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Zvamaida Murwira Senior Reporter

THE Hwange Electricity Supply Company, a joint venture set up to build and run the 600MW extension to Hwange Thermal Power Station, has been allowed by Cabinet to enter into long-term contracts with coal suppliers, a move designed to allow the mines to get the long term bank financing they need to expand production.

Coal suppliers have been on shorter-term agreements, typically for one year with the Zimbabwe Power Company for fuelling the old sections of Hwange Thermal and the small thermals.

But the suppliers need to unlock cheaper, long-term financing to invest in critical equipment such as conveyor belts and expand output to meet the demand of the new station.

Speaking after yesterday’s Cabinet meeting, ICT, Postal and Courier Services Minister Dr Jenfan Muswere, who was standing in for Information, Publicity and Broadcasting Services Minister Monica Mutsvangwa, said Cabinet had allowed Hesco — a special purpose vehicle set up by Zimbabwe Power Company, a Zesa subsidiary, and Sino-Hydro Corporation of China — to enter into long-term agreements with coal suppliers.

ZPC holds 64 percent of the Hesco shares while Sinohydro, the contractor, has a 36 percent stake.

Minister Muswere said the decision to allow Hesco to enter into long-term coal supply agreements under the Hwange expansion power project was reached after a presentation by Vice President Constantino Chiwenga.

The Hwange expansion power project, being built at a cost of US$1,5 billion, is a major landmark infrastructure development to add 600MW to generating capacity through two large 300MW units, numbers 7 and 8, and so significantly contribute towards the growth of the agricultural, industrial, manufacturing and mining sectors.

The decision to grant the exemption to the power project dovetails with President Mnangagwa’s vision and thrust to relax procurement rules and allow long-term contracts for coal suppliers given that there was a need for huge capital outlay.

Writing in his weekly column in The Sunday Mail, President Mnangagwa said the huge demand for coal required great investment that would ultimately require them to obtain long-term borrowing.

“Our coal miners and merchants are not sure they will cope with this expanded demand for coal. Why? Because rules governing our Procurement Regulatory Authority of Zimbabwe require that we work within year-long supply contracts, in the double sense of supplier choice and tariffs,” said President  Mnangagwa.

“Yet coal miners and merchants require to invest in huge, costly equipment, both to extract thermal coal and to convey it to the Zesa Station. This requires huge capital outlay, much of it accessed through borrowing.

“Lenders can only do so on certainty of viable contracts which make banking sense. Who lends to an operator with a mere year-long supply contract? Which borrower even wants the risk?”

The President noted that Zesa was grappling with a long backlog for power demand although the two new Hwange units coming on stream towards the end of this year and early next year would help take the strain.

“As I write, Zesa is grappling with a long backlog for power demand. To make matters worse, this backlog includes new industrial and commercial projects long approved and waiting for power to come on stream. And the demand for power continues to grow by the day, including from foreign direct investment projects by which our attractiveness as an investment destination is judged,” he said.

“Certainly we lag behind this ever-burgeoning demand for power, which we should have long forecast to make matching investments on power generation. More power, greater growth in the economy.

“One accurate way of measuring the pulse of an economy is through power consumption, especially by corporates.”

President Mnangagwa said the brighter side of the power backlog pointed to growing mining and industrialisation in the economy, and thus an expanding mining and manufacturing sector.

“This in turn creates more, better-quality jobs, especially for our youths. It means the measures we have put in place and continue to fine-tune in the economy are paying off handsomely.

“But the power supply stricture could very easily arrest and spoil this positive development,” he said.

The President implored the procurement regulator to relax its rules.

“It is as if PRAZ is God-made, and run on a God-sanctioned commandment which must not be changed, let alone broken! It gets you to wonder whether someone is not out to derive perverse pleasure from an idle yet completed facility, all in the season of national power deficit,” said President Mnangagwa.