Zimbabwe: ZETDC sets aside funds for the Munyati solar power station (100 MW); the terms have not been disclosed

A trust and guarantee agreement now governs the electricity company’s purchase obligation. Its contents have not been made public. On 25 August, the Zimbabwe Electricity Transmission and Distribution Company signed a trust and guarantee agreement with Munyati Evergreen Energy concerning the 100 MW Munyati solar power station, which will become the country’s largest solar facility once operational. The agreement was concluded on the sidelines of the eighth meeting of the International Solar Alliance’s Regional Committee for Africa in Victoria Falls, in the presence of the Minister for Energy, Mr Moyo, the Permanent Secretary, Ms Gloria Magombo, and the Chief Executive Officer of ZESA Holdings, Mr Cletus Nyachowe.

Objectives of the agreement

These documents establish a reserve mechanism designed to guarantee payments by the ZETDC for the electricity supplied under the project’s power purchase agreement. Munyati Evergreen Energy describes this mechanism as the centrepiece of the guarantee scheme required by its group of potential lenders before they commit to granting a loan, and as the removal of the main commercial obstacle to financial close. Site preparation and initial works, including groundworks, construction of facilities and the deployment of technical teams, were completed prior to signing.

What has not been disclosed

No escrow agent has been appointed. Nor were the following specified: the amount deposited, the number of months of debt service it covers, the obligation to replenish the account when it is debited, the time limit for rectification before a lender can take action, or which sources of revenue are allocated to it. These conditions determine whether a lender regards this arrangement as credit support or merely a formality for the purpose of signing the contract.

What it means

It is the sequence of steps chosen by the developer that is of interest. Client risk was the main commercial obstacle, and a group of lenders made this guarantee scheme a precondition for granting the loan. This is the standard approach in markets where a sovereign guarantee is either unavailable or unaffordable. An escrow account re-prioritises funds that are already available without adding any new funds; the structure therefore only holds if the pledged revenues are actually paid, which means that the undisclosed terms form the core of the arrangement rather than the small print. Munyati points out that the financial, technical and regulatory requirements still need to be finalised, with construction due to begin in the coming months. Until a lender has been appointed and the loan amount published, what has been achieved constitutes merely a precondition and not the conclusion of the transaction.

Sources: Munyati Ever Green, Heraldonline