Zesa turns to Treasury for bailout . . . Owes coal producers $1bn, Eskom US$90m

Cash strapped Zesa Holdings has asked for a Government bailout to help it through the liquidity crisis, Energy and Power Development Minister Zhemu Soda has said.

This comes after the state-owned power utility’s outstanding payments to coal producers soared to nearly $1 billion, a situation that may lead to disruption of power generation as a result of low coal supplies.

There are growing fears that South Africa’s power utility Eskom may also stop supplies to Zimbabwe over a US$90 million debt.

Zimbabwe imports a considerable amount of power from South Africa to augment local supplies, which have of late been affected by breakdowns at Hwange Thermal Power Station.

Minister Soda said liquidity crisis was mainly due to a sub economic tariff which was not adjusted upwards in line with inflation and exchange rate as the Government sought to cushion citizens from the devastating effects Covid-19 induced lockdown.

Government imposed lockdown at the end of March this year as part of measures to combat the global pandemic, disrupting several livelihoods.

“Zesa is now incapacitated,” said Minister Soda.

“There was a serious erosion of tariff during the lockdown period as the tariff was not adjusted in line with inflation and exchange rate. So there had been an income gap.

“As a result, Zesa has come through my ministry to seek for some accommodation with the Treasury and engagements are in progress.”

Prepaid electricity charges rose by 50 percent, raising the monthly bill for most families, who buy the basic subsidised 200 units by almost $100 from $198 to $297.

Zesa’s distribution arm ZETDC said the first 50 units a month would now cost 74c each for a total of $37, the next 150 units were now charged at $1,62, the third band of 100 units were now $4,41 and everything over 300kWh a month is charged at $6,92 a unit.

Analyst say even though there was a 50 percent upward review last week, it may not be sufficient to cushion the power utility which generates about 90 percent of the country’s power requirements.

“Even with the new tariff announced last week, it’s not going to make much impact because the tariff, if indexed in US dollars still fall short of about US9c (per Kwh) for it to break even. Consumers are only paying the equivalent of about US3c,” said one analyst with a local research firm.

Energy and Power Development Deputy Minister Magna Mudyiwa told Parliament on Wednesday that the sub-economic tariff resulted in Zesa accruing a huge foreign debt.

“We are trying to be up to date with ESKOM as much as we can but because of the low tariffs that we were having since March up to now which were not cost-reflective, the utility has accrued quite a huge debt, almost (US) $90 million that should be paid,” said the Deputy Minister.

“So that is the challenge that we are having but we are doing our best to make sure that we keep up the good relationship with ESKOM so that we do not go down on our imports. With Mozambique, we are still importing but it is not as healthy as we are getting from ESKOM.”

Coal Producers Association Chairman Ray Mutokonyi confirmed to Business Weekly that miners were now owned nearly $1 billion for coal supplies.

“It’s a disaster for our members . . . our operations have been seriously chocked,” said Mutokonyi.

“We are just hoping that after the recent tariff review, they may be able to settle part of the debt.”

Apart from the Zimbabwean dollar component, Zesa is failing to pay the 50 percent foreign currency portion. In April this year, Zesa Holdings agreed to pay coal suppliers half of coal supplies in foreign currency.

The deal was meant to support mining companies, which badly need hard currency to sustain operations, in light of foreign currency shortages.

It was also meant to ensure uninterrupted supply of the fossil fuel to Zesa’s Hwange thermal station, the country’s second largest with installed production capacity of 920 megawatts and mini stations in Harare, Munyati and Bulawayo.

Zesa is being paid in foreign currency by some local exporters and the arrangement entailed that coal producers be paid 50 percent of their supplies in hard currency to help sustain their viability.

Less than 10 percent of coal producers’ combined output is exported. Notwithstanding this, the industry has to meet 45 percent of its production inputs in foreign currency.

This relates to continuous recapitalisation, equipment spares and explosives. Without on-going maintenance and replacement of machinery and equipment, no sustainable supply of coal is possible.

About 90 percent of their output is consumed by Zesa, making the thermal stations lifeblood of coal producers.

Zesa spokesperson Prisca Utete said the power utility was currently incapacitated.–ebusinessweekly