EDITORIAL COMMENT: Effective project costing key to investment

06 Sep, 2018 - 00:09 0 Views
EDITORIAL COMMENT: Effective project costing key to investment President Mnangagwa

The Herald

There have been serious concerns over the pricing mechanisms of capital projects in Zimbabwe over the past few years. When compared to almost similar projects implemented on the continent, Zimbabwean projects cost twice or threefold, raising speculation that there could have been underhand dealings in arriving at such punitive costs.

President Mnangagwa recently commissioned and switched on the Kariba South Power Station extension project that adds 300 megawatts to the national grid.

The project, implemented during the era of former president Mugabe, despite being initially estimated to cost $355 million, ended up being completed at a cost of $533 million.

Zesa, through its generation arm, Zimbabwe Power Company, signed a $355 million engineering procurement and construction (EPC) contract with Sino Hydro in 2013 for the 300 megawatt extension of Kariba South’s power generation capacity.

The Government then tried to explain the cost variations, but still $200 million additional costs to a project in a short period is too much.

There are many capital projects deals that were penned during the era of former president Mugabe whose costs are unrealistic, but will have to be implemented because reversing them attracts huge penalties.

One such projects is the Hwange Thermal Power Station 7 and 8 units that will be constructed at a cost of $1,5 billion to produce about 600 megawatts.

Independent economic observers argued back then that due to high country risk factors then, very few lenders were willing to extend loans to Zimbabwe, resulting in a few who opened up giving the money at a premium.

In as much as these loans were very critical to ensure adequate and sustained supply of electricity, these are funds that the next generation will pay.

We must be careful not to bequeath to our children huge loan obligations that will stifle development.

As President Mnangagwa takes charge of the levers of power in the Second Republic, the political risks are fast fading away and it is our hope that the premiums that were being charged will equally come down.

The amount of goodwill that has accompanied the coming in of the new administration since November 24, as evidenced by spiking investor interest, is enough to show that the international community now sees Zimbabwe in good light.

Statistics from the Zimbabwe Investment Authority (ZIA) indicate that in the half year to June 30 this year, a staggering $16 billion in investment approvals were recorded.

Some of the approved projects, such as Karo Resources’ $4,2 billion platinum deal, have already started taking shape, a clear indication that the investment enquiries were not a joke. It is this kind of goodwill that Zimbabwe needs going forward to attract cheap funds to support critical projects such as energy and transportation infrastructure.

Market watchers contend that the future is bright for the country given that most of the political risk associated with former president Mugabe is gone.

It is more so when considering that the July 30 harmonised elections were largely given a clean bill of health by international observers who were invited to cover the crucial polls.

The Constitutional Court challenge by MDC-Alliance presidential candidate Mr Nelson Chamisa was held in the full glare of the world on television to remove any suspicion of influence peddling.

Zimbabwe has done and is still doing what the leadership believes is necessary to bring back investment into the country.

That means people must pull in one direction. Corrupt people from the old era do not have space in new Zimbabwe that President Mnangagwa and the rest of progressive Zimbabweans are yearning to build.

We therefore appeal to leadership that as a new team is assembled to lead Zimbabwe to the promised land, the country should go back to basics where proper price tags are placed on basic commodities and national projects to attract more investment.

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