China Eximbank provides $319 million preferential buyer’s credit for Kariba South Hydro Project (Linked to Project ID#354)

On November 11, 2013, the Export-Import Bank of China and Zimbabwe’s Ministry of Finance signed a $319,455,921 preferential buyer’s credit (PBC) agreement [China Eximbank PBC No. (2013) Total 45 No. (289) No. 1420303052013212386] for the Kariba South Hydro Project. The PBC carries the following borrowing terms: a 20-year maturity, a 5-year grace period, and a 2% interest rate. It is backed by a sovereign repayment guarantee from Zimbabwe’s Ministry of Finance. An initial loan disbursement of $79.8 million took place on October 31, 2014, leaving a balance of $239.7 million to be disbursed in multiple tranches between 2015 and 2017. The loan’s amount outstanding was $214,554,588 as of December 31, 2016 and $273,700,750 as of December 31, 2017. Its amount outstanding (including principal, interest, and arrears) was $305,331,749.40 as of September 2021. Zimbabwe’s Ministry of Finance used the proceeds from the PBC to on-lend to Kariba Hydro Power Company (Private) Limited (KHPC), which is a special purpose vehicle (project company) that is wholly owned by Zimbabwe Power Company (ZPC). KHPC entered into power purchase agreements (PPAs) with Zimbabwe Electricity Transmission and Distribution Company (ZETDC) and Nampower. It planned to service the China Eximbank PBC with revenue derived from power sales to ZETDC and Nampower. The lender required the borrower to maintain a minimum cash balance of $32 million in multiple, lender-controlled escrow accounts: $26 million in a Debt Service Reserve Account (DSRA) and $6 million in a Maintenance Reserve Account (MRA). As of September 2014 (during the loan's grace period), the borrower had deposited $17.2 million into one or more of the escrow accounts. ZPC also agreed to make a $35 million equity contribution to support the project’s implementation. This project involved an expansion of the existing 750MW Kariba South hydropower station. The purpose of the expansion was to increase the installed capacity of the Kariba South hydropower station through the addition of two additional units of 150MW each, resulting in an aggregate 1,050MW installed capacity. The Kariba dam is situated in the Zambezi river basin between Zambia and Zimbabwe. There are two hydropower stations at the dam: the Kariba North hydropower station, which is owned by Zambia, and the Kariba South hydropower station, which is owned by Zimbabwe. Kariba South was commissioned in 1962, and it generates electricity from water drawn from Lake Kariba, forcing it through a short intake and vertical penstock to a turbine where hydroelectric power is produced in the coupled generator. The water is then discharged downstream back into the Zambezi river. Sinohydro Bureau 16 Co., LTD was the engineering, procurement, and construction (EPC) contractor responsible for implementation of the Kariba South Hydro Project. A groundbreaking ceremony for this project took place on September 4, 2014, and a project completion ceremony was held on March 28, 2018. During the construction process, Sinohydro Bureau 16 Co., LTD reportedly hired and trained local employees and brought more than 3,000 job opportunities to Zimbabwe. However, the power plant encountered operational challenges after it was constructed and the borrowing institution (KHPC) has breached its contractual obligations with China Eximbank. In a 2016 Report on Parastatals and State Enterprises, Zimbabwe’s Accountant and Auditor General noted that KHPC and ZPC were in breach of contract for not depositing the cash proceeds from the power purchase agreement into a China Eximbank-controlled escrow account. The report concluded that ‘[c]ontrary to the terms set out in the escrow agreement, ZPC power purchase agreement proceeds have not been paid into the said account by ZPC. ZPC confirmed a netted inter-company balance implying that the power proceeds payable to KHPC are being set-off against inter-company receivables from KHPC.’ Then, on November 25, 2022, Munyaradzi Munodawafa, the Chief Executive Office Zambezi River Authority — an entity responsible for the Kariba Dam that is jointly owned by Zimbabwe and neighboring Zambia — sent a letter to Zimbabwe Power Company, which noted that water levels at the Kariba South hydroelectric power facility were at record low levels and electricity generation activities could no longer continue. The letter also noted that the Kariba South hydroelectric power facility had used more than its 2022 water allocation and that the Kariba Dam’s usable storage was only 4.6 percent full.

Additional details

1. The Chinese project title is 津巴布韦卡里巴南岸水电站扩机项目 or 卡里巴南岸水电站扩机项目. 2. The Chinese Embassy in Zimbabwe and the Parliament of Zimbabwe both record a single $319 million preferential buyer’s credit for this project and AidData does the same (See: 津巴布韦总统出席卡里巴南岸水电站扩容项目竣工仪式). In the database of Chinese loan commitments that SAIS-CARI released in July 2020, it records two different loans for this project: a $160 million government concessional loan (GCL) and a $160 million preferential buyer’s credit (PBC). It does not identify the borrowing terms for the GCL or the PBC. AidData records the face value of the PBC ($319,455,921) and the borrowing terms (20-year maturity, 5-year grace period, and a 2% interest rate) that are reported by Zimbabwe Power Company (ZPC) in its 2017 annual report. 3. China Eximbank also provided a loan for an expansion of the Kariba North hydropower station, which is located in Zambia (as captured via Project ID#354). 4. One source (https://afrodad.org/wp-content/uploads/2022/11/Risks-Opportunities-of-PPP-Financed-Energy-Projects-Case-of-Kariba-South-Expansion-Project.pdf) puts the escrow/DSRA cash balance requirement at $28 million. 5. The escrow account deposit information is drawn from https://www.dpcorp.co.zw/assets/2014-mid-term-fiscal-policy-review.pdf

Number of official sources

30

Number of total sources

43