China Eximbank provides $315 million loan for 360MW Kariba North Bank Hydropower Plant Expansion Project

Project narrative

In October 2008, China Eximbank and Kariba North Bank Extension Power Corporation Limited (KNBEPCL) — a special purpose vehicle and wholly-owned subsidiary of Zambia Electricity Supply Corporation (ZESCO) Limited, a state-owned power company in Zambia — signed a $315 million loan agreement for the 360MW Kariba North Bank Hydropower Plant Expansion Project. KNBEPCL is a project company and a wholly owned subsidiary of ZESCO Limited, Zambia’s state-owned power company. The China Eximbank loan to KNBEPCL carried the following borrowing terms: a 15 year maturity an interest rate of LIBOR plus 200 basis points. As a source of collateral, some of the future receivables of Copperbelt Energy Corporation and Chambeshi Mining Company were formally assigned (under power offtake agreements that they signed with KNBEPCL). The cash proceeds from electricity sales under the offtake agreements were deposited in a lender-accessible escrow account. The lender was granted a formal security interest in the escrow account, which had a cash balance of at least $82 million in 2022. The proceeds of the loan were used to be used by the borrower to finance a $243 million commercial (EPC) contract between Sinohydro and ZESCO Limited, which was signed on November 19, 2007. Development Bank of South Africa also provided a $105 million loan for the same project. The principal amount outstanding under the China Eximbank loan was $268 million as of December 31, 2015, $240.9 million as of December 31, 2016, $214.2 million as of December 31, 2017, $214.2 million as of December 31, 2018, $160.62 million as of December 31, 2019, $133.848 million as of December 31, 2020, $120,464,052 as of June 30, 2021, and $100,002,768 (inclusive of $6,308,506 in interest arrears) as of June 30, 2022. The project involved a 2 x 180MW expansion of the power generation capacity of the Kariba North hydroelectric power station through the installation of two new generators. The 1.08GW Kariba North hydroelectric power station is located on the bank of Zambezi River at Kariba in the southern province of Zambia. It includes the Kariba North Bank (KNB) (720MW) power plant and the Kariba North Bank Extension (KNBE) (360MW) power plant. The KNB power plant was developed between 1969 and 1976 as part of the Central African Power Corporation’s (CAPC) development program. The KNBE power plant consists of two 180MW vertical-shaft Francis turbines with a rated discharge 227.6m3/s operating at a head of 89m for each single unit. It has two intake chambers for water at an elevation of 458m. The underground powerhouse is 24m wide and 51m in length. The power generated is transmitted through a 130 km long, 330kV transmission line from the KNBE power plant to the existing Kafue west substation. The power generated from KNBE is purchased by ZESCO Limited under a 20-year long-term power purchase agreement (PPA), which was approved by Zambia’s Energy Regulation Board (ERB) in April 2011. Sinohydro and Yellow River Co., Ltd. were the contractors responsible for implementation. Construction began on November 5, 2008. However, the project encountered a number of problems and delays. In 2009, a fire broke out in one of the generators. Then, in November 2011, it was reported that project completion had been delayed a year due to 'financial constraints'. The project was ultimately completed on July 31, 2014. An official completion ceremony took place on August 27, 2014. To support the implementation of the project, Sinohydro formulated and Environmental Assurance Plan, formed a leading group on environmental protection, and made environmental emergency plans -- including an Anti-flood Emergency Plan, a Water Pollution Emergency Plan, and a Forest Fire Emergency Plan. It has also hired local environmental specialists to regularly hold training sessions on environmental laws, regulations and policies. Steps were taken to reduce the pollutant discharge during construction. The project used water wagons, water pumps and other equipment to spray down the dust and used water drills for excavation to reduce dust pollution and related damages. It either used low-noise equipment such as power generators and air compressors or installed silencers on them and provided earplugs for constructors to prevent noise-induced occupation injury. With respect to the disposal of wastes, solid metals were recycled and sent to local recycling stations, scrapped wood was used as canteen fuel, qualified stones were used as raw materials for concrete, and wastewater was discharged after sedimentation and filtering. As a result, all solid wastes were disposed of safely and 80% of them were recycled and reused, effectively reducing the impact on surrounding environment. Between 2014 and 2022, the power plant has generated 6620 GWh of electricity and created $527 million in economic and social benefits. Since completion, the project -- along with the original power station -- has met 54% of Zambia’s power demand and become the country’s main power provider. It has also generate approximately 8,000 local jobs and 85% of its staff are local hires.