For more than two decades, Zimbabwe has been trying to
break ground on a giant coal-power complex by the world’s biggest man-made
reservoir. China just agreed to get the $4.2 billion project underway.
The development near the southern shore of Lake Kariba is
good news for Zimbabwe, where a collapsing economy and erratic policies have
deterred foreign investment for the past 20 years.
But it flies in the face of a growing global consensus that
has seen financial institutions from Japan to the US and Europe shun investments
in coal projects.
That retreat leaves the way open for Chinese companies —
many with state backing — even at the risk of undermining the spirit of China’s
international commitments to fight climate change.
“We are very pleased that the project is going ahead,
especially as major banks in the world are forced to stop financing coal-fired
power stations,” Caleb Dengu, chairman of RioZim Energy, the company that owns
the project, said in a response to questions.
“This is testimony of Chinese commitment to development
projects in Africa. The Chinese are interested in joining hands.”
China is certainly in need of friends: A global backlash is
building over Beijing’s handling of the coronavirus outbreak first identified
in the Chinese city of Wuhan — evidence of a deficit of trust that was
compounded by incidents of racism toward Africans in the southern city of
Guangzhou last month.
Yet pumping money into coal just underlines China’s
creeping isolation in backing plants that generate large quantities of
greenhouse gases and other pollutants.
For financial institutions, “the ever-increasing
reputational risk of funding a project like this, and the high likelihood that
it would end up as a stranded asset, should make them very wary of getting
involved,” said Tracey Davies, director of Cape Town-based shareholder activist
organisation, Just Share.
In fact, the Chinese government promised back in 2017 to
green its Belt and Road Initiative overseas construction plan to promote
environment-friendly development in line with United Nations goals.
President Xi Jinping pledged last year that the programme
must be green and sustainable.
Yet Chinese companies and banks are involved in financing
at least 13 coal projects across the continent with another nine in the
pipeline, according to data compiled by Greenpeace.
Since 2000, the China Development Bank and the
Export-Import Bank of China alone have supplied $51.8 billion of finance for
coal projects globally, according to the Boston University Global Development
Policy Centre.
“Despite promises to shift support to green and low-carbon
energy, Chinese banks have continued to bankroll coal power projects,” said
Lauri Myllyvirta, lead analyst for the Centre for Energy Research and Clean
Air, an independent research body.
“China has enormous state-owned thermal-power manufacturing
and engineering firms that rely on overseas deals to stay in business.”
Xi regularly mentions China’s commitment to multilateralism
through fighting climate change as a signatory of the Paris Agreement. China,
however, is unlikely to divest from coal anytime soon.
Despite hefty investment in renewable energy over the past
decade, China still mines and burns about half the world’s coal.
China has undoubtedly made progress.
By 2018, China had exceeded its target for reducing CO2
emissions, Foreign minister Wang Yi told the UN climate action summit in New
York in September.
He touted increases in non-fossil fuel use and in
forestation along with sales of some 1.25 million electric cars that year.
And yet now, as it claws its way out of the
pandemic-induced slump, Beijing has started to roll back restrictions on
industrial pollution and slash subsidies for cleaner energy.
There shouldn’t be a “one-size-fits-all approach” for green
development in poorer nations, but rather the decision should be based on a
host country’s natural resources, according to Yu Zirong, a vice-director at
the Chinese Academy of International Trade and Economic Cooperation, a
think-tank affiliated with the Ministry of Commerce.
“For countries with rich coal resources, it is impossible
to completely forbid them using coal,” said Yu, who spoke at a forum on
sustainable Belt and Road Initiative in October in Beijing. “The key is how to
use them more reasonably.”
That’s a sentiment shared by Lefoko Moagi, Botswana’s
Minister of Mineral Resources, Green Technology and Energy Security.
Botswana has Africa’s biggest coal resources after South
Africa, according to the government.
“The world is continually looking at coal as a dirty
mineral. Make no mistake: we all subscribe to a greener world.
“But we believe that we just can’t leave an abundance of a
god-given natural resource just like that.
“We need to exploit it more cleanly for the benefit of our
communities and the benefit of the nation,” he said in an interview in
February.
“This is an opportunity for countries like China to come
into this space.”
China’s agreement to invest is a rare win for Zimbabwe,
which is currently subject to power cuts of as long as 18 hours a day as it
doesn’t produce enough electricity to meet demand and can’t afford to pay for
adequate imports.
The project was initially owned by London-based miner Rio
Tinto, the one-time parent of RioZim, which in turn owns RioZim Energy.
It was set aside as Zimbabwe’s relations with the UK, its
former coloniser, deteriorated.
After the project was revived in 2016, General Electric and
a unit of Blackstone Group didn’t pursue initial inquiries, according to Dengu,
the company’s chairman.
Power Construction Corp of China, the state-owned company
known as PowerChina, has been contracted to build the first phase of the plant
known as Sengwa, which includes a 700-megawatt (MW) generation unit, as well as
a pipeline from Kariba Dam to bring the water needed and power lines at a total
cost of $1.2 billion.
Funding is likely to come from Industrial & Commercial
Bank of China (ICBC), while China Export and Credit Insurance Corp or Sinosure,
may provide the country risk cover needed, according to Dengu.
Both are owned by the Chinese government. Repeated calls to ICBC and Sinosure went unanswered.
PowerChina said that its overseas coal-related projects
will adopt the most efficient technologies to reduce pollution emissions, and
will abide by local environmental regulations and standards while aiming to
provide stable and cheap electricity supply for host countries.
Last month a deal was signed for the rest of the project,
which will add a further 2 100MW at a cost of
$3 billion.
China Gezhouba Group, which is partly state-owned, will
develop the project and lead fund raising, Dengu said.
The company didn’t respond to calls and an email request
for comment.
“The Chinese are looking at the business opportunity,” said
Dengu. “We bring the market knowledge and management capacity, they bring the
finance and the technology.”
Rio Energy had few other options.
European banks no longer fund coal projects and over the
last year the biggest banks in South Africa have committed to reducing their
coal funding under pressure from shareholders.
Morgan Stanley and Citigroup are also among those to curb
or halt project financing for coal-related projects.
While the Zimbabwean project is sizable among those being
considered by Chinese companies, it is not the biggest.
PowerChina has signed a memorandum of agreement with South
Africa’s Limpopo provincial government to build a power plant of at least 3
000MW at a cost of $4.5 billion.
Not all are welcomed by local communities.
Sengwa would draw water from Kariba, a reservoir already so
depleted by recurrent droughts attributed to climate change that its hydropower
turbines operate at a fraction of their capacity.
The South African government is facing a lawsuit because
coal-fired power plants there cause some of the world’s worst air pollution.
“It’s a fading industry,” said Han Chen, who manages the
international energy policy programme at the New York-based National Resources
Defence Council.
“So they are going places where the environmental standards
are low so they can use more polluting equipment that is cheaper to operate.”
Of 11 coal projects in Africa she tracks that are likely to
get foreign support, 10 involve Chinese state-owned entities.
As banks in other countries including Japan and South Korea
snub coal, those projects will increasingly rely on China.
“Chinese banks will find themselves increasingly alone in
funding new coal plants, both at home and around the world,” said Christine
Shearer, director of the coal programme at Global Energy Monitor.
—Bloomberg
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