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Lloyd Gumbo
During Chinese President Xi Jinping’s two-day State visit this week, 12 agreements were signed between Zimbabwe and China with two of them being private-sector driven. One of the deals is a joint venture agreement between Zimbabwe’s China Africa Sunlight Energy and Yunnan Linkun Investment Group of China for an integrated project that includes construction of a 600- megawatt power station, construction of a transmission line, coal mining and construction of the Gwayi/Shangani Dam. A Chinese financial institution is expected to bankroll the project that requires about $2 billion. Our senior reporter, Lloyd Gumbo (LG) speaks to China Africa Sunlight Energy chief executive officer, Retired Colonel Charles Mugari (CM) about this and other issues.

LG: Sir, you signed an agreement with the Chinese company for what promises to be a major project. What does this mean for your company and the country?

CM: As you are aware, this project has been on the cards for a very long time and now we have been able to identify an EPC contractor as well as a bank willing to bankroll this project.

Now the signing of this EPC (Engineering, Procurement and Construction) contract is very critical in the sense that it is now going to open all the avenues for funding.

And the fact that our signing was blessed by the Chinese President Xi Jinping makes it a very critical stage in the financial mobilisation stage because all financial institutions in China will now know that the project is supported by the Chinese government as well as the Zimbabwean Government.

As you have seen when we signed the Chinese President was in the company of our Zimbabwean President, so it also signifies the importance of this project to Zimbabwe.

You see the significance is that this gives a very strong political impetus because politics I think leads economics. When people see leaders witnessing the signing of these kinds of deals then it will give confidence in all the sectors, the financial, the economic sectors are given confidence that this project is a viable project.

So it is very significant in the sense that it has given the required political impetus especially in the Chinese financial sector. There is the insurance, there are the financial institutions who when they see the Head of State actually witnessing the signing of such projects then they are confident that this project has got the backing of their Government. So we are very happy that this has happened at this moment in time.

LG: This is an integrated project, you are looking at coal mining, electricity generation, the transmission line and Gwayi/Shangani Dam. What inspired this huge project?

CM: As you are aware this project is called an integrated project. It is called that in the sense that it incorporates the construction of the Gwayi/Shangani Dam, the construction of power transmission lines from our generation point which is about 240km to Bulawayo.

Water is very critical to thermal power generation and we have realised that the fiscal system of the Government at the moment will not make it possible for them to make this resource available to us when we commission the power station.

So the company has gone into an arrangement with the Ministry of Environment, Water and Climate to see how we can raise the funding for the construction of the dam so that by the time we commission the power station, we have water to run the project.

Whilst the water is critical for the project, it is also going to bring a lot of relief to the Zimbabwean community within the Matabeleland North province. So it doesn’t benefit the power generation alone, people along that corridor will also benefit from the water.

As you know there are perennial shortages of water in Matabeleland in general, so our project is going to bring relief to the Matabeleland North province people.

Also the construction of a transmission line is not necessarily the requirement of the power generator but we are aware of the constraints that the current power transmitter has in terms of providing that facility. So our project will come with a line so that we are able to transmit the power that we generate to the market.

And the good thing about it is that our tariff that has been awarded by ZERA (Zimbabwe Energy Regulatory Authority) incorporates the cost of the dam as well as the cost of the transmission line.

LG: So what is your work plan? What do you intend to do first and the rest of the process?

CM: From now on as you are aware, most of the things have already been done in the concession. We are hoping to have reached our financial closure by March next year and we intend to do the projects simultaneously.

We want to do the construction of the dam at the same time as we do the construction of our power plant as well as the coal mining. So all the projects will be undertaken at the same time.

LG: So the power plant is going to be coal-powered?

CM: It is going to be coal-powered yes, but our plans are perhaps we may generate from coal for a very short space of time. As you know that in our concession, we have got huge reserves of coal-bed methane gas also.

We would want to go the clean energy way, so we also plan to use that gas to generate power because the technology for thermal power generation and gas generation is almost the same. But first, we are going to generate thermal power so that we can take care of the perennial shortages of power in the country while we are trying to develop other ways of trying to do clean energy power generation.

LG: What is the total cost of this integrated project?

CM: The integrated project will cost about $2 billion in total and the bank that we are talking with has indicated that there is a possibility that we could get up to $700 million before the end of the year so that we can start working on the project.

LG: And how much are you looking at for the power plant?

