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.
