The Interview: ‘Power cuts will soon be a thing of the past’

Chinese President Xi Jinping is coming to Zimbabwe next week on a two-day State visit. The visit is expected to give impetus to the mega deals that were sealed during President Mugabe’s State visit to China in August last year. Major infrastructure projects that cover electricity, transport and irrigation were top of Zimbabwe’s priority list. A Chinese company, Sinohydro, is currently implementing those deals, like the Kariba South Power Station expansion while a financial closure for Hwange Thermal Power Station is set to be sealed next week during President Xi’ visit. Our senior reporter, Lloyd Gumbo (LG) talks to Sinohydro Zimbabwe senior administrator Mr Noel Gonah (NG) about these and other issues.

LG: President Xi is coming to Zimbabwe next week after almost 20 years since a Chinese president last visited us. It has been called an historic visit. What is the significance of this visit to Zimbabwe and China in general and Sinohydro in particular?

NG: I think the State visit by President Xi will reinforce the existing close relationship between Zimbabwe and China. The details I do not know much, but I am confident that China and Zimbabwe are brothers and we support each other. The visit will be “historic” for Zimbabwe in the sense that it will unlock the opportunities for Chinese investors to consider forging wide-ranging partnerships with Zimbabweans to bring into the country much-needed foreign investment and jobs.

LG: I understand the chairperson of your parent company, Power China, will also be here during President Xi’s visit. What brings him here?

NG: As the parent group of Sinohydro, Power China is the largest contractor in the power sector in China. So the chairman of Power China is coming at the end of November to sign an investment agreement with the Ministry of Energy for Hwange 7 and 8.

LG: Does it mean Sinohydro will become a shareholder in Hwange Thermal Power Station? If so, what does it mean to your company?

NG: Such an investment with an amount of $176 million means a lot to Sinohydro. Previously Sinohydro was a contractor only. We are used to do our construction and we deliver the project. But we all know the financial situation that Zimbabwe has. In order to implement this project as soon as possible, in order to help the Government and Zimbabwe Power Company to raise enough equity to let the bank disburse the loan quickly, Sinohydro decided to invest its money in the project.

This is the largest investment in Africa which Sinohydro has made. It is a milestone for our company and we are confident that on the basis of the strong relationship between the two countries, on the basis of the positive co-operation and support from the Zimbabwean Government and the Ministry of Energy, that this project can be implemented successfully and also the economic return of the project will reach the requirement of investment. Sinohydro will transfer its shares to ZPC over a certain period step by step.

LG: What percentage are you looking at from your investment?

NG: The accurate percentage is not yet fixed. We are still in negotiations. It should be more than 15 percent but less than 50 percent. It is according to the equities by Sinohydro and ZPC. The equity to be contributed by these two companies. Besides the investment, Sinohydro will also be responsible for the operation and maintenance of the power plant.

LG: The whole power plant or for Hwange 7 and 8?

NG: For units 7 and 8 because you know the equipment, the boilers and the generators are coming from China and in order to make this plant run well, Sinohydro would like to share its own experience in China for the operation and the maintenance. Sinohydro will transfer skills to Zimbabwe and will jointly with the Zimbabwean side, operate this power plant. Chinese experts will come to work together with Zimbabwe engineers and after a certain period, like five years, they will step out gradually.

LG: There are indications that the financial closure for Hwange expansion project will be sealed during President Xi’ State visit as well. Has the funding been secured and what are the costs involved?

NG: I understand that the Zimbabwean Government has approached the Chinese government and its policy bank for financing support. I believe a great deal of progress has been made and the results will be announced shortly. Besides the Chinese loan and Sinohydro’s investment, the balance of about $300 million will be raised by ZPC as the equity.

LG: The funding for Hwange 7 and 8 is one of the deals that was raised when President Mugabe visited China last year. Could this be the beginning of the implementation of those deals?

NG: Yes! During the State visit of August 2014, when President Mugabe went to China, the Zimbabwe Government mentioned this project saying Hwange 7 and 8 would be a high priority project for the nation. After that, the Chinese government began supporting this project and now we are going to see some significant progress.

LG: Turning to the Kariba South expansion where you are said to have completed about 30 percent of the work, are you still on schedule?

NG: Yes. All the work is on schedule and the funding from China Exim Bank is also disbursed on time. The civil works are going on well and the machinery like turbines and generators are under manufacture in China. ZPC is sending their delegation to China next month to inspect progress. So for Kariba South, everything is on schedule and we are still very confident it can be commissioned in early 2018.

LG: Some people say when Chinese companies come here they bring Chinese workers instead of employing locals. At the Kariba South project what’s the ratio, Zimbabweans and the Chinese?

NG: Currently at Kariba South, Sinohydro has 150 Chinese technicians and engineers and almost 700 Zimbabwean technicians and labourers. But you know with Kariba South, this is an expansion project. The dam wall is there, the blasting is very close to the dam wall and the technical requirement is a bit high. It is very sensitive and the construction period is very tight. The Zimbabwe Government requires us to speed up the construction. So we had to mobilise more experienced engineers to make sure the project goes on schedule and to keep the dam wall and the existing powerhouse safe. So that’s why we have 150 Chinese technicians here. Theoretically, it should be less than that. But even that ratio I think it is okay.

LG: Now Sinohydro is working on Kariba South and if the financial closure for Hwange 7 and 8 is going to be sealed next week, how are you going to manage both projects?

NG: Sinohydro has 200 000 employees and has 467 projects under construction around the world. In Africa, we have 300 projects under construction at the same time. We have 18 construction bureaus and also we have other special construction teams for solar power, hydro power and other construction works. So we have enough capacity to execute these two projects at the same time. We have no problem. We have got enough resources and enough capacity. So there is nothing to worry about.

LG: If the financial closure is to be sealed next week and all things being equal, when are we likely to see work start at Hwange 7 and 8?

NG: As a procedure, normally after a loan agreement is signed, the bank will give a list of CPs, (Conditions of Precedents). They require the ZPC’s equity to be ready, they require project company to open an escrow account and other things. A lot of conditions need to be satisfied. According to the experience of the Kariba South, it took almost a year. But for Hwange 7 and 8, all the documentation is similar to the Kariba one and all the parties already have experience coming from the Kariba South. So we believe the time should be much shorter than Kariba South. Our estimate is that, it will take six or seven months after the agreement is signed and then we can get disbursement. Then we can officially commence the project.

But before the official commencement, Sinohydro is already mobilising its resources for the project. For example, we had begun the topographic survey and the geological investigation of the site. We have also started the project design in China even before the bank releases the fund. Once the fund is secured, we can start construction in mid-2016, and we are very optimistic that the project can be commissioned by 2020.

LG: What is the significance of these projects to Zimbabwe?

NG: The benefit is very obvious because we all see the power shortage in the countryside and people suffering from the load- shedding. First of all, after we complete the Kariba South and Hwange 7 and 8, it will contribute 900 megawatts to the country grid, ensuring a stable power supply to households and industries. In addition, more than 2 000 jobs will be created during the construction of these two projects. After they are commissioned, I can say that there will be no more power cuts.

LG: Are there any challenges that you have experienced at Kariba South?

NG: There certainly are some challenges because this is something new to Zimbabwe. For the past 20 or so years, the country did not have other large infrastructure projects done in EPC contract. So relevant departments and agencies of the Government need time to familiarise with the internationally accepted game rules for EPC projects, particularly in terms of taxation. For a national project like this, taxes, duties, and VAT covered by the EPC contract should be exempted.

But according to Zimbabwe’s tax laws, we need to pay VAT and duties for consumable materials. For us, the project developer, and the employer ZPC, we both bear additional financial burdens.

LG: So who shoulders the cost?

NG: Some should be taken by Sinohydro and some by ZPC. But, we are still trying to convince the Government to follow the most commonly used practice of tax exemption, for a project with such significance to the country’s development and the people’s well-being. So I believe after some discussions and explanation, the Zimbabwean Government and relevant stakeholders will accept our proposal.