CM: To separate these costs is a little bit difficult because we put all the costs together but I may have to go into the EPC contract so that I can look at the exact costs that have been allocated to the power plant. But just off the cuff, we are looking at around $800 million.

LG: We know we have had challenges in Zimbabwe on power generation. What is the significance of this power plant and when do you see it operational?

CM: As you are aware, power or energy is an economic enabler. Our industries, manufacturing, mining, agriculture have really suffered because of these perennial power shortages. If we add 600 megawatts onto the grid, I think that will have a very significant impact to the overall supply of power in the country.

We hope that this can contribute very significantly towards reviving our industry, manufacturing, agriculture and even tourism.

We hope that come 36 months from now, there will be a lot of smiles on Zimbabwean faces as we would have been able to add at least 600 megawatts on the grid.

LG: This is one of the biggest private sector-driven power projects and Government is also working on several power projects which will see public power generation likely exceeding demand. Do you have any plans to export in the event that the national grid has adequate power?

CM: Yes, I think as you are aware, there are perennial power shortages within the region in general so we are also looking at the export market. Our plan will be that we would put some on the national grid and export the rest so that we enhance our cash flows and be able to pay back the loan on time.

LG: One of the major concerns by prospective power companies has been the tariff that it is too low. Would you say you are happy with the tariff that ZERA approved for you?

CM: Under these conditions, it is very difficult to come up with a tariff that is very satisfactory to both the generator and the consumer. But in our case, I am happy to say that we have been able to negotiate a tariff that we feel can give a reasonable return to the investor as well as enabling the company to discharge its loan obligations.

We have been given 11,45 cents per kilowatt by ZERA. This is not a static tariff, it changes and is also sensitive to the CPI (Consumer Price Index) so I think it is very reasonable. Maybe by the time we are on the grid things will have taken a different shape because you are looking at three years down the line.

This tariff may be good now and not good in three years’ time and ZERA are very cognisant of the fact. So they will be able to engage with us so that we will be able to get a tariff that will enable us to repay the loan and give a reasonable return to the investors.

This will in turn encourage even more private investment in the energy sector because people really need energy. Without energy there is no economic development at all.

LG: I understand the financiers were here conducting feasibility studies recently. What was their response?

CM: In actual fact, the bank has been to the country at least twice trying to look at the projects, conducting physical site visits and clearing a few issues that they wanted to check with us. And I’m glad that the information made available to them has been able to satisfy all their requirements.

More so, that the Government has told our financiers that it is willing to give them sovereign guarantee if it is required. But looking at the financials of the project, the project on its own is viable but financiers always need extra security and the Government has already promised them that they will get the required sovereign guarantee as well as a lot of other incentives that go with investments of this nature.

LG: What is the plan for coal mining project?

CM: We are planning to have a coal mine that will produce about 3 million metric tonnes. We will devote 1,8 million metric tonnes to power generation, the rest will be sold to the market and this will enhance our cash flows and it is a very good development for the company.

LG: This is such a big integrated project and it’s expected to create employment. Are there any indications as to how many job opportunities may be created by these projects that you said are likely to run concurrently?

CM: Off the cuff, when the power generation and the coal mine are actually operational, we are looking at not less than 2 000 employment opportunities for Zimbabweans.

But as I have indicated to you that this is an EPC contract, during the construction we will have quite a number of Chinese who will come with the contractor to do the construction but so many Zimbabweans will be able to be employed during the construction period.

After the construction period the Chinese will have gone back and we will now employ Zimbabweans to take over operations of the power plant as well as the mines.

LG: Coming back to the issue of the partnership between the Zimbabwean firm and the Chinese company, what is the shareholding ratio between the local company and the Chinese company?

CM: You know that Zimbabwe has got a very soft heart for our Chinese partners. Instead of applying the 51-49 percentage as stipulated in the Indigenisation Act, we have gone 50-50.

They are bringing in the required capital and the technology so it’s on a 50-50 basis.

LG: Are your Chinese partners bringing any other capital besides the loan you will get from the bank?

CM: Yes, the requirement for the joint venture is that the Zimbabwean partner will contribute the resource which is the mine and the Chinese partner will match the value of that resource in financial terms.

So the Zimbabwean partner and the Chinese partner are actually finalising on such figures which the Chinese partner should put in as capital to get the 50 percent shareholding in the company.

But as you are aware, that the value of the resource is far below the value of the integrated project so much of the money will have to be borrowed by the company so that it can discharge this business.