HomeBusiness DigestRed tape costs Zim 100MW…IPPs funding deals face cancellation

Red tape costs Zim 100MW…IPPs funding deals face cancellation

ABOUT eight renewable energy projects with a combined 100-megawatt (MW) capacity have flopped due to Treasury’s delays in signing an independent power producer (IPP) implementation agreement, businessdigest heard this week.

Zimbabwe is battling lengthy power outages, with industrial and domestic consumers enduring up to 12-hour blackouts a day.

At the centre of the crisis is national electricity producer, Zesa Holdings, which has struggled to meet demand due to undercapitalisation stemming out of huge unsettled bills running into millions of United States dollars.

In an interview with businessdigest this week, a representative of the Zimbabwe Independent Power Producers Association (Zippa) said lenders to IPP projects were backtracking in the absence of such an agreement.

“The excessive delay has meant IPP projects have not been able to obtain financial closure — the knock-on effect can mean that potential lenders have moved on and committed their funds to other jurisdictions, in which case the impact is not delay, but could be cancellation,” the Zippa representative, Ian Mckersie said.

“It is estimated that eight renewable energy projects with at least 100 MW capacity have been unable to reach financial closure and proceed to the construction phase as a result of the same issue.”

A government official said last week the country could spend up to US$200 million this year on power imports.

The country imports between 200 – 400 MW from Southern African Development Community peers to bridge the big gap between available electricity and demand.

However, experts have indicated that this could be avoided if Treasury signs an IPP implementation agreement.

If signed, the agreement expedites implementation of IPP projects.

According to Sydney Gata, the Zesa Holdings executive chairperson, the entry of licenced IPPs meant Zimbabwe could potentially generate about 6 000 MW, turning Zimbabwe into a net electricity exporter.

IPPs are currently feeding 135 MW into the national grid.

However, the Zimbabwe Energy Regulatory Authority (Zera) says it has issued enough licenses to generate 6 858 MW.

Mckersie said impediments to the establishment of IPPs included waning confidence by foreign investors in Zimbabwe’s policies around the repatriation foreign currency.

“The lack of a single exchange rate and the ultimate reliance of investors on the forex auction system for convertibility and remittability of loans do not attract inward investment,” Mckersie said.

“Foreign lenders view the forex auction system as managed and opaque and are discouraged. ZETDC (Zimbabwe Electricity Transmission and Distribution Company) is not empowered to collect electricity tariffs in USD and therefore cannot pay local IPPs in USD so that they in turn can honour their loan commitments.

“Curiously, the government supports ZETDC paying external suppliers of electricity in USD, some of whom are foreign IPPs, whilst refusing to allow ZETDC the ability to pay local IPPs in US dollars.

“The IPP sector has been promised the publication of the implementation agreement for many months and nothing has happened. In the meantime, development is stalled,” he said.

Mckersie said IPPs, as suppliers of electricity, were regulated by a statute and their tariffs were approved by Zera.

“They cannot adjust their prices for changing risk profiles. Their tariffs were awarded on the basis of there being no conversion or remittability risk – this is no longer the case. Their business model depends upon a viable and liquid off-taker paying them properly,” he said.

“It is therefore essential that ZETDC is permitted to charge real viable tariffs so that they in turn can pay their suppliers, be they local or foreign.”

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