Investment in Zambia power generation critical for continued growth

Natalie Greve | 10th April 2013 | Engineering News

Zambia would need to install an additional 4 330 MW of power generation capacity at a cost of $12-billion by 2020 to ensure the country’s continued economic growth, Copperbelt Energy Corporation strategy and regulation director Sylvester Hibajene said on Wednesday.

Speaking at the Power & Electricity World Africa conference, in Johannesburg, he said the bulk of the additional power generation capacity would come from hydropower, which had been identified by the Zambian government as the most appropriate power generation medium.

Hibajene told delegates at the conference that government had developed strong regulatory and policy support mechanisms to attract investment into the hydropower development sector.

This included the creation of a dedicated unit in the Ministry of Energy – the Office for Promoting Private Power Investment (OPPPI) – which interfaced directly with investors and “championed” support for private-sector hydropower projects.

“Government realises that it cannot develop the required hydropower projects alone. As a result, it has realised the value offered by the private sector and is working towards creating a market environment that is highly conducive to investment in hydropower and will drive the State’s objective of harnessing all hydropower potential by 2030,” he commented.

The OPPPI would serve to balance the interests of independent power producers (IPPs) and government and would provide clarity around the role of the State utility Zambia Electricity Supply Corporation (Zesco) in power project development.

The OPPPI clarified that while all brownfield projects were awarded to Zesco, all greenfield projects would be awarded to the private sector.

To further boost investment interest in hydropower, Hibajene explained that the reformed policy outlined long-term build-own-operate and build-own-transfer implementation agreements with IPPs.

Implementation agreements would also recognise that government would carry certain risks associated with hydropower projects.

For example, should the end cost of the project exceed the initial estimated costs by more than 15%, these would be borne by government.

“In addition, should hydrological factors, such as drought, cause output to drop below a certain level, government will assist the IPP in meeting the associated debt obligations,” he said.

Moreover, to guarantee longer-term value for private sector developers, the Energy Regulation Board would provide an investment endorsement for power sector investment prior to project implementation, which assured the investor of an operating licence once the plant was built. It also indicated application tariffs.

Further, power purchase agreements were allowed for a period of between 15 and 20 years and could be signed with the national utility or large-scale consumers, such as mines.

To further drive investor interest, hydropower projects were prioritised under the Zambia Development Agency Act, and investors were provided incentives, such as enjoying duty-free capital equipment imports and tax holidays.

“These incentives are awarded to both local and foreign investors,” noted Hibajene.

Projects in Development
As a result of such concerted State efforts, he said, several companies were now active in the hydropower subsector, with various private-sector led projects at various stages of development.

These included the 105 MW Lunsemfa Hydro Power Company project, the 247 MW Lunzua Power Authority project, the 40 MW CEC project and the 750 MW Kafue Gorge Lower hydropower plant development.

All hydropower operations currently under development were to come on-stream by 2018.

Hibajene, however, conceded that some negative investor sentiment had emerged following the implementation of the legislation, in May last, which ordered that all transactions with foreign companies be prepared using the local currency, the Zambian kwacha.

The majority of the existing private and public sector agreements had been signed using the dollar as reference.

Negotiations were currently under way between government and industry to revisit the contentious legislation, which Hibajene said had resulted in project delays and investor reticence.

“We are hopeful that there will be a general exemption for all infrastructure projects, and we think that the Minister of Finance is beginning to see our point,” he concluded.

Edited by: Chanel de Bruyn
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