The Zimbabwe Power Company (ZPC) says the government’s failure to pay reinsurance to Sinosure, an export credit agency of China Exim Bank that was to finance the 100-megawatt Gwanda solar power plant, impeded the project’s take-off.
ZPC signed a contract with Intratrek Zimbabwe Pvt Ltd on
October 23, 2015, to supplement the country’s energy needs with solar renewable
energy, however almost nine years have passed with no movement on the Gwanda
project.
ZPC also claims the tender awarded to Intratrek was above
board because the company was advised by the then State Procurement Board that
Intratrek was one of the cheapest bidders compliant to the specifications
required by ZPC.
However, work on the solar project was delayed and
compounded by a protracted legal struggle between ZPC and Intratrek, in which
Intratrek accused ZPC of wrongfully terminating the contract, resulting in the
Supreme Court ruling that ZPC’s contract was still valid and enforceable.
During a meeting with the Energy Parliamentary Portfolio
Committee on Wednesday at the solar plant site in Gwanda, ZPC management stated
they could not afford to cancel the contract owing to the way it was packaged,
and that finance shortages exacerbated the issues.
Tungamirai Chinhengo, ZESA Holdings’ Legal Advisor and
Corporate Secretary, explained that ZPC and Intratrek signed an Engineering,
Procurement, and Construction (EPC) contract in which the contractor identifies
a potential financier, who then submits a term sheet to ZPC, whose terms are
evaluated.
“If acceptable, ZPC would, in terms of the Public Finance
Management Act, seek a borrowing certificate from the Ministry of Finance. It’s
only on that basis that ZPC can then borrow the funds in its name and capacity,
which funds will be used to pay the EPC contractor,” Chinhengo said.
“In terms of any collateral security or performance bonds,
the current EPC contract requires an advance payment guarantee, a performance
guarantee and thirdly, retention in respect of the works that would have been
done. So contractually the agreement is very sound to the extent of protecting
the interests of ZPC as well as the government of Zimbabwe.”
The legal counsel said the nature of ZPC and Intratrek’s
contract included suspensive terms in which payment of the deposit became a
prerequisite for the agreement to become effective.
For work to begin on the site, certain requirements were
required, which Chinhengo stated were perhaps six or eight or suspensive
conditions that had to be met.
“Now the contract provides that these were supposed to be
fulfilled within 24 months from the date of signature, which meant by 23 of
April 2017 these conditions precedent should have been fulfilled,” he said.
“But the contract further allowed for an extension by six
months of this period if the parties have failed to complete the conditions
precedent so effectively, the contract gave 30 months within which the
conditions precedent were to be satisfied now. “
Chinhengo said some of these conditions were fulfilled but
the “biggest elephant in the room has always been the issue of funding.”
“During the period from 2015 when the contract was signed,
there were several changes within the monetary policies and so forth,” he said,
adding the Zimbabwean government was obliged to make certain payments to
Sinosure, an export credit reinsurance firm of China Exim Bank.
“At the time the tender was awarded to Intratrek, the basis
of funding was supposed to be from China Exim Bank. So the 24 months lapsed
whilst the funding could not come through from China Exim Bank because there
was a view that there were certain payments which were not made to Sinosure so
basically that was the excuse by the contractor to then say, ‘As far as I’m
concerned, I’ve given you a financier who is willing and ready to finance, but
the financier is saying you have not yet paid my reinsurance to the Sinosure
export credit agency,’” he explained.
“After the 30 months lapsed, that became the basis for ZPC
to then terminate the contract because the argument was to say you are the EPC
contractor who is bound in terms of the contract to secure funding. So that was
the legal basis we considered to terminate.”
Chinhengo stated the nature of government-to-government
funding, also known as cross-border financing instruments, is such that all
government-developed projects are covered by a specific facility.
“The amount towards which the government should pay the
export credit reinsurer simply considers all the projects that the government
will be developing based on financing from China Exim Bank. So it was not
directly related to this project but about other projects which the government
was developing at the time,” he explained.
Chinhengo clarified that ZPC was not the first one to
approach the High Court but it just cancelled the contract on 23 April 2018.
“It was Intratrek that approached the High Court in 2019,
alleging that we had unlawfully terminated the contract. That is what then led
to the onset of the protracted legal battle as we have come to know of it,” he
said, noting that most of the nine years after the tender was awarded had been
spent in court.
“The first time this matter was referred to the High Court
was actually in January of 2018 yet the contract had been signed on 23 October
2015. So there were only three years of attempting to implement it, after which
the ZPC terminated it on grounds that at the time it was considered that the
contractor had failed to perform.”
“The greater portion, during which there was no activity at
site, was really during the pendency of the litigation initially in the High
Court then to the Supreme Court, then back to the High Court again and finally
in the Supreme Court as at December last year. CITE
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