IPPs seek priority status on forex allocation
INDEPENDENT Power Producers (IPPs) have pleaded with the Government to prioritise the energy industry in the allocation of foreign currency at the auction system in order to improve the performance and viability of the sector.
The power producers indicated that they have a number of projects in the pipeline, but that these remain financially hamstrung mainly as local financing institutions have not been issuing long-term loan facilities which are critical to drive investment into power generation projects.
Zimbabwe has issued more than 70 IPP licences but only 20 have been implemented amid various constraints that include policy related challenges and financial constraints. If the majority of these had been implemented, they could significantly cut the gap between demand and supply.
Players in the sector said most of the finance institutions were only willing to give loans with five-year tenure and below. This has presented a major challenge to the operators given that energy projects have long gestation periods, thus need long-term capital.
They have also appealed for a cost-reflective tariff in order to maintain viability and attract more investment into the sector.
The IPPs noted that their off-taker price was 9 cents/kWh but argued the money was losing value to approximately 7 cents/kWh when converted at the official exchange rate.
Zimbabwe continues to face energy supply constraints despite the abundance of untapped potential in the renewable energy sector given the current 2 gigawatts of unmet demand.
According to Zimbabwe Electricity Transmission and Distribution Company (ZETDC) acting managing director Engineer Howard Choga the country’s projected demand for energy is likely to reach 2350 megawatts by 2025, especially with high demand from the mining sector. While addressing delegates at the ZERA organized workshop, Infrastructure Development Bank of Zimbabwe (IDBZ) Principal Investment Officer Jameson Jabangwe said investors in the renewable energy sector incur costs mainly in foreign currency but sell the power in local currency which was not financially viable. He said the move was discouraging investors from getting into the field.
“Authorities should address the issue of currency convertibility because investors will continue to shy away from investing in the energy sector, there is a lack of foreign currency used to import critical materials in this sector, a lot of material needs to be imported but you go on the auction system and you will be to access at least10 percent of your requirements so that is a challenge,” said Mr Jabangwe.
Victor Utedzi, director of an Independent transmission development company ATC said the official exchange rate did not in the best of ways reflect the obtaining economic reality prevailing on the ground.
“The issue has been the currency at which we are paid, our tariffs are denominated in USD dollars and the payments are made at the ruling exchange rate, some of our members have foreign financing obligations, it then becomes difficult to convert the money they would have received at market rate to be able to meet those obligations.
“The truth of the of the matter is our tariffs are consistently being eroded, if ZERA would have given US9 cents per kWh by the time I deliver one-megawatt hour, we plead that we paid the 9US cents per kWh, if paid in Zimbabwe dollar it should be able to be convertible easily and that’s not the case,” said Mr Utedzi.
Another player in the energy sector Elliot Chatima said the country’s unmet demand presented a huge opportunity for the energy sector but the issue of currency convertibility needed to be urgently addressed.
“Funds are being raised in foreign jurisdictions, their contractual cash flows are in local currency and are expected to service the foreign debt that needs to be addressed as soon as possible,” said Mr Chatima-herald.cl.zw
