HARARE - Expansion of Hwange Thermal Power Station (HPS) is stalling due to funding structure differences between the ministry of Finance and the potential Chinese investor.

Tendai Biti, Finance minister, said funding for the expansion project was yet to be finalised as the Chinese government insisted on a buyer’s credit arrangement as opposed to Treasury’s proposal for a concessionary loan financing scheme.

“A buyer’s credit refers to an open commercial credit and at the moment we don’t have the resources needed to deal with buyer’s credit,” Biti said in the state of the economy report.

A concessionary loan is a form of financing bearing no interest or that has an interest rate below the average cost.

It is used to bring down the cost of capital.

A buyer’s credit is the credit availed by an importer (buyer) from overseas lenders, for instance banks and financial institutions for payment of his imports on due date.

The buyer’s credit helps local importers gain access to cheaper foreign funds close to the average interbank interest rate at which a selection of banks on the London money market are prepared to lend to one another against local sources of funding which are costly.

Giving an update on other power projects, Biti said government had closed tenders for the construction of first generation capacity stations at the Kariba South Thermal Station.

He said Chinese-owned Sino Hydro was the only bidder for the project.

The finance minister said an increase in power outage at both the Hwange and Kariba stations was expected. He said power availability was also set to increase as the energy ministry had so far managed to reduce the HCB debt from $150 million to $3 million.

Biti said the move would see an increase in power imports in the future, which will enable the power utility Zesa holdings to service all areas.

“This move by the Energy ministry will enable power imports to experience an increase from the current low levels of 50 megawatts (MW) to the old figures of 350MW,” said Biti.

He said although the months of June and July had experienced a decline in generation capacity, August had recorded an output increase to the figures of 1 200MW, compared to the 1 058MW and 1104 recorded in June and July respectively.

Zimbabwe and Zambia are also working on a joint 1 650MW Batoka Gorge project which is set for completion in 2019 after Zimbabwe agreed to expunge its $71 million legacy debt with Zambia by end of March 2014.

Currently, Zimbabwe’s generation capacity leaves a shortfall of 750MW, which the country plans to reduce to 480MW and 445MW in 2013 and 2014 respectively after new projects are taken on board.

The country’s average power production is 1 400MW against a rising demand of around 2 200MW.