In a decision set to deter investment in new energy generation in Zimbabwe, an arbitration award has allowed the country’s power utility to pay independent power producers in local currency instead of US dollars.
The decision comes after Pungwe B Power Station, a hydroelectric power scheme, brought proceedings against Zimbabwe Electricity Transmission and Distribution Company (ZETDC) under the dispute resolution service of the International Chamber of Commerce (ICC) in Johannesburg.
The dispute was over the currency of payment. While Pungwe B has argued that its power purchase agreement with ZETDC is denominated in US dollars and should be paid in US dollars, the utility disagreed with this interpretation of the contract, and had fallen into arrears with US dollar payments due to Pungwe B.
The ICC determined that provisions in Zimbabwe’s national law, which allows the government to opt to pay suppliers in local currency, overrides the provisions of the contract between the IPP and the utility.
“This is a disappointing result for Pungwe B, for all operating IPPs and the electricity sector as a whole as it does not encourage further investment in the sector,” Nyangani Renewable Energy, the owner of Pungwe B, said.
The decision comes just as nations, including Zimbabwe, prepare to present their greening ambitions at the UN Climate Conference (COP26), which starts in Glasgow on October 31.
Zimbabwe has a shortfall of generation capacity and depends on electricity imports from Mozambique and SA to power its economy.
Zimbabwe aims to add 2,000MW to the national electricity grid by 2030, largely from renewable sources. IPPs are expected to be a key part of such plans, but investor-friendly policies are crucial to secure funding.
Already, eight renewable energy projects with at least 100MW capacity have not reached financial close while waiting on the ICC decision.
Given the outcome of the arbitration proceedings, it is unlikely they will proceed at this point as investors will be reluctant to put US dollars into developing projects when there is no guarantee they will indeed get US dollars out.
The Chamber of Zimbabwe Industries last week issued a statement warning that Zimbabwe’s currency faces collapse unless the authorities implement policy measures needed to support it,
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