Zimbabwe coal-fired power project seeks further support after China U-turn

A Zimbabwean company that had banked on Chinese funding to build a large coal-fired power plant said it was now looking for other backers as China backed away from funding such projects overseas.

The effort by RioZim Ltd., one of Zimbabwe’s largest mining and energy companies, reflects how China’s recent U-turn on foreign coal financing is forcing developing countries in Africa and Asia to rethink their energy plans. China, which had been a major funder of coal-fired power projects globally, announced in September that it would not build new coal projects overseas as part of efforts to reduce future carbon emissions.

Energy and climate experts are watching the impact, including whether it will force a faster switch to cleaner energy, lead to the intervention of other backers, or lead to power shortages. Zimbabwe, which already suffers from a lack of electricity, has one of the largest coal reserves in Africa.

“Zimbabwe’s energy policy moment is emblematic of what many developing countries around the world are facing,” said Leo Roberts, a UK-based research director who focuses on the transition to coal within the E3G climate think tank.

Plans for the multi-billion dollar Sengwa power station in Zimbabwe’s northwest involve more than doubling the country’s current power capacity.

RioZim’s energy division, Rio Energy, was hoping for financing for the planned plant and associated coal mine from Chinese banks Industrial and Commercial Bank of China (ICBC) and China Minsheng Banking Corporation Ltd.

Now Rio Energy is considering alternative financing plans. “We are still in the market to fund the project and will work with all possible backers, including the Chinese,” RioZim said.

The company said another option under consideration is to turn the project into a gas-fired power plant, but this idea is “subject to the results of feasibility studies” and no deadline has been set for these. .

RioZim said ICBC and Minsheng Bank “have come in to play a supporting role,” but cannot comment on the current status of their involvement as they do not have a direct relationship with the companies. Chinese bank financing of overseas coal-fired power plants has often been arranged to support Chinese construction companies, which then enter into construction contracts with the company planning the plant.

ICBC told representatives of environmental non-governmental organizations at a meeting in June 2021 that the bank would no longer finance the Sengwa project, according to two people who attended the meeting.

ICBC did not respond to requests for comment, including on the meeting or its intention to fund the Sengwa project. Minsheng Bank also did not respond to questions from Reuters about funding plans.

Plans for another large coal-fired power project in Zimbabwe, known as Lusulu, are also on hold, according to PER Lusulu Power, the Harare-based energy company behind the plant which had planned Chinese support.

A Zimbabwean government spokesman declined to comment on the status of either project. He said Zimbabwe had the right to exploit its coal resources if needed and would not “sacrifice growth prospects on the altar of environmental arguments”.

China’s recent U-turn on foreign coal financing is forcing developing countries in Africa and Asia to rethink their energy plans. | Reuters

China’s Foreign Ministry did not respond to questions about the funding status of the Sengwa and Lusulu projects. But he said Beijing would support developing countries in their transition to greener energy.

The Foreign Ministry added that China, which has close economic and diplomatic ties with Harare, “will increase its support for Zimbabwe’s development of renewable energy projects and contribute to Zimbabwe’s sustainable development.”

Suspended in the balance

Christine Shearer, coal program director at the US think tank Global Energy Monitor, said Chinese funding for coal power appears to be frozen.

Despite the lack of clarity on what Xi’s announcement means for planned projects, no new coal-fired power plant has since publicly announced Chinese support, “suggesting that the tap of international funding for new coal projects from of China has effectively been shut down,” Shearer said.

Globally, some $63 billion in Chinese public funding across 57 projects could be at risk from China’s withdrawal of overseas coal funding, according to Global Energy Monitor. The withdrawal could cut the pipeline of coal-fired power projects in Africa by two-thirds to 3.6 gigawatts (GW), think tank E3G estimates.

In Zimbabwe, less than half the population has access to electricity. The country has relied on coal power to address chronic power shortages and create jobs.

