Chinese firm sues Zesco


A CHINESE firm has applied for an injunction to stop  the 750 megawatts Kafue Gorge Lower hydro power station which has been awarded to Sino Hydro, another Chinese company.

China State Construction Engineering Corporation (CSCEC) has applied for an injunction against the Zambia Public Procurement Authority (ZPPA) and ZESCO  because it is dissatisfied with the process that awarded the  the US$2 billion contract to Sino Hydro Corporation.

ZESCO has contracted Sino Hydro Corporation Limited of China to construct the 750 megawatts (MW) Kafue Gorge Lower (KGL) hydro power station in Chikankata district of  Southern Province at a cost of US$2 billion.

If  the application is successful, this will be the second time that Sino Hydro, which was the highest bidder, will be stopped from undertaking the project.

The Government, which is expected to contribute 15 per cent equity financing  for  the total project cost, has already released $186 million to Zesco as part of the initial investment contribution.

The Kafue Gorge Lower Development Corporation, a special purpose vehicle, would borrow 85 percent of the financing for the project from Exim Bank of China and the Government of Zambia would put up the rest of the financing as equity.

It is not clear if the financing arrangement in which Syno Hydro is playing a major role  by borrowing on behalf of Zambia has been cleared with the Treasury.

Sino Hydro was the highest bidder at US$1.46 billion with the lowest bid  at US$1.08 billion from China Gezhouba Group Company Limited International (CGGC).

The bid from CSCEC, which has gone to court, was second highest at US$1.38 billion.  The losing companies wrote to the Zambia Public Procurement Authority protesting the breach of rules and advised Government to halt the process until an investigation was undertaken.  This advice was ignored. According to the Memorandum of  Understanding signed  with Zesco last week, Sino Hydro is expected to build the project at a cost of US$2 billion in a financial arrangement that  provides for the Zambian Government to take 15 percent equity financing of which it has already released US$185 million to Zesco.

According to Zesco, the  development and construction of the KGL hydro electric project needed to be fast-tracked, completed and commissioned to meet the increasing energy demand both in Zambia and  in the Southern Africa power pool. When completed the facility would be connected to the national electricity grid via a 330-kilovolt transmission line approximately 100 kilometres up to the Lusaka West.  Sino Hydro Corporation vice-president Liu Kai said that his firm would move on site as soon as all financing procedures were completed.

“We understand the urgency of this project because we are familiar with this market. Let me assure you that the project will be executed in good time,” said Mr Liu.