News / National
Chinese debt threatens to switch off Zimbabwe's Hwange
24 Nov 2024 at 10:14hrs | Views
Zimbabwe's industrial sector is on edge this week as concerns grow over the future of the Hwange Thermal Power Station, a critical asset for the country's beleaguered power grid. With power utility Zesa Holdings struggling to meet its debt obligations to Chinese lenders, there are fears that the lenders might "switch off" the facility, exacerbating Zimbabwe's already dire power shortages.
The US$1.4 billion refurbishment of the Hwange power plant's Units 7 and 8 was funded by Chinese banks, but Zesa has faced significant challenges in servicing the debt. If these lenders take drastic action, Zimbabwe could see a dramatic escalation in power outages, which have already been crippling industry, agriculture, and everyday life.
Currently, blackouts in Zimbabwe have stretched to 18 hours a day, severely impacting economic activity. With inflation running high, foreign currency in short supply, and several businesses already shuttering or scaling down operations, the country is in the midst of a serious economic crisis. Analysts warn that prolonged power shortages could make recovery even more elusive, especially for industries struggling to operate amid the daily gridlocks.
The Hwange plant, which provides 600 megawatts (MW) of the country's electricity, has become Zimbabwe's most important energy source following a severe drought that has reduced generation capacity at the Kariba South Hydroelectric Power Station, which typically contributes 1,050 MW. The looming threat of a shutdown at Hwange is compounded by Zimbabwe's inability to service its mounting debts, making the situation even more precarious for the nation's economy.
Rising Debt and Struggling Industries
Since October 2023, Zesa has been making monthly payments of US$36 million to Chinese lenders. However, the utility was only able to make its first payment after securing a tariff hike to bolster its finances. Despite these efforts, the growing debt burden is putting significant strain on Zesa's operations. According to Christopher Mugaga, CEO of the Zimbabwe National Chamber of Commerce (ZNCC), if Zesa continues to struggle with debt repayments, the Chinese lenders may have no choice but to halt operations at Hwange.
"The debt position can make the Chinese switch off the power station until we pay. This is the reason why I say the power situation is dire," Mugaga warned in an interview with The Zimbabwe Independent.
The implications of a power shutdown at Hwange would be devastating for industries already grappling with power shortages. The Chamber of Mines of Zimbabwe recently revealed that miners had lost up to US$500 million in one year due to power shortages, with many operations forced to defer expansion and exploration projects. Mugaga highlighted the broader impact of the power crisis, noting that it is escalating manufacturing costs and stalling economic growth.
"The impact is quite sad, and it's being felt across almost every sector of the economy," he said. "Power shortages are having far-reaching consequences."
Zesa's Debt and Financial Struggles
Zimbabwe's Energy and Power Development Minister Edgar Moyo declined to comment on the growing concerns raised by industry leaders, referring questions to Zesa. In a recent appearance before the Parliamentary Portfolio Committee on Energy, Zesa's representative Eliab Chikwenhere confirmed that the utility is struggling with a mountain of debts, both foreign and domestic. Zesa is currently trying to manage approximately US$2 billion in foreign debt, alongside mounting arrears from domestic consumers.
To service the Hwange debt, Zesa needs US$36 million per month if all units are running at full capacity. But the utility only generates about US$55 million in monthly revenue, creating a massive financial gap. Chikwenhere emphasized the enormity of Zesa's task, adding that while Unit 7 and Unit 8 are performing well, other units like Unit 5 are "literally dysfunctional," and the overall power output remains insufficient to meet demand.
A Nation on the Edge
Zimbabwe's power crisis has been decades in the making, but the current situation is now reaching critical levels. The Kariba South plant, which typically accounts for the bulk of the nation's electricity generation, is producing just 100 MW of power on average due to low water levels in the reservoir. This is a sharp contrast to the 600 MW from Hwange's Units 7 and 8, underscoring the pivotal role of the thermal plant in keeping the lights on.
Mugaga's calculations suggest that Zimbabwe's power challenges could shrink the country's GDP growth by almost 0.8 percentage points, with the ongoing power shortages causing severe job losses. "We are looking at power outages averaging over 60% of working hours," Mugaga said. "We are not looking at less than 45,000 people who could have been employed, but are losing their jobs or not being employed due to power challenges alone."
International Relations and Debt Restructuring
Zimbabwe's close ties with China could influence how the situation plays out. China has invested heavily in Zimbabwe's mining and manufacturing sectors over the years, especially after Western investors pulled back following the country's land reform program. However, analysts say the nature of the relationship between Zimbabwe and China could determine whether the Chinese lenders take a hardline stance on the Hwange debt.
While Zimbabwe's leaders have repeatedly urged the international community to invest in the country's recovery, the debt situation at Hwange remains a serious risk to future stability. Zimbabwe's financial struggles continue to be exacerbated by global challenges, leaving businesses and citizens to navigate a difficult economic environment where power outages, inflation, and unemployment are all taking a heavy toll.
