Paperwork costs Zim 100 MW… IPP funding agreements risk being canceled

APPROXIMATELY eight renewable energy projects with a combined capacity of 100 megawatts (MW) failed due to Treasury delays in signing an independent power producer (IPP) implementation agreement, business summary heard this week.

Zimbabwe is struggling with long power outages, with industrial and domestic consumers suffering up to 12 hours of power outages per day.

At the center of the crisis is the national power producer, Zesa Holdings, which is struggling to meet demand due to undercapitalization resulting in huge unpaid bills amounting to millions of US dollars. .

In an interview with businessdigest tThis week, a representative of the Association of Independent Power Producers of Zimbabwe (Zippa) said lenders to IPP projects were backtracking in the absence of such an agreement.

“The undue delay has meant that IPP projects have not been able to achieve financial close – the ripple effect may mean that potential lenders have moved on and committed their funds to others. jurisdictions, in which case the impact is not a delay, but could be cancellation, ”said Zippa representative Ian Mckersie.

“It is estimated that eight renewable energy projects with a capacity of at least 100 MW were unable to reach financial close and move to the construction phase due to the same issue.”

A government official said last week that the country could spend up to $ 200 million this year on electricity imports.

The country imports between 200 and 400 MW from its counterparts in the Southern African Development Community to bridge the large gap between available electricity and demand.

However, experts have indicated that this could be avoided if the Treasury signs an agreement to implement the IPP.

If signed, the agreement speeds up the implementation of IPP projects.

According to Sydney Gata, the executive chairman of Zesa Holdings, the entry of authorized PPIs meant that Zimbabwe could potentially generate around 6,000 MW, making Zimbabwe a net exporter of electricity.

The IPPs currently supply 135 MW in the national grid.

However, the Zimbabwe Energy Regulatory Authority (Zera) claims to have issued enough licenses to generate 6,858 MW.

Mckersie said obstacles to establishing PPIs included the loss of confidence of foreign investors in Zimbabwe’s policies regarding the repatriation of foreign currency.

“The lack of a single exchange rate and the ultimate dependence of investors on the forex auction system for convertibility and loan forgiveness does not attract foreign investment,” Mckersie said.

“Foreign lenders view the forex auction system as managed and opaque and are discouraged. ZETDC (Zimbabwe Electricity Transmission and Distribution Company) is not empowered to collect electricity tariffs in USD and therefore cannot pay local IPPs in USD so that they in turn can honor their loan commitments.

“Oddly enough, the government is supporting ZETDC by paying external electricity providers in USD, some of whom are foreign PPIs, while denying ZETDC the ability to pay local PPIs in US dollars.

“The IPP sector has been promised the publication of the implementation agreement for many months and nothing has happened. In the meantime, development has stalled, ”he said.

Mckersie said PPIs, as electricity providers, are regulated by law and their tariffs are approved by Zera.

“They can’t adjust their prices based on changing risk profiles. Their rates were allocated on the basis of no conversion or transfer risk – this is no longer the case. Their business model depends on a viable, liquid buyer who pays them well, ”he said.

“It is therefore essential that the ZETDC is allowed to apply genuinely viable tariffs so that it can in turn pay its suppliers, whether local or foreign.

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