Chinese Lenders May "Switch Off" Hwange Power Plant Over Debt, Warns Industry
Zimbabwe’s industries are worried that Chinese lenders, who financed the US$1.4 billion refurbishment of the Hwange Thermal Power Station, may “switch off” the facility due to ZESA Holdings’ struggles to service the debt.
If banks pull the trigger, Zimbabwe faces worsening power shortages, compounding the nation’s already dire economic situation, which includes inflation, foreign currency shortages, bankruptcies, and the loss of global brands.
Blackouts of up to 18 hours a day are already hindering industrial growth, with investors warning of long-term economic ramifications from the ongoing energy crisis.
Zimbabwe’s largest power source, the 600-megawatt Hwange plant, has become crucial after a drought severely reduced generation at the Kariba South Hydroelectric Power Plant, leading to the worst blackouts in 44 years, according to some industrialists.
ZESA began paying US$36 million in monthly instalments to Chinese lenders in October of last year.
However, it was only able to make its first payment after pushing for a tariff hike to improve its capacity to service the debt for the refurbishment of Hwange’s Units 7 and 8.
In an interview with the Zimbabwe Independent, Christopher Mugaga, chief executive officer at ZNCC, urged authorities to ensure that the debt is paid. Said Mugaga:
We have to pay the debt. We have been failing to service Hwange 7 and 8 in terms of debt repayment to the Chinese, which is an issue.
Even if units 7 and 8 continue firing on all cylinders, the debt position can make the Chinese switch off until we pay. This is the reason why I say the power situation is dire.
If you look at the impact of power shortages, they are having far and wide impacts in terms of literally all sectors of the economy.
We are looking at power outages on average of more than 60% of working hours.
The power challenges are eroding or threatening GDP (gross domestic product) growth by almost 0,8 percentage points.
Mugaga said the ongoing electricity crisis has led to approximately 45,000 people losing their jobs or facing an industry downturn, leaving it unable to create new employment opportunities. He said:
As I talk to you, if you look at the Kariba power station, we are generating an average of 100MW.
You can imagine how terrible it is. Units 7 and 8 are generating about 600MW. They are operating well. Unit 5 is literally dysfunctional; it has a capacity of about 150MW.
Then Units 1 to 4 are producing less than 100MW. They are always under repair and failing.
On average, you will see that we are not looking at less than 45 000 human bodies who could potentially have been employed but either are losing their jobs, or no jobs are created due to the power challenges alone.
The Hwange Units 7 and 8 Expansion Project was financed by the China Exim Bank, which provided a loan of around US$1 billion. The bank also provided a loan of US$319 million for the expansion project at Kariba Hydro Power Station.
However, it remains unclear whether the lenders have legally binding authority to shut down the power station over the debt.
Zimbabwe and China maintain strong diplomatic relations, and analysts suggest that these ties will play a big role in shaping how Chinese lenders address the debt issue.
More: Pindula News
