Zambia, Zimbabwe to Sell $440 Million Stake in Hydro Project

LUSAKA (Capital Markets in Africa) – Zambia and Zimbabwe plan on selling $440 million in equity stakes in the hydropower plants that form the centerpiece of the proposed $4 billion dam that will straddle their border.

This is according to a document published by Ernst & Young Advisory Services Pty Ltd., the countries’ adviser. The Batoka Gorge hydropower project on the Zambezi river between the Kariba dam and Victoria Falls, will produce 2,400 megawatts of power once complete — more than either nation’s current generation capacity. The African Development Bank is also advising the governments on the project, which might start producing electricity from 2023.

Zimbabwe and Zambia will operate separate power plants at the dam that will each cost $732 million to build, according to the report. That gives a total cost of $1.46 billion. The estimated capital cost for the dam itself is $2.14 billion, and will be financed through senior debt and grants, the report showed.

While it didn’t detail the percentage stake the governments might sell in the power plants, it says they will be “jointly owned by private companies/investors and the respective power utilities.” Each country’s power utility would raise $220 million from selling a stake in their respective power plant.

Batoka will produce power at an “average retail tariff” of 3.22 U.S. cents per kilowatt-hour, about one-third of Zimbabwe’s average tariff in 2015-16, and almost half of Zambia’s, according to the report.

The tariff estimate was arrived at using 2015 prices, and hasn’t factored in the effect that lower rainfall could have on electricity production. This could be significant, as the power plants will be operated largely as a “run-of river” system, which means the dam can’t store water during the wet spells for use when the weather turns dry.

“This is based on the average annual hydrological flows between 1925 and 2014 without any adjustment for climate change,” the report said of the forecast electricity costs. “Additional scenarios to test the impact of climate change on tariff are currently being undertaken.”

At Kariba, the world’s largest man-made freshwater reservoir by capacity, power output was cut by more than half after low rainfall in 2014 and 2015. Even with reduced outflows from the hydropower turbines since 2015, levels have only increased to 39 percent this month, after bottoming at 11 percent last year — the lowest since 1992.