BY SHAME MAKOSHORI
NYANGANI Renewable Energy (NRE), an independent power producer (IPP) which approached the Johannesburg-based International Chamber of Commerce for arbitration over a payment stand-off with state-run power utility Zesa, says it is owed almost US$9 million.
The payments are with respect to power sold to the Zimbabwe Electricity Transmission and Distribution Company (ZETDC) under a power purchase agreement (PPA).
ZETDC is the biggest Zesa subsidiary, tasked with transmitting power to consumers.
NRE, which operates the 15 megawatt (MW) Pungwe B Power Station in Nyanga, told the Zimbabwe Independent this week that ZETDC refused to pay in United States dollars, thereby violating terms of the PPA.
The dispute cuts across the industry, with several IPPs now at risk of having international lenders descend with heavy penalties after defaulting on debt servicing as their funds are trapped at Zesa, NRE said.
Zesa Holdings spokesperson, Priscah Utete declined to comment, saying the matter was sub judice.
But in an interview with the Independent, an NRE spokesperson said up to US$8,6 million was in dispute.
“A cornerstone of successful policies across any sector is that commercial obligations are honoured, investment incentives are sustained and a fair deal is given to foreign investors,” the NRE spokesperson, who is based in London, said.
“While Zimbabwe claims to be open for business, the government’s existing policies reflect otherwise. We are unable to share any court documents as the arbitration is still pending. But the claim is for electricity delivered by Pungwe B. This currently stands at US$8,6 million. It is Pungwe B’s case that the PPA is denominated in US dollars and payment should be in US dollars. ZETDC is resisting this interpretation of the contract.”
But NRE’s case could shed light into developments inside Zimbabwe’s IPPs and explain why despite licencing several IPPs, very few have moved to set up operations.
The Parliamentary Portfolio Committee on Energy and Power Development says the government has issued enough licences to generate 6 858MW of power, which is enough to meet demand and generate exports. IPPs are only transmitting 135MW into the national grid.
NRE said several key projects had stalled, and with a persistent shortfall in energy to meet peak demand, Zimbabwe has had to turn to expensive imports from the region.
“Zimbabwe, alongside many developing nations in the region, do not have resources to develop new energy infrastructure for themselves. They have legislated to create a domestic IPP sector to attract private capital, which can be deployed to build new generation schemes,” NRE said.
“US dollar-denominated foreign investment requires predictable US dollar returns. The IPP policy recognises this, and the PPA gives this certainty because it is drafted to an internationally bankable standard, which is a requirement of foreign lenders.
“Due to the US dollar payment dispute, IPPs have been unable to service their foreign loans and are in a technical default,” the NRE spokesperson said.
This week, experts said should ZETDC fail to honour agreements, confidence in its ability to work with IPPs will be affected and massive divestments from the sector may hit the country.
NRE estimated that eight renewable energy projects with at least 100MW capacity had failed to reach financial close and proceed to the construction phase as a result of payment deadlocks.
“The future of IPP projects is contingent on the arbitration decision.”
NRE is the oldest and largest IPP in Zimbabwe having built eight power plants with 32MW capacity since 2009.
All electricity is sold to ZETDC and delivered into the national grid.
NRE says last year, it generated 116 400 MWh, enough to power about 324 000 households.