Power supply crisis grounds fragile economy
CAPTAINS of industry scrambled to engage government this week after a debilitating power crisis escalated, threatening over 200 companies.
Industry players described the situation as grave, warning that crippling power cuts, caused by decreasing electricity generation, were already undermining the competitiveness of local products, and also worsening the low productivity levels in the manufacturing sector.
“We are seeking audience with the Minister of Energy urgently so that we can have a collective solution,” said Busisa Moyo, president of the Confederation of Zimbabwe Industries (CZI).
Busisa spoke as power utility, ZESA Holdings’ subsidiary, the Zimbabwe Electricity Transmission and Distribution Company (ZETDC) published a load shedding programme, which analysts said would directly affect at least 192 companies, farms, mines, hotels and other businesses, which would directly impact on the economy.
The 192 were companies mentioned by their names, and this figure excluded hundreds more operating from other industrial sites named by ZESA.
Zimbabwe’s continued power supply crisis is posing the biggest obstacle to growth.
Analysts warned that the projection that the economy would grow at a slower pace of 1,5 percent this year now appeared too optimistic.
The growth forecast was even a downward revision by Finance and Economic Development Minister, Patrick Chinamasa, who had earlier forecasted the economy to grow by 3,5 percent.
Independent economic consultant, John Robertson, said he projected the economy to contract due to the chilling developments in electricity generation.
“The economy will shrink by six percent,” said Robertson.
The unprecedented drop in generation announced by the country’s power utility, exposed government’s ambitious economic blueprint, the Zimbabwe Agenda for Sustainable Socio Economic Transformation (Zim-Asset), to potential failure, with indications that its power generation targets were unlikely to be met.
Under Zim-Asset, government projects that the energy sector will grow by 4,2 percent, 4,5 percent, seven percent, 9,8 percent, 11 percent and 16 percent in 2013, 2014, 2015, 2016, 2017 and 2018 respectively.
But generation capacity has taken a knock, with the Kariba South Hydro Power Station slashing production by over 50 percent to 475 megawatts (MW), from 750MW.
The Financial Gazette had earlier this year warned that the country would plunge into a major power crisis after poor rains triggered droughts in the Zambezi River basin.
Industries, economists and consumer watchdogs hit at government this week.
They said authorities were pretending that all was well when the electricity crisis was blowing out of control.
When the Zimbabwe Energy Regulatory Authority (ZERA) was established in September 2005, it warned that Zimbabwe’s power challenges power crisis would worsen unless new generation projects were implemented.
After failing to invest in new capacity for nine years and moving at a snail’s pace in licensing private operators, the cash-strapped government appeared to have finally accepted reality and placed power generation among its top priorities in the last two years.
But the gestation period for power projects means that current projects will only start feeding into the national grid after three or four years.
The US$553 million Kariba Hydro expansion project, funded by the Chinese government, is underway.
It will be brought on line in 2018, but probably well after thousands of industrial firms would have collapsed.
In the meantime, both industries and domestic consumers are enduring long periods of blackouts, which ZESA said could further deteriorate.
A broad range of previously spared industries were included in the list of the hard hitting blackouts.
These included the Mutorashanga gold mining area, Zimasco ACM Complex in Chinhoyi, Natural Stone Mine, Eureka Mine, Jumbo Mine, Shamva Gold Mine, Kadoma Paper Mills, Patchway Mine, Venice Mine, Empress Mine, Birthday Mine, Bromton Mine, Zimplats, Bikita Minerals, King Mine, Lennox Mine, Temerira Mines, Dinhidza Mine, Redwing Mine, Dorowa Mine, Inyati Mine, Elvington Mine, Mezzotine Mine and Shawa Mine.
Border Timbers, Tanganda, Dairibord (Kadoma), Central African Forge, Wilgrow Exports, Industrial Wire Weavers, David Whitehead Chegutu, Mazoe Citrus, Mazoe Earth Station and the Marondera-based Mitchel & Mitchel were some of the most prominent firms to be affected by the blackouts countrywide.
Who then is producing?
“There is no production taking place in the country at the moment,” said Kingstone Khanyile, economist and chief executive officer at Mtilikwe Financial Services.
“We are likely to see more unemployment because of weak demand. We cannot run a country on generators,” he said.
The blanket load shedding covers the whole country between 5am and 10pm, which means electricity will only be guaranteed in the wee hours of the night.
Quite baffling is the inclusion of the mining, tourism, agricultural and manufacturing industries on the power blackouts schedule. These form the core of government’s ambitious turnaround strategy as enunciated by Zim-Asset.
But ZESA warned the power crisis may, in fact, worsen.
“In the event of further deterioration of the current available power supply, the level and duration of load shedding may go beyond the advertised schedules,” the parastatal said in a statement to its 621 000 accounts holders.
The statement attracted a flurry of rebukes.
Even the Consumer Council of Zimbabwe (CCZ) came out guns blazing.
In a frank assessment of the crisis, CCZ hit out at procrastination by authorities that it said had triggered the country’s worst power crisis in 35 years.
“In 2007, we said we were going to face power shortages,” said Rosemary Siyachitema, executive director at CCZ.
“Authorities must have looked at this…other than to wait for the crisis. They