Gata slams Govt for stalling IPPs projects

22 Oct, 2021 - 00:10 0 Views
Gata slams Govt for stalling IPPs projects Dr Gata

eBusiness Weekly

Business Writer

ZESA Holdings executive chairperson, Dr Sydney Gata, has blamed the Government for stalling projects by Independent Power Producers (IPPs) at a time the country has inadequate power supplies and is facing threats ranging from climate change and a move away from funding thermal power stations.

Speaking to editors and journalists during a tour of zesa’s Hwange thermal plant on Monday, Dr Gata said efforts by IPPs to securitise power projects have failed to materialise because of the refusal by the Government to issue out some guarantees.  

He laid the blame on Finance and Economic Development Permanent secretary George Guvamatanga.   

“Policy development to securitise especially private investments in the industry, who is to blame. I am very candid on issues like this, you want a name, the Secretary for Finance, is the man to blame,” Dr Gata said.

In the past, the Ministry of Finance has often given guarantees, binding the Government of Zimbabwe as surety for the repayment of outstanding amounts due to lenders at the date of maturity of the guarantee.

Under the guarantee arrangement, the borrower is able to obtain a loan from the lender on condition that the Government provides a guarantee that, in the event of default, the Government will take on the responsibility of repaying the loan.  

The Minister of Finance is mandated by the Constitution of the Republic of Zimbabwe and the Public Debt Management Act (PDM Act) to on-lend and issue out some guarantees.  

But from what Dr Gata said, it seems there is a departure from such practices, at least in terms of independent power producers.   

Despite close to 100 IPPs with potential to produce 6 000 megawatts having been licensed, only a few projects have been successfully implemented in the past, according to the Zimbabwe Energy Regulatory Authority (ZERA).

In response to the accusations that he was stalling projects, Guvamatanga said it was unfortunate that there is a thinking that an institution such as the Ministry of Finance can be personalised (by himself). 

He refused to be drawn into a public/media spate and said it is not appropriate to run government business in newspapers when there are laid out channels to be followed.

Further, Guvamatanga said, such issues should be addressed between Dr Gata’s parent ministry (Ministry of Energy and Power Development) and the Ministry of Finance.

“There are actually proper channels to air those grievances, if there are any,” said Guvamatanga.  

Guvamatanga chairs the External and Domestic Debt Management Committee (EDDC), which also has in its composition the Governor of the Reserve Bank of Zimbabwe; the Attorney General; Secretary of Line Ministry (as and when necessary); and the Zimbabwe Public Debt Management Office (ZPDMO) as secretariat to the Committee.

When it comes to issuing out some guarantees, the EDDC Working Party (WP) evaluates and assess the application using the credit risk scoring evaluation.   

The EDDC WP submit to the EDDC, results of the evaluation and assessment, including recommended decision on level of guarantee and fee(s). The EDDC deliberates on EDDC WP recommendations and recommend decisions to the Minister of Finance. The Minister of Finance approves or does not approve the guarantee taking into consideration recommendations from the EDDC.

Guvamatanga said he can thus not be blamed adding that if there are any issues with him, the matter could be escalated to the Minister of Finance and Economic Development. 

Walter Mandeya, an analyst with Trigrams Investments applauded the Ministry of Finance’s stance on debt accumulation saying over the years poorly crafted projects had left the taxpayer overburdened with debt. 

“Government has to be prudent in issuing out sovereign guarantees. Unless the projects are directly linked to government, why should private projects burden the tax payer? 

“IPPs must factor in the cost of capital as well as the associated risks and if the project is viable there is no need for a government guarantee. IPPs can even get insurance for their projects.”

 Janet Zhou an Executive Director of the Zimbabwe Coalition on Debt and Development (ZIMCODD) shares the same sentiment in terms of the issue of public debt guarantees by the Government to different public sector, private sector and parastatals. 

“We really have a serious problem of public debt guarantees or guarantees that are causing our debt to shoot beyond the legal thresholds.

“So I would want to think that we have to move towards public sector reforms and transformation and ensure that public institutions such as ZESA, as an example, can become centres of the economy and contribute to our GDP,” said Zhou. 

“We had our public sector institutions and parastatals contributing over 40 percent of our GDP, right now they are the ones that are actually gobbling resources instead of generating income. I believe that its high time that we look at the operations of these institutions and I believe the issue is mainly around the leakages that are being facilitated by lack of corporate governance and over reliance on government subsidies and guarantees,” she said. 

Another debt expert, however, said challenges associated with investing in Zimbabwe make it necessary for Government to issue guarantees if the country is to attract investors both local and foreign.

“Power projects require a considerable amount of foreign currency, and if the IPP is going to borrow from international lenders there is need for a guarantee that money can be taken out of Zimbabwe.

“In addition to our country risk premium, the auction system has challenges with a growing backlog, we have also changed our currency of use several times, so there might be need for government guarantees,” said the regional debt expert who requested not to be named as the local office has that mandate.

ZERA board chairperson David Madzikanda, is on record saying “there has been no high rate of success in terms of commissioning of the IPPs largely, because the technology requires foreign currency, which is in short supply in the country.”

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