National Power set to sign $1bn deal in Zimbabwe

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The Independent Online
National Power is poised to sign another large-scale, overseas generating deal, with a $1bn project to run a coal-fired power station in Zimbabwe. Chris Godsmark, business correspondent, looks at the group's international expansion plans.

The coal-fired power station to be built at Gokwe, in the north-west of Zimbabwe would have more than 1,000 megawatts of capacity and would give National Power its first significant foothold in Africa. The plant is to be built on a large coal field operated by RTZ, the mining giant which is part of the consortium with National Power.

Negotiations have been continuing for several months with the Zimbabwe government, which would emerge with a stake in the venture.

National Power hopes to sign the agreement to build the power station in the next couple of weeks. The size of its stake in the project is still thought to be under discussion, though it could be approaching 50 per cent. The company declined to speculate but said it would be "substantial."

Under the deal a new company would raise funds to build the plant, expected to cost $1bn, with about 70 per cent in the form of debt and 30 per cent as equity. It suggests National Power's investment could approach $150m (pounds 92m). Unlike some other overseas opportunities, National Power and RTZ are the sole companies bidding for the Zimbabwe project, in effect giving them exclusive rights over the outcome.

National Power said the transaction would follow the shape of other recent overseas deals, with the generator taking responsibility for running the plant.

The size of the coal field, of some 300 million tonnes, would also give room for further generation projects. These would significantly raise Zimbabwe's domestic generating capacity and could move the country from being a net importer of power, mostly from South Africa, to an exporter.

The project is the first since Keith Henry, National Power's chief executive, pledged in November to double the group's pounds 1bn overseas investment over the next two to three years.

The generator is eyeing other potential ventures in Eastern Europe, including Poland, and in the Middle East and Australia. The company is also examining investment opportunities in the Far East, despite the slump in many Asian currencies and plunge in asset prices.

The group recently said its oveseas earnings would reach pounds 130m this financial year, slightly less than the pounds 145m previously indicated, but almost double the pounds 74m in 1996-97. Overseas profits grew to pounds 67m in the first half of 1997-98.

In October National Power made its first step into Eastern Europe, paying pounds 100m for a 48 per cent stake in Elektrarny Optavice, a Czech power group.

The agreement gives National Power control in a power station and indirect links with electricity distributors. A further deal late last year will see National Power plough $260m into Turkey, with stakes in three existing lignite fired power staions and a gas fired plant. The company already has a one third stake in another 500 megawatt gas fired station under construction.