via Multimedia:Government lethargy on power investment costly by Victoria Mtomba for NewsDay October 10, 2013
THIRTY-THREE years after Zimbabwe attained independence, the country’s power generation capacity remains subdued and the consequences of government’s lethargy in investing in the omnipotent power supply have become too dire to contemplate.
While some are of the view that the power shortages are due to lack of investment in the sector, others suggest that it is as a result of populist and uneconomical tariffs that have been with the country for over 20 years.
Arguments arise on why power shortages have hit the country hard, the shortages have gotten out of hand crippling business and other critical areas including farming and education. In trying to deal with the perennial power crisis, Zimbabwe has created another problem: deforestation.
The country requires nearly2 200 megawatts (MW), but generation locally can’t meet the demand as only 1 300MW are being produced, and imports cover for the deficit.
Zimbabwe’s largest thermal power station, Hwange Power Station, which has been operational for nearly three decades is the country’s youngest power generation plant. In any other economy the plant could soon be mothballed.
Experts say the plant can hardly run all year round due to routine maintenance programmes mainly resulting from antiquated technology.
2010-30 Supply Surplus/Deficit bar graph (Source: Zesa)
Zimbabwe’s future demand and supply balance
Reasons given usually by Zesa for the failure to provide power are maintenance at this or that station and while reasons are given eloquently, the agricultural, manufacturing, mining and other sectors of the economy that rely on power supply to produce their final products continue to suffer.
Zimbabwe Energy Regulatory Authority chief executive Gloria Magombo conceded that since independence, Zimbabwe did not prepare adequately for the power deficit that the country is now facing.
Woman carrying firewood
Since 1980, the country’s power was produced by power stations that were independent of each other, namely Kariba, Harare, Munyati, Bulawayo, Mutare, Zvishavane and others.
Magombo said there were no plans on power as the country had the capacity to import power from neighbouring countries such as South Africa, Mozambique and Congo.
Zimbabwe failed to plan for the power deficit despite research that showed that by 2007, the region would not be having adequate power for its own consumption.
With Zimbabwe exposed to the region’s inability to continue supplying power, load-shedding has been an unwelcome relative in the houses of many marking a season of darkness and interrupted power supply.
Magombo said the country had few Independent Power Producers (IPPs) despite the fact that the market has been opened to other players to come and participate raising questions on why investors were not willing to come into the energy sector.
She said currently, only three small IPPs were feeding into the national grid and producing six megawatts of power.
The IPP’s include Duru, Nyamhingura and Pungwe. Pungwe produces 2,7MW, Duru 2,2MW and Nyamhingura produces 1,1MW. The other three IPPs that are functional, were Honde Valley and Triangle power plants that produces 40MW and sell five megawatts while Chisumbanje produces 18MW for its own consumption.
Magombo said when the market was opened, government expected that more players would come on board, but that has not been the case because small power projects require $6 million to take off.
This means that IPPs are not an easy business that one can get into as it is capital extensive and the market is illiquid, she said.
Critics say IPPs were not the only solution, but there was need for government to come up with an economical tariff since for over 20 years, the tariff has not been sustainable.
“At the moment, the tariff covers 80% of the cost and does not fully cover the full cost of production,” the source said.
Magombo said the country has big IPPs such as Sengwa, Shangano, China Sunlight, Essar Power Plant, Lusulu and Osborne Dam power plant.
Recently, Energy minister Dzikamai Mavhaire said the country was facing a 563MW deficit owing to maintenance work at Hwange and Kariba that is due for completion end of this month.
He said the country was generating 1 167MW of power against demand of 1 730MW in summer and 2 200MW in winter at peak.
But, talk alone is cheap, and government is under pressure to deliver adequate power. Whether this will happen between now and 2018 remains to be seen.
Zesa is on record saying the sector required $5 billion for recapitalisation, but that money is not available in the country.
The national power utility is struggling and is owed more than $700 million by customers and last month it slashed $160 for every customer in the country following a government directive.
Critics say the move might further stifle the delivery of services throughout the country and reduce revenues to the power utility.
According to the 2013 National Budget, the growth rate in the power sector was expected to improve to 1,9% due to re-powering of Bulawayo and Harare power stations and the rehabilitation of Hwange Power Units to guarantee average generation capacity of 430MW in 2013. Zimbabwe’s growing power deficit also comes at a time when capacity utilisation in the manufacturing sector has been subdued due to a host of problems. This has raised questions over government’s commitment to tackle the crisis.
What needs to be done?
FORMER Zesa chief executive officer Ben Rafemoyo has said the government should craft consistent energy policies which promote the growth of independent power producers (IPPs) following the end of the government-owned power utility’s monopoly in 2007.
A woman carries firewood for cooking purposes as there is no electricity in Hatcliffe Extension
He warned that recent decisions by government to slash energy bills for domestic consumers could send wrong signals to potential investors.
In an interview with NewsDay yesterday, Rafemoyo, who is now Engineering Council of Zimbabwe president, said the country currently has one major IPP, that is Nyangani Renewable Energy that produces six megawatts.
He said although many companies had been licenced as IPPs, few had managed to implement the projects due to various challenges such as lack of working capital as the projects require huge capital investment and have a long recouping period.
According to the Zimbabwe Energy Regulatory Authority, 12 IPPs have been licenced so far.
“There is need to have stability in the power sector as most of these IPPs are paid through the Zimbabwe Electricity Transmission and Distribution Company.
But here we have a situation whereby tariffs are discounted or they are slashed. This should not be done unless if it’s justified. This send cold feet to investors as electricity projects take 15-20 years for investors to recoup their investors,” Rafemoyo said.
He was referring to the move made by Zesa to slash $160 on customer bills that will be effective by the end of this month.
Rafemoyo said the issue for the feed in tariff is important for producers in the country as that will help them when they would be producing the power.
He said the tariff structure in this country was not favourable as it scares the producers away but he pointed out that the study that had been commissioned by the regulator should assist in that area.
Rafemoyo added that the government should consider putting in place a duty-free tax regime for IPP projects to enable players to import some of the equipment at duty-free cost so as to reduce the total project costs. The country’s foreign direct investment (FDI) is still at $400 million which is below the required investments in this country.
Government should look at ways to increase FDI flows into the country. Another analyst said while the power sector had been opened, but there was still low participation due to the absence of liquidity in the market.
Critics also say the current indigenisation and empowerment regulations which compel foreign-owned companies to sell 51% stakes to locals will also spook investors in the capital-intensive energy sector. In March 2010 the government took the decision to allocate from its International Monetary Fund Special Drawing Rights resources towards the rehabilitation and development of infrastructure in key sectors of the economy including the energy sector.
The Infrastructure Development Bank of Zimbabwe (IDBZ) was mandated to disburse funds to select projects and monitor their implementation in terms of an Agency Agreement signed with the Minister of Finance.
The bank also monitors projects allocated funds by Treasury under the Public Sector Investment Programme.
According to the IDBZ, to date, $73 770 000 has been channelled through the bank earmarked for the energy sector, for power generation, transmission and distribution.