The Sunday Mail
Government’s decision to trim down electricity supply to industries, particularly mining companies, by 25 percent as part of measures to avert the severe electricity shortages obtaining in the country could set the economy back into the doldrums, analysts have warned.
Reacting to Energy and Power Development Minister, Dr Samuel Undenge’s order to ration large electricity users, economists and industry said the move will reduce production, increase cost of doing business, scare investors away and ultimately affect economic growth.
Dr Undenge made a ministerial statement on the energy crisis in Parliament last week.
He revealed a raft of measures being taken by his ministry to tackle power shortages with the rationing of electricity to industry being the most volatile.
The minister argued that the decision is a cordial agreement between Government and industry, adding that the exercise will be done on the basis of existing contracts and will yield 25 megawatts (MW).
“Noting that there are some large users of power such as Mimosa, Unki, Zimplats, Zimasco, ZimAlloys, Afrochine, and others, these are to be asked by ZETDC (Zimbabwe Electricity Transmission and Distribution Company) to drop load by up to 25 percent on the basis of existing contracts,” he said.
“It would be up to these large power users to decide on which areas of their operations to load-shed. This is expected to yield 25 megawatts,” he said.
However, economic experts have roundly condemned the decision saying it would be better to switch off households and keep industry running as electricity is a key component in the economic development of any country. They are of the view that limiting power to industries will affect key sectors of the economy such as mining and agriculture.
With limited production in mining and farming, it is expected that exports will decline, thereby depriving the country of the much-needed revenue.
Without sustained export earnings, observers foresee the country in a situation where it cannot shake off the gripping liquidity challenges.
Such a scenario, therefore, goes against various value addition and beneficiation initiatives being implemented by the Government under the Zim Asset programme.
According to stockbrokers MMC Capital, most of the companies being targeted are already operating well below capacity at between 30 and 35 percent.
The majority of companies in Zimbabwe are now in limbo as they are being forced to incorporate additional costs of using alternative energy sources.
In a report released last week, the stockbrokers warned that should the electricity situation remain unresolved, the economy may not grow at all.
“The majority of companies in Zimbabwe are now in limbo as they are being forced to incorporate additional costs of using alternative energy sources into their costing structure, hence worsening the competitive edge of the local companies relative to regional peers,” reads the report.
“Intense pressure will mostly be felt on the mining and manufacturing sectors which are currently operating at between 30 percent and 35 percent capacity.
“Making matters worse, some companies are now being forced to cut production by as much as 25 percent, with some being switched off from the power source because of arrears.”
Zimbabwe requires approximately 2 200MW at peak periods relative to a maximum potential supply of 1 220MW. Zesa is producing only 980MW and large companies are consuming a huge chunk of that power.
MMC argues that these productive units should get the first preference of power.
“One of the pieces of the puzzle that helps to build productive capacity for any nation is its ability to generate or, by any means possible, meet the energy demands for all the productive units.
“Without adequate and affordable energy, the wings to propel economic growth will be clipped. The obtaining acute power shortage in Zimbabwe has put the economy, once again, in a precarious spot.
“With the current developments, the probability of posting positive growth rate this year, is now very minimal.”
Zimbabwe National Chamber of Commerce (ZNCC) chief executive officer, Mr Christopher Mugaga said the current crisis will affect value addition and beneficiation the most.
“We are talking about value addition and beneficiation and those are the areas that need electricity the most. So we should come up with realistic solutions because no investor will come into a country without power,” he said.
Mr Mugaga said all companies, whether big or small, are all being affected with the electricity shortages in the same manner and most are now hinting on scaling down on operations.
This has raised fears of job cuts.
Already, about 500 jobs are on the line after fertilizer-making company Sable Chemicals was switched off by Zesa for not paying its bills.
In a press statement on Friday the company said, “Sable has just over 500 employees and this change in business approach will regrettably necessitate a realignment of the manning levels to match the new business model.”
Although measures are being taken to mantain production at the company, observers say time lost is hard to recover and compensate.
According to Nyasha Kaseke, a business studies lecturer at the University of Zimbabwe, people need to understand the history of power shortage in Zimbabwe in order to come up with sound solutions. He blamed some of the current problems on a poor tariff regime which made it difficult for Zesa to maintain its infrastructure.
“Power outages started in 1997 with small disruptions to supply. The main issue appeared to be mismanagement. Prior to year 2000, supply equated demand but due to tariff controls, the power utility was constrained to charge a price less than the equilibrium price.
“This created a situation where demand exceeded supply, thereby resulting in increasing outages. The problem manifested in non-replacement and maintenance of equipment as well as failure to initiate new power-generating schemes.
“This is not a problem unique to Zimbabwe. All of the members of the Southern Africa Power Pool face challenges in meeting demand for electricity, but the challenge is more acute in Zimbabwe,” he said.
