eBusiness Weekly
Golden Sibanda
One of Zimbabwe’s largest gold producers, RioZim’s plans to build a 2 800 megawatt (MW) coal fired power plant in Sengwa, Gokwe North, needs to clear three major hurdles to see the light of day.
This follows revelations that Chinese banks, who have agreed to fund the project, have demanded updating or rescheduling of outstanding sovereign debts before providing the requisite loans.
The other major stumbling block, RioZim must overcome, is the demand by prospective funders for the Zimbabwean company to obtain sovereign guarantee before the loan is disbursed.
The Chinese have asked for a sovereign guarantee or assurance from either the Government of Zimbabwe or the Reserve Bank of Zimbabwe that forex will be made available to service the loan.
In terms of the debts, Zimbabwe owes hundreds of millions of US Dollars to China in State guaranteed loans, which has seen many local projects failing to secure funding from the Asian country.
The mining company, which also extracts diamonds, requires US$3 billion for the phased implementation of the power project in Gokwe, which has been hanging since 1990 owing to funding issues.
Zimbabwe Stock Exchange listed RioZim has already signed exclusivity agreements with Power China in respect of the Sengwa power project and the two have also jointly applied for the funding from China.
RioZim, if only it eventually manages to build the power plant, would also feed the national grid, given the crippling power deficit due to constrained production, as well as the wider region.
The Sengwa project has also faced delays due to travel restrictions brought about by the outbreak of the coronavirus, which has resulted in national lockdowns and limited foreign traveling.
A team of Chinese officials is due to visit Zimbabwe for a due diligence of the Sengwa project, but have yet to obtain clearance for their authorities, due to Covid-19 restrictions, to make the trip.
The officials, which represent a syndicate of Chinese banks that may fund the project, have reportedly applied for clearance to travel to Zimbabwe. They are expected in the country by June this year.
“There is one area that is giving us problems; the Government is defaulting on its loans from China, so the Chinese are saying why cannot the Government update or reschedule the loans.
“It is always difficult for a company to get a loan when the Government of its country is defaulting, that is one of the biggest issues we are facing apart from the issue of Covid-19,” a source said on condition of anonymity.
RioZim corporate affairs executive Wilson Gwatiringa declined to comment on the Sengwa project funding issues, referring all questions to RioZim Energy, a unit of RioZim, general Simba Mhuriro, who could not be reached.
Following the economic meltdown in Zimbabwe since the turn of the century, the country started defaulting on its multilateral and bilateral loans, which resulted in most credit lines being cut off.
This period coincided with continued growth of Chinese influence following decades of economic boom and strengthening ‘so called” friendship for mutual benefit with many African countries.
As such China became a major source of foreign source to date with the China World Investment Tracker highlighting that Zimbabwe received over US$9 billion from 2005 to 2019 from China.
For instance, Zimbabwe has received from China US$144 million for the upgrading of Morton Jeffrey water treatment plant as well as about US$237 million for Harare City’s sewage treatment plants upgrade.
The Harare City Council also got US$868 million loan facility for water and sanitation projects while the Government received US$153 million for the Robert Mugabe International Airport expansion project.
China also extended US$150 million for Victoria Falls Airport refurbishment and US$98 million loan for the national broadband project.
Netone received US$420 million between 2011 and 2018 for 4G and LTE infrastructure projects.
In short, the bulk of loans by China to Zimbabwe have been to parastatals and State enterprises, with the bulk of the loans being extended at largely concessional interest rates of around 2 percent.
More recently, China has extended a US$1,2 billion loan for the Hwange Thermal Power station expansion project as well as US$320 million for Kariba South Hydro capacity upgrade programmes.
“The other issue is whether the Reserve Bank or Government can provide assurance that foreign currency will be made available to service the loan, these are the three key things,” a source said.
While the Covid-19 pandemic has delayed progress due to travel restrictions, it is understood with massive vaccinations going on worldwide, this challenge may fall away sooner rather than later.
Sources at RioZim said the Government should urgently address the issues affecting project financing, especially the arrears to China, to facilitate solutions to end crippling power shortages.
“The Government is not being asked to guarantee the business or anything, they are being asked to only guarantee that forex will be made available to repay the loans from China,” the source added.