RioZim has been talking about building the Sengwa plant for over a decade. Plans include adding 2.8 gigawatts (GW) to the grid and restarting the adjacent coal mine, which has been closed since 2014. Currently, Zimbabwe has the capacity to generate around 2.3 GW, which comes mainly from of a large hydroelectric plant, but also of four coals. -thermal power stations.

The planned Sengwa plant, near the town of Gokwe, would create 1,100 permanent jobs and nearly four times as many temporary construction jobs, according to Rio Energy. Sedeya Jetro, principal of a local primary school, said the jobs would help parents pay school fees and “mean a lot to this community”.

Rio Energy said ICBC in 2019 provided an expression of interest — or non-binding commitment — to a Chinese construction company to fund the first phase of the Sengwa project. Neither the construction company, PowerChina International Engineering Co., nor its parent company, Power Construction Corporation of China, responded to requests for comment.

Minsheng Bank also provided a non-binding commitment to RioZim to fund a second phase of the Sengwa project, according to Rio Energy and an August 2020 letter of interest from Minsheng Bank that Reuters reviewed. The engagement expired in February 2021, according to the letter.

A Minsheng Bank official who signed the document said in an email that the LOI was “a trade secret” and did not respond to questions about funding plans. Spokespersons for Minsheng Bank and ICBC did not respond to requests for comment.

Rio Energy was hoping for $3.4 billion in financing for the second phase of the power plant, according to a draft contract with a unit of engineering and construction firm China Gezhouba Group Corporation (CGGC). The contract, which was reviewed by Reuters, was dated November 2020 and drawn up by the two companies.

In response to questions about the Sengwa plant project, CGGC’s parent company, China Energy Engineering Corp., said a subsidiary signed a construction cooperation agreement in 2020. “There is no currently has no progress on this project,” he said, citing a lack of funding commitments. .

In Zimbabwe, less than half the population has access to electricity.  The country has relied on coal power to address chronic power shortages and create jobs.  |  Reuters
In Zimbabwe, less than half the population has access to electricity. The country has relied on coal power to address chronic power shortages and create jobs. | Reuters

PER Lusulu Power plans to construct the 2.1 GW Lusulu power station in the western province of Matabeleland North in Zimbabwe. It announced in 2015 that Chinese financial institutions had agreed to finance its construction, subject to conditions. PER Lusulu Power’s website says the company has entered into a construction contract with China State Construction Engineering Corporation, which would guarantee debt financing from the Bank of China.

PER Lusulu Power had also sought funding of up to $2 billion for the project from ICBC, according to excerpts from an August 2020 term sheet seen by Reuters. The term sheet is a non-binding agreement setting out the terms and conditions of an investment. It was unsigned and was prepared by ICBC, according to a person familiar with the document.

Bank of China said in a statement that it has no power projects in Zimbabwe and has no plans to develop any. ICBC and China State Construction Engineering did not respond to questions about the Lusulu project.

Economic development

A Chinese-funded project making progress is in the northwest city of Hwange, where construction was already well advanced when China announced its coal funding freeze. The project involves the expansion of an existing coal-fired power plant and was financed by a loan of around $1 billion from the Export-Import Bank of China, the Zimbabwean government has announced. Zimbabwe Power Company, which operates the plant, said in a November statement that the expansion “continues to progress well” and is more than two-thirds complete. China’s EximBank did not respond to a request for comment.

The project is expected to increase employment by nearly doubling the current workforce of 2,853, while supporting the city’s coal industry, which employs thousands more people. Zimbabwe’s government spokesman said the country would be in a much better position to meet electricity demand once the expansion – which is expected to add 600 megawatts – is complete.

Renewable energy advocates in Africa and elsewhere say China’s retreat from coal power offers a clean-up opportunity. Zimbabwe is expanding its plans for renewable energy generation, such as solar power, but such projects may require fewer permanent employees than coal, making them less attractive to governments keen to create jobs.

Sydney Gata, executive chairman of the Zimbabwe Electricity Supply Authority, said an instant switch to solar and wind is not feasible given the scale of the country’s electricity needs.

“Renewable energy is not an immediate plan B for Zimbabwe,” he said.

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