EDITORIAL COMMENT: Make the most of US$335m power loan

The first major hurdle for extending the Kariba South hydroelectric power station has now been passed: the US$355 million is now available, 90 percent of it as a loan from the China Export and Import Bank. The extension is the first addition to Zesa’s generating capacity for more than 20 years, as nothing has been done since the second stage of Hwange Thermal Power Station was built.
It will add 300MW to the 750MW already installed at Kariba South to create Zimbabwe’s first 1GW power station.

And, because the dam wall is already in place and paid for, and most of the infrastructure is there, and paid for, the cost of the extension is remarkably cheap, just over US$1 million a MW. This is a bargain.
But there are some caveats.

The first is that, until Batoka Gorge is dammed, the extension will not add any significant new energy to the grid, although it will make a lot more energy appear at the peak demand times. The extension helps solve power shortages at peak times, not general energy shortages.

Zimbabwe and Zambia already use all the water that flows into Lake Kariba. It needs an exceptional year for the Zambezi River Authority to open a flood gate.

In normal times the entire annual flow of the Zambezi goes through the two power stations with the dam ensuring that this annual flow, with its seasonal ups and downs, is turned into a constant daily flow. With no new water there is no new energy.

But there is a huge gain in efficiency. Zesa will be able to generate an extra 300MW at peak times, although at off peak times, and especially in the middle of the night, will have to reduce generation at Kariba.

At present Zesa simply runs the existing six turbines flat out 24 hours a day, and most engineers find it very odd that a hydro station provides base load.

With the extension Zesa can raise output at say 8am to just over 1000MW, but cut back to say 400MW at midnight. That flexibility is worth the price and a bit more.

Once Batoka comes on stream then the extension will really come in useful. Batoka has little storage so it will produce a lot of energy when the Zambezi is in flood and not nearly so much at low water. Kariba will have to be the balancing station, letting the dam fill at flood but then switch to going flat out when river flows are low but the dam is full. Kariba South will need a lot of extra generators to do that best.

The second point we all have to think seriously about is that this extension, and the decreasing load-shedding at peak times it will give us, is being built with borrowed money. Those loans have to be paid back, which means that consumers have to pay for their power. The Chinese Export and Import Bank provides a vital service to both Chinese companies and their customers, benefiting both sides. Interest rates are low, so finance is cheap. But the bank is a bank, not a charity.

This is a good business decision for both Zesa and its supplier, Sino-Hydro. It is neither a political decision, nor an aid deal.
Zesa is improving its payment collection, but until all residential customers and most commercial and farming customers are on pre-paid meters, with the small crew of debt collectors then able to concentrate on the big industrial users, Zesa will not be totally out of the woods.

Installation of pre-paid meters seems to be slowing. Zesa now needs to speed this up.
We suspect that the Chinese bank examined Zesa’s actual and projected cash flows very carefully before lending around US$320 million and obviously found them adequate, so long as the cash does actually flow in. We all have to ensure that it does.

Zimbabwe is going to need a lot of money as quickly as possible to expand generating capacity. China builds more new power stations, both coal and hydro, every year than the rest of the world combined.

So it has the capacity, and builds the sort of reliable power stations (at the rate of one every week or two) that those hard-headed Chinese businessmen who have built the largest industrial complex in history must surely demand.

So long as Zesa and its customers take bank loans seriously, we have no doubt that we can actually solve our power problems in the medium term, rather than wait forever. We have our chance, let us make the most of it.