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Zizabona first phase to cost N$559m

Mon, 18 January 2016 02:15
by Charmaine Ngatjiheue
News Flash

Zimbabwe, Zambia, Botswana and Namibia (Zizabona) have to cough up at least US$33m (N$559m) to kick- start the first phase of the Zizabona Transmission Project which will power all those countries, The Villager understands.

The project will be sponsored through the Southern African Power Pool (SAPP). The total project cost was expected to be around US$223 million (N$3.7 billion).

This is according to an interim Zizabona report conducted by Fichtner Management Consultants, which was provided to The Villager by Zizabona Project Coordinator Dr Lawrence Musaba from the Southern African Power Pool Coordination Centre (SAPP-CC).

The Zizabona Transmission Project was meant to encompass the development, construction and operation of a 400 kV high-voltage transmission line through Zambia, Zimbabwe, Botswana and Namibia, of which the objective was to establish a “western transmission corridor” in Southern Africa.

Project sponsors were Zambia’s ZESCO, Zimbabwe’s ZESA, Botswana’s BPC and Namibia’s NamPower, with the necessary Governmental support having been guaranteed from each country.

When Fichtner commenced as transaction services’ advisers in March 2015, it scaled down the project and indicated that the project was unlikely to be successful in achieving limited alternative financing at least in the context of typical market risk apportioning.

This came after it was decided in 2013 that the project would seek project finances, including total senior debt funding estimated to be in the region of US$156m (N$2.6b) on the basis of a debt-to-equity ratio of 70/30.

For that reason, Fichtner’s report indicated that it is best to complete the project in two phases. The estimates of the investment costs (transmission line and sub-stations) were based on both experiences and data of actual comparable projects.

The Fichtner report noted that the estimated investment costs of the construction are based on the existence of one engineering, procurement and construction (EPC) contract, saying costs are expressed in constant 2015 prices and escalated by 3% per annum for international inflation to calculate the 2017 Capital Expenditures’ (CAPEX) amount when construction will start, and 10% physical contingencies are added to the CAPEX.

“Other project costs considered are Project Development Management Costs, Special Purpose Vehicle (SPV) set-up and operating costs, Lenders’ Due Diligence Costs and Environmental and Safeguard costs. At this stage of the evaluation, taxes and duties are not foreseen for the project”, the report noted.

Meanwhile, the Net Present Values (NPVs) of costs are generated using the weighted average cost of capital (WACC) of 10% as discount rate.

“Operating and maintenance (O&M) costs are estimated as a percentage of CAPEX. The Consultant has estimated 2% of O&M costs for the transmission line, and 3% of O&M costs for the sub-stations. In addition, costs of a major overhaul every 10 years are included in the financial assessment,” the report stated.

The first phase, which is set to commence in 2016 with the commercial operation date being targeted for 2018, includes the Hwange-Victoria Falls-Livingstone Line, which would utilize the existing ZESA-NamPower Power-Purchase Agreement (PPA), and also utilize the existing 220 kV Livingstone- Zambezi line.

The report said the investment costs used in the financial assessment of the first phase are based on 2015 prices and on cost estimates provided by Fichtner’s own engineering experts.

“The costs are estimated for the 400 kV overhead line, 101 km in length, single circuit from Hwange via Victoria Falls S/S to Livingstone S/S and three sub-stations - Hwange Power Plant sub-station, Victoria Falls sub-station and Livingstone sub-station,” the report showed.

The second phase would encompass the Victoria Falls- Pandamatenga and Livingstone-Zambezi lines, with the implementation timing depending on Kudu and demand at Pandamatenga and in ZESCO.

“The Phase 1 base case involves utilizing existing 80 MW firm power supply from ZESA of Zimbabwe to NamPower of Namibia. Currently, the power is being wheeled from ZESA via the Eskom transmission system in South Africa, then to Namibia. The intention with Phase 1 is to re-route the power from South Africa into the ZIZABONA network through existing ZESCO facilities and into Namibia, thus potentially reducing costs to NamPower and significantly increasing reliability,” the report continued.

Zesco of Zambia is exporting 50 MW into Namibia by using the existing ZESCO 220kV transmission line from the Victoria Falls power station/switching station to Zambezi in Namibia (Caprivi line).

This means the immediate result will be that this transmission line will carry 80 MW plus 50 MW equalling 130 MW into the Namibian network.  

Photo: NAMPower courtesy of SAPP