As Zimbabwe's authorities grapple with a ballooning debt and a desperate power crisis, businesses and citizens alike are left hoping that a solution will be found before the situation becomes even more untenable.
The US$1.4 billion refurbishment of the Hwange power plant's Units 7 and 8 was funded by Chinese banks, but Zesa has faced significant challenges in servicing the debt. If these lenders take drastic action, Zimbabwe could see a dramatic escalation in power outages, which have already been crippling industry, agriculture, and everyday life.
Currently, blackouts in Zimbabwe have stretched to 18 hours a day, severely impacting economic activity. With inflation running high, foreign currency in short supply, and several businesses already shuttering or scaling down operations, the country is in the midst of a serious economic crisis. Analysts warn that prolonged power shortages could make recovery even more elusive, especially for industries struggling to operate amid the daily gridlocks.
The Hwange plant, which provides 600 megawatts (MW) of the country's electricity, has become Zimbabwe's most important energy source following a severe drought that has reduced generation capacity at the Kariba South Hydroelectric Power Station, which typically contributes 1,050 MW. The looming threat of a shutdown at Hwange is compounded by Zimbabwe's inability to service its mounting debts, making the situation even more precarious for the nation's economy.
Rising Debt and Struggling Industries
Since October 2023, Zesa has been making monthly payments of US$36 million to Chinese lenders. However, the utility was only able to make its first payment after securing a tariff hike to bolster its finances. Despite these efforts, the growing debt burden is putting significant strain on Zesa's operations. According to Christopher Mugaga, CEO of the Zimbabwe National Chamber of Commerce (ZNCC), if Zesa continues to struggle with debt repayments, the Chinese lenders may have no choice but to halt operations at Hwange.
"The debt position can make the Chinese switch off the power station until we pay. This is the reason why I say the power situation is dire," Mugaga warned in an interview with The Zimbabwe Independent.
The implications of a power shutdown at Hwange would be devastating for industries already grappling with power shortages. The Chamber of Mines of Zimbabwe recently revealed that miners had lost up to US$500 million in one year due to power shortages, with many operations forced to defer expansion and exploration projects. Mugaga highlighted the broader impact of the power crisis, noting that it is escalating manufacturing costs and stalling economic growth.
"The impact is quite sad, and it's being felt across almost every sector of the economy," he said. "Power shortages are having far-reaching consequences."
Zimbabwe's Energy and Power Development Minister Edgar Moyo declined to comment on the growing concerns raised by industry leaders, referring questions to Zesa. In a recent appearance before the Parliamentary Portfolio Committee on Energy, Zesa's representative Eliab Chikwenhere confirmed that the utility is struggling with a mountain of debts, both foreign and domestic. Zesa is currently trying to manage approximately US$2 billion in foreign debt, alongside mounting arrears from domestic consumers.
To service the Hwange debt, Zesa needs US$36 million per month if all units are running at full capacity. But the utility only generates about US$55 million in monthly revenue, creating a massive financial gap. Chikwenhere emphasized the enormity of Zesa's task, adding that while Unit 7 and Unit 8 are performing well, other units like Unit 5 are "literally dysfunctional," and the overall power output remains insufficient to meet demand.
A Nation on the Edge
Zimbabwe's power crisis has been decades in the making, but the current situation is now reaching critical levels. The Kariba South plant, which typically accounts for the bulk of the nation's electricity generation, is producing just 100 MW of power on average due to low water levels in the reservoir. This is a sharp contrast to the 600 MW from Hwange's Units 7 and 8, underscoring the pivotal role of the thermal plant in keeping the lights on.
Mugaga's calculations suggest that Zimbabwe's power challenges could shrink the country's GDP growth by almost 0.8 percentage points, with the ongoing power shortages causing severe job losses. "We are looking at power outages averaging over 60% of working hours," Mugaga said. "We are not looking at less than 45,000 people who could have been employed, but are losing their jobs or not being employed due to power challenges alone."
International Relations and Debt Restructuring
Zimbabwe's close ties with China could influence how the situation plays out. China has invested heavily in Zimbabwe's mining and manufacturing sectors over the years, especially after Western investors pulled back following the country's land reform program. However, analysts say the nature of the relationship between Zimbabwe and China could determine whether the Chinese lenders take a hardline stance on the Hwange debt.
While Zimbabwe's leaders have repeatedly urged the international community to invest in the country's recovery, the debt situation at Hwange remains a serious risk to future stability. Zimbabwe's financial struggles continue to be exacerbated by global challenges, leaving businesses and citizens to navigate a difficult economic environment where power outages, inflation, and unemployment are all taking a heavy toll.
As Zimbabwe's authorities grapple with a ballooning debt and a desperate power crisis, businesses and citizens alike are left hoping that a solution will be found before the situation becomes even more untenable.
Source - thestandard
