THE revelations by the Zambezi River Authority (ZRA) that a consortium which clinched a deal to implement the 2 400-megawatt (MW) Batoka Gorge Hydro-Electric Scheme (BGHES) was struggling to mobilise funding for the project is bad news to local industry.
The local industry, whose operations have been severely affected by power cuts, has been pushing the government to prioritise the completion of Batoka Gorge power station to meet higher electricity demand projected as the economy rebounds.
But in its 2021 annual report released last week, ZRA said the Consortium of Power Construction Corporation of China Limited and General Electric indicated that banks had steered clear of the massive asset to avoid risks.
ZRA, a special agency controlled by both Harare and Lusaka to manage the Zambezi River, said the consortium had requested credit enhancement support from the two countries.
“The developer (the Consortium of Power Construction Corporation of China Limited and General Electric) completed all pre-development activities which included additional geo-technical studies, aerial surveys on and around the project site, compilation and submission of feasibility studies and proposal,” ZRA said.
“In the proposal, the developer requested credit enhancement support having faced challenges in mobilising funds from potential financiers due to the sovereign defaults of the contracting States.
“In addition, the developer sought tax incentives from the contracting States; 100% power off take by (power) utilities (Zesa in Zimbabwe and Zesco in Zambia) and a project investment cost of US$4,9 billion resulting in tariffs of 8,4181USc (US cents) per kWh (kilowatt hour) and 8,0862 USc per kWh in Zambia and Zimbabwe, respectively,” ZRA noted.
It said engagements were continuing with Harare and Lusaka “to ensure the success of execution of this project”.
In March, Zesa Holdings executive chairperson Sydney Gata said several missteps had held back the project, which marked its first 50 years since it was mooted in 1972.
Batoka returned to Zimbabwe and Zambia priority lists in 2014, after previously being affected by political instability and funding problems. Regarded as one of the finest power sector brains, Gata told the International Renewable Energy Conference that the latest problem was lack of a bankable feasibility study.
“A risk profile shows the structure of your project and the risk that it is carrying,” Gata told delegates at the conference.
“Now, a typical IPP (independent power project) goes through these phases. If you miss them you get nowhere. Unfortunately, between Zimbabwe and Zambia we missed a fundamental step and for many years now we are rotating around that challenge.
“A new start came when there was new collaboration. Batoka has unfortunately proceeded without a full feasibility study. It was never put under review of a complete risk matrix,” he added.
Generally, accessing funding for big projects becomes problematic without feasibility studies.
In a presentation made to an oversubscribed and exciting economic review webinar organised by the Zimbabwe Independent in September last year, Confederation of Zimbabwe Industries (CZI) president Kurai Matsheza said there was a need for the government to put more investment on electricity infrastructure to match economic growth prospects.
“We urge the minister (Finance minister Mthuli Ncube) to accelerate efforts at the Batoka Gorge. That is green energy and we would want him to focus on making that Batoka Gorge a reality and also other developments along the Zambezi River.
“There are other sites along the Zambezi River that we can work with neighbouring countries. So that is an effort that needs to be made.”
To mitigate power outages, Zimbabwe’s local industries have been relying on generators, whose use fuels the costs of running businesses as most fuel service stations only sell fuel in foreign currency and it is expensive.
Currently, diesel costs US$1,86 while petrol (Blend E15) is now at US$1,76.
The Batoka Gorge hydropower station, set to be developed on the Zambezi River between Zambia and Zimbabwe, will be located 54 kilometres downstream of the Victoria Falls, one of the biggest waterfalls in the world.
Harare and Lusaka entered a memorandum of understanding in February 2012, with the African Development Bank coming in as lead financier and co-ordinator for the US$4,5 billion deal.
On completion, the 2 400MW power plant is expected to ameliorate power shortages affecting the two countries.
Zimbabwe heavily relies on its only hydropower plant, the Kariba South Power Station, which is the biggest power generation plant in the country, with a total generation capacity of 1 050MW.
The country also has four thermal power stations including Hwange Power Station, the largest coal-fired power station with a capacity of 920MW.
Power generation at these stations is often reduced due to the maintenance of ageing equipment.
Zimbabwe has an average power demand of about 2 000MW, but the power utility’s total power supply hovers around 1 288MW, according to the Zimbabwe Power Company.
This means the power average deficit is 200-700MW depending on imports availability and local generation performance.
Zimbabwe imports power from South Africa’s power utility Eskom, Mozambique’s Hydro Cahora Bassa and Zambia’s Zesco.
There had been renewed impetus in the past decade to see the project through, but according to ZRA progress was stalled by funding problems.
An Environmental and Social Impact Assessment disclosure process for Batoka was completed recently, paving the way for the implementation of the project.
Construction is expected to take six years, but electricity generation will start in the third year.
The bi-national project is expected to create approximately 6 000 employment opportunities.