Zesa tariff review

Zesa tariff review

Source: Zesa tariff review | Sunday Mail (Business)

Gold miners — who have been clamouring for an electricity tariff reduction from the current USc12,8 per kilowatt hour (kWh) to USc7 per kWh — are set for a major reprieve amid indications that a breakthrough is in the offing.

The miners have been engaging the country’s power utility, Zesa.

Considering the important role being played by gold miners in foreign currency generation, Government and the Reserve Bank of Zimbabwe (RBZ) have also reportedly waded into the issue.

Gold deliveries to Fidelity Printers and Refiners (FPR) — the gold buying unit of the RBZ — rose to 24,8 tonnes last year, driven by small-scale miners’ strong performance.

Small-scale miners delivered 13,2 tonnes of gold while large-scale producers delivered about 11,7 tonnes last year.

FPR shelled out US$980 million in the acquisition of the 24,9 tonnes of gold, which were 0,4 tonnes more than the 24,5 tonnes target set for the year.

However, there are concerns by miners over the electricity tariff, which they claim is making their operations unviable.

In the 2017 State of mining industry survey report, which is compiled annually by the Chamber of Mines of Zimbabwe, all respondents said the existing electricity tariff regime is expensive, compared to other jurisdictions.

The tariff is pegged at USc12,8 per kWh compared to an average USc8 per kWh, which prevails across the region.

This has made gold produced locally less competitive on the international market and this is threatening the miners’ viability.

Chamber of Mines economist Mr Pardon Chitsuro, told The Sunday Mail Business last week that Zesa has since been engaged and reasonable ground has been covered.

“We have been engaging Zesa many times on the matter, with the involvement of Government and RBZ.

“There is a lot of progress but we are still engaging them. I can tell you that there are certain developments that happened last year along those lines. The good thing is that both parties are aware of what has to be done and we will continue engaging until we get the desired tariff,” said Mr Chitsuro.

Zesa chief executive officer Engineer Josh Chifamba could not be reached for comment as he was not picking his mobile phone.

Gold has emerged as the key mineral, accounting for 40 percent of mineral value in 2017, although marginally down from 47 percent in 2016.

Similarly, gold continues to dominate mineral exports, contributing 42 percent in 2016, followed by platinum at 40 percent.

Last year, mineral exports to overall exports increased to 69 percent from 60 percent in the year earlier, underlining the centrality of the mining sector to Zimbabwe.

Revenue generated from gold could not be established last week but as at September 31, 2017, it stood at US$683 million, way ahead of platinum, which was at US$658 million.

In 2014, the gold sector generated US$687 million in terms of export earnings, which rose to US$737 million in 2015 and US$914 million in 2016.

Gold output peaked at 27,1 tonnes in 1999 and the initial target for the year was 27 tonnes, only to be reviewed later on account of incessant rains that impacted on production in the first quarter of the year.

It is expected that gold deliveries will further rise this year, spurred by lower electricity costs, if negotiations are concluded positively.

Critically, the Gold Development Fund — which has also benefitted both artisanal and large-scale miners — is also expected to boost the operations of gold miners.

FPR head of gold operations Mr Mehluli Dube, told The Sunday Mail Business last week that US$80 million was disbursed to miners under the Gold Development Fund to capacitate their operations last year.

“By end of December (last year), US$60 million had been disbursed to small-scale miners and US$20 million to large-scale miners, totalling US$80 million.

“The Gold Development Fund is still available to support miners this year. However, we are yet to unveil the exact amount that we will be disbursing,” said Mr Dube.

Gold deliveries have generally been on the up since the 3,6 tonnes recoded in 2008, and buoyed by the strong US dollar, Government interventions and an obliging international price, gold production rose to 12,8 tonnes in 2011; 14,7 tonnes in 2012; 20 tonnes in 2015 and 23 tonnes in 2016.

Last year, gold prices were rallying since January on account of safe haven demand and heightened geo-political tensions, rising by 10 percent in September 2017 to reach US$1 316 per ounce.

The volatile prices then retreated to $1 280 per ounce in October 2017 on a strengthening US dollar and expectations of higher interest rates in the United States.

On Friday last week, the gold price was US$1 325 per ounce.

The surge in gold prices, together with efforts by Government to plug leakages through joint compliance monitoring, benefitted gold deliveries to FPR last year.

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