HomeLocal NewsZimdollar return weighs on Hwange expansion project

Zimdollar return weighs on Hwange expansion project

ZIMBABWE is in the throes of a debilitating power crisis, although there are new electricity-generation projects being undertaken. Zimbabwe Independent (ZI) reporters Tinashe Kairiza and Chipa Gonditii spoke to Sinohydro vice-president for East and Southern Africa Wu Yifeng (WY), whose company is constructing units 7 and 8 at Hwange Power Station. The company also undertook the Kariba South expansion project which was completed in 2017 and will jointly construct the Batoka Power Station as well. Wu outlined several challenges the company is facing, although he was hopeful that power challenges will be addressed with time. Below are excerpts:

ZI: Sinohydro is one of the world’s largest hydropower construction companies with a 50% share of the international hydropower market. What are some of the major projects you have undertaken?

WY: The full name of our group is China Power Construction Corporation Limited. It is the largest power construction company in the world. We are also into other sources of power business which include solar, nuclear, hydro and wind power. Sinohydro is the flagship brand of Power China. It is wholly owned by the Chinese central government. We are a state-owned company.

In China, Sinohydro has undertaken 65% of hydropower plants. We have also undertaken projects in Ethiopia, Sudan, Uganda, Zambia, Zimbabwe, Cameroon, Ghana, Nigeria and a number of countries in Latin America.

ZI: In 2015, you won the bid to expand the power generation capacity at Kariba Hydro Power Station, how does this project address the country’s electricity needs?

WY: If we didn’t have a drought and the water levels were normal, the project has capacity to feed 300MW to the national grid. In 2015, the country had a total installation capacity of 2 300MW. But the country has not been generating sufficient power for a number of reasons. For example, the Hwange plant is not 100% functional. It is old and it needs rehabilitation.

In 2015, the total capacity was 1 200MW, but the demand was 2 000MW. So you had a shortage of 800MW. So another 300MW from Kariba South will mitigate such a shortage. Let me be very clear, the 300MW will however not sort out the power shortage issue completely. This is so because Kariba South extension is only a peak load and does not run for 24 hours.

As a result, we need a base load. That is why we started building the Hwange 7 and 8 units as a base load of 300MW. So if you consider the 300MW for Hwange and the 300MW for Kariba, generally we say it can sort out the power issues. We can also see that the industry of the country is developing, especially the mining sector. They need power. Power shortages will affect the development of the mining sector. With sufficient power, mining output will increase three or four-fold.

ZI: The project was pegged at US$533 million, but there has been concern that the cost could was somewhat inflated. What was the exact cost of the project in relation to a similar project you undertook in Zambia at a cost US$370 million?

WY: I always get confused when people use different things for comparison purposes. You need to raise money from the bank. You also have to factor in the construction cost which is the money you need to pay the constructor to build the power plant. In the case of Kariba South, it was US$355 million. Then the balance is finance cost. The bank will not give you the loan for free. You need to pay the interest.

Zimbabwe Power Company (ZPC) needs to engage with advisers like KPMG so that they can help them supervise the contractors. They need to pay these advisers.

You need to pay for the power producing licence. You need to pay the Zimbabwe Energy Regulatory Authority (Zera).

You also need to pay for water. If you factor in all these costs, the amount will come to US$553 million. So we cannot use Zimbabwe’s example and compare it to Zambia. It is not fair. It is wrong and misguided.

The projects are generally similar, but have some differences. In Zambia, the underground powerhouse had already been established in the 1990s, but in Zimbabwe we had to set up a new one. For Zimbabwe, we needed to excavate a very big powerhouse. Secondly, in Zambia, the power intake structure is slanted and in Zimbabwe the power intake structure is surrounded by hard rock which makes the excavation costly. Yet people do not see this difference.

Even the capacity of the turbines is different. In Zambia, it is 360MW and for Zimbabwe it is 300MW. The construction time in Zambia was 48 months and in Zimbabwe it was 42 months.

ZI: You completed the project in 2017, is there an arrangement in place that you can also assist with maintenance in the event of faults at the power plant?

WY: Indeed, according to the contract, we have a two-year defect liability period. That means during that period we will be helping the local engineers on how to operate the project. But if something is faulty, it is our responsibility to repair.

After the maintenance period, we will hand over to ZPC. We believe that they have enough capacity to run this project because they have experience from the existing units. Up to now we haven’t faced any problems.

ZI: In Zimbabwe, you won the bid to extend the power generation capacity of Hwange Power Station at a cost of US$1,2 billion. When is this project going to be completed?

WY: The first unit will be commissioned in November 2021 and the second one in January 2022 with a cumulative power generation of 600MW. Before the Kariba project started, this country had an 800-900MW power shortage. Kariba South is done now; if we put another 600MW on the grid then theoretically the country will not suffer.

The industry is growing, and l believe when the Hwange 7-8 is completed, households will no longer need to use diesel generators. There will be no need to import electricity from South Africa. But from the industry side, the country will still need more power.

At the same time, we must realise that the existing power plants are more than 30 years old. They can shut down at any time. So we may need a new power plant while we retire the old one. In a nutshell, by the time Hwange is complete, the country will not be suffering from power shortages.

ZI: We also understand that you are also involved in the Batoka power project. How much is required to roll out this project?

WY: It would need roughly US$4,6 billion. The government urged us to start work next year in August. It is such a big project. It is not easy to raise such an amount in a very short period, but we will try. The Chinese government will support.

ZI: What are some of the challenges you have encountered in the implementation of the two projects in Zimbabwe?

WY: Generally, the government has been supportive. But during the execution of the project, we encountered a couple of challenges like diesel shortages. For such a big project, we are supposed to get duty-free diesel. But the government system is changing and we need to pay duty.

The second challenge is foreign currency. We do our best to buy local products like timber, cement, but there are still some things like steel; you have to import from outside and you need foreign currency. In the case of Zimbabwe, the repayment performance is not very well. This relates to the Zimbabwe Defence College. The country also has arrears.

If government delays on repayment, then China Eximbank will delay the release of funds to us. The other challenge is the issue of immigration. We need to bring some Chinese engineers to the site. As it is, these engineers have to impart skills to their Zimbabwean counterparts. But the immigration regulations are always changing and they have requirements which are hard to meet. They are friendly to help, but it takes time.

ZI: This year, government scrapped the multi-currency pricing regime and re-introduced the Zimbabwean dollar. How did this policy move impact on your operations?

WY: It is really affecting the project. For example, we are now paying salaries in the local currency as opposed to US dollars. It has also affected us negatively because when you are purchasing cement they require US dollars, but the government does not allow us to pay US dollars. So we have to convert the foreign currency to the local currency.

ZI: Power generation has attracted intense interest in relation to environmental concerns. How environmentally friendly are the two projects you have rolled out in Zimbabwe?

WY: Environmental protection is a key priority for our company. We were lucky because at Kariba South the lake was already there. The only thing we did was dig a tunnel underground and excavate a powerhouse and we put a turbine in the ground. This does not affect any human, plant or animal life.

At Hwange, it is different since it is a thermal power station. If you go there you will see black smoke coming from the chimney. It is that way because the plant is too old, resulting in a process called desulphidation. We adhere to World Bank (WB) standards. Once we are done at Hwange, you will not see the plumes of black smoke again.

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