency, power and fuel, among a myriad of challenges characterising the worsening economic environment.
Sinohydro also undertook the Kariba South expansion project at a cost of US$533 million and the plant is now contributing 300MW to the national grid. The multi-million dollar project was completed in 2017.