Zambia & Zimbabwe look to AfDB for Batoka project after China declines to offer financing

By Chiwoyu Sinyangwe
Posted on Friday, 30 December 2022 14:16

Batoka Gorge hydropower project (2400 MW) on the Zambezi river at the border between Zambia & Zimbabwe (photo: @zimlocals)

Zambia and Zimbabwe want the African Development Bank (AfDB) to help revamp plans for the joint development 2,400MW Batoka Hydropower Scheme after General Electric and China’s Power Construction Corporation failed to offer financing due to the heavy indebtedness of the two countries.

And as Southern Africa faces power shortages, Zambia says it will not stop power exports despite its own deficit which could go up to six hours a day starting January 2023.

Zambia desperately needs foreign exchange receipts and it also wants to position itself as a regional hub for electricity exports.

In 2019, the Zambezi River Authority (ZRA) – a jointly owned company by Zambia and Zimbabwe – hired a consortium of America’s General Electric and Power Construction Corporation to develop the Batoka which was expected to give the two countries 1,200MW each of newly installed generation capacity.

The proposed site for the Batoka project is 54km downstream of the world-famous Victoria Falls.

The consortium completed all pre-development activities that included additional geotechnical studies, aerial surveys on and around the project site, compilation and submission of feasibility studies and proposals.

But it later requested credit enhancement support after facing challenges in mobilising funds from potential financiers due to the sovereign defaults of the contracting states, Zambia and Zimbabwe, according to ZRA.

Flowing down

Zambia and Zimbabwe have seen their credit ratings plummet, heightening risk-averse among investors, especially after Zambia – which until recently was seen as a more stable country – became Africa’s first pandemic-era sovereign defaulter.

AfDB had initially been involved in the mobilisation of the Consortium but slowed down its involvement in the project as the two countries handed over the site to the two international giant engineering firms.

Sources close to the transaction say the challenges to finding financiers were worsened after Power Construction Corporation started expressing doubts about the project after Zambia defaulted.

Power Construction Corporation was not the only Chinese firm that showed aversion to mega projects in Zambia.

  • After completing a 150MW generator at the 750MW Kafue Gorge Lower Hydro Project, Sinohydro indefinitely halted constructing one of the biggest Greenfield hydropower projects in Zambia in over 50 years.

Fiscal fitness

Zesco sources said the key funders to the project – China Eximbank and Industrial Commercial Bank of China (ICBC) froze lending to the project on concerns about the fiscal fitness of Zambia.

Later, Zesco obtained a loan from the government-owned pension fund NAPSA to complete the project expected to be delivered next month.

According to Zambia’s minister of Energy Peter Kapala, Zambia and Zimbabwe want the AfDB to lead in mobilising financing for the Batoka project which would be the biggest plant on the Zambezi River and help bolster regional power security.

Zambia and Zimbabwe are in the process of re-tendering the Batoka Gorge development, according to the Department of Energy in Zambia.

Kapala said the two countries had addressed UNESCO’s concerns over threats the project posed to Victoria Falls, one of the world’s heritage sites.

Southern Africa power shortages

Most countries in Southern Africa, including economic powerhouse South Africa, are experiencing prolonged power shortages with Zimbabwe being the hardest hit with up to 12 hours of load shedding.

South Africa is an important power export to the region.

Zimbabwe’s electricity woes have been worsened by ZRA’s directive that it suspends power generation at its main hydro plant – Kariba Dam – due to a water shortage.

ZRA has directed Zambia to cut power generation at Kariba Dam up to 80% of the installed generation.  The two directives could last up to six months depending on how quickly the dam refills.

Last July, Zambia declared a surplus of about 1,150MW after a number of generation projects came on board amidst reduced demand by the two mining giants Konkola Copper Mines (KCM) and Mopani Copper Mines (MCM) on the Copperbelt.

Susceptibility

Up to 84% of Zambia’s production base is hydro which makes the country susceptible to the negative effects of climate change which hurts rainfall patterns.

Zambia exports up to 480MW to the Southern African Power Pool and is keen on keeping the lights on in the neighbouring countries – despite its own deficit.

The country expects to start power cuts in early 2023, but these will not extend to key industries and the mining sector to maintain the momentum of the current economic recovery.

“You don’t need to stop the exports….we don’t need to kill off our neighbours’ economy but we could ask them to step back and give us back some of the power so that they start load management,” says Victor Mapani, managing director of Zambia’s state power utility, Zesco Limited.

Zesco sells power outside Zambia at almost double the price of local retailing.

“It doesn’t make economic sense to deprive yourself of a market where you are selling at $0.11 just to satisfy local demand at $0.06. It could look harsh now, but in the long run, the very Zambians suffering today will benefit from this decision,” says a Ministry of Energy official, who spoke to The Africa Report on the condition of anonymity.

Zesco is heavily indebted and the government is looking for sources of foreign currency to help clean its balance sheet hosting $3.5bn debt. Up to $3bn of Zesco’s debt is sovereign-guaranteed.

Zambia is also planning to increase the power supply to the booming Democratic Republic of Congo (DRC) mining sector.

“When we have agreements with our clients to buy power from us, you don’t just cancel them on political pressures because when you now have the power to give them, they will have switched to another country,” said President Hakainde Hichilema.

“We want to be the key supplier of power given to our geographical location,” he added.

Understand Africa's tomorrow... today

We believe that Africa is poorly represented, and badly under-estimated. Beyond the vast opportunity manifest in African markets, we highlight people who make a difference; leaders turning the tide, youth driving change, and an indefatigable business community. That is what we believe will change the continent, and that is what we report on. With hard-hitting investigations, innovative analysis and deep dives into countries and sectors, The Africa Report delivers the insight you need.

View subscription options