Power challenges pressure companies’ margins

Continued power supply constraints remain a major cause for reduced margins and increased operating costs as companies now rely on generators and other expensive alternative power sources.

From the last quarter of 2022, the country has witnessed excessive power outages that affected business operations and resulted in heavy reliance on generators and other alternative power sources, thereby compromising the ease of doing business and increasing operational costs.

Analysts believe the cost push inflation emanating from power outages is the new elephant in the room for businesses already struggling from liquidity issues as well as interest rates burden.

“Given relatively high fuel prices to operate generators, solar energy becomes the next best and optimal energy source.

“However, installation lag for heavy energy consumers may be discouraging for continued production in the short to medium term,” said Enock Rukarwa, an investment analyst.

He said bearing the imminent solution of current power challenges, prices of basic commodities will start creeping northwards.

Sugar manufacturer, starafrica corporation, in its trading update said power and steam supply constraints were the main causes of the marginally reduced throughput, as they negatively impacted plant uptime.

As a result, at its sugar refining plant, Goldstar Sugars, production volumes of granulated white sugar were 0,4 percent lower than those attained during the prior year comparative period.

Consequently, the reduced production led to a 0,2 percent decrease in sales volumes, compared to prior year.

However, the business said it installed an 11kVA dedicated electricity line, procured a 1,000kVA generator for controlled plant stoppages, following power cuts and electrical cables to mitigate power supply challenges. Hotelier and supermarket group Meikles Limited, said electricity supply challenges worsened during the December 2022 quarter, leading to increased use of generators and in some instances reduction in operating hours.

The group’s sales volumes for the supermarkets segment decreased by 16,49 percent for the quarter but were resilient to the challenges in the operating environment and grew by 2,50 percent for the nine months period ended December 31, 2022.

Economist, Dr Prosper Chitambara, said there is huge potential that the economy needs to leverage on and fully harness energy production using different sources such as solar and hydro.

“There are currently a number of projects that the Government has embarked on and once finished will add to the national grid and improve the country’s power supply situation.

“This will remove cost pressures on companies and businesses, most of whom are relying on generators to sustain operations which are however expensive,” he said.

Chitambara said improved energy supply brings relief to a number of businesses as well as individual households as electricity is an enabler in doing business in any economy.

“We are expecting that once the Hwange 7 and 8 come on board, the situation is going to improve even further,” he said.

State power utility, ZESA, recently said the prevailing electricity challenges will subside significantly from the second half of the year up to the end of 2024 buoyed by improved generation at Kariba South and Hwange power stations.

At completion of the Hwange Power Station units 7 and 8 upgrade targeted for this year generation capacity will increase by 600MW.

The US$1,4 billion expansion project which started in August 2018 is being implemented simultaneously with the transmission infrastructure upgrade as well as the Deka water pipeline upgrade which is now about 85 percent complete.

State power utility, ZESA, recently said the prevailing electricity challenges will subside significantly from the second half of the year up to the end of 2024 buoyed by improved generation at Kariba South and Hwange power stations.

Zimbabwe Stock Exchange (ZSE) listed National Tyre Services Limited (NTS) said tyre retreading volumes declined by 13 percent in the third quarter ended December 31, 2022 as power outages severely affected the company’s factories.

Another ZSE listed packaging material supplier, Nampak Zimbabwe said there was sustained strong demand across all sectors of the business, although tempered by challenges in the operating environment.

It said margins were somewhat squeezed due to increased competition, while reduced power supplies resulted in greater generator use and the widening divergence between the auction rate and the market rate contributed to higher inflation.

At its unit, Mega Pak, volumes were 2 percent below the prior year period as unreliable electricity supply at Ruwa affected both the available plant capacity and operational efficiencies.

Economist Vince Musewe said consistent energy is the fuel to economic activity. “A recovery in the supply of energy is key for the economy to achieve projected economic growth and this should be sustained,” he said.-ebusinessweekly