Major coal suppliers to Zimbabwe Power Company (ZPC), the generation arm of State power utility Zesa Holdings, are demanding prepayments to guarantee security of coal supply, according to minutes of a board meeting seen by Business Weekly.
Such arrangement may disrupt power generation at thermal power stations if ZPC fails to get enough energy coal from the two major suppliers in instances where it does not have cash for the prepayments or if it experiences cash-flow hiccups.
Cash flow challenges may arise in instances where the ZPC would be awaiting amounts due to it for power supplied, given for instance that on September 30, 2018 it was owed $682 million for power sold to Zesa’s distribution arm, Zimbabwe Electricity Transmission and Distribution Company (ZETDC).
Coal fired power stations in Zimbabwe account for over a third of internally generated power, which currently averages 1 486 megawatts, mainly anchored by electricity generated at Kariba Power Station, which has installed capacity for 1050MW.
As such, the minutes of the ZPC management board meeting show that ZPC’s board made a counter claim, demanding that the suppliers, Makomo Resources and Hwange Colliery (HCCL), first present advance payment guarantees for prepayments.
But there appeared to be issues around who should carry the cost of the advance payment guarantee although ZPC seemed to concede at last that Makomo and HCCL may not be able to secure the guarantees, and it might have to pick up the cost.
“Major coal suppliers, Makomo and HCCL had been requesting for prepayments from ZPC in order to guarantee security of coal supply. In response to the request, ZPC (indicated that it) had (already) been making prepayments for coal without advance payment guarantees.
“The coal suppliers had been struggling to secure advance payment guarantees due to their financial standing. ZPC engaged Cell Insurance with a view to have them guarantee the prepayments.
“Negotiations were underway with the coal suppliers on who would bear the cost. Worst case scenario would be for ZPC to pick up the cost. Management sought authority to purchase cover for coal prepayments from Cell Insurance,” ZPC said.
However, while minutes of the board show that the power utility was already making high value payments without guarantees, ZESA spokesman Fullard Gwasira said it was not in the nature of the group or its subsidiaries to make prepayments to any supplier using public funds without a guarantee.
Apparently, ZPC had continued to make high value payments to suppliers, especially Makomo and HCCL, given they also kept doing business with the power utility even when it had previously gone for extended periods owing them.
“While it is not normal policy to comment on board deliberations and decisions with the board, it is standard ZESA policy not to advance payments to any supplier without a guarantee, as these are public funds, which are under our custody and are given utmost protection,” Gwasira said.
Makomo Resources managing director Ray Mutokonyi told this paper that the issue of prepayments between the parties was discussed early last year when ZPC advised that it required security for prepayments after losing money to some contractor due to unsecured advance payments.
ZPC once courted controversy over its decision to pay $5,1 million to local
firm, Intratrek, for the Gwanda solar project, which ran into challenges, which the later blamed on ZPC, causing delays in completion of initial project works.
“It was not because there was an issue, but we were advised of the new rule or new way of doing things going forward,” he said.
“We have contractual arrangements with them that they pay when they get the product,” Mutokonyi said.
As at September 30, 2018, ZPC had made prepayments amounting to $275 million while $235 million of that amount was paid to Sinohydro against a bank guarantee for Hwange 7 and 8 expansion.–ebusinessweeklyc.oz.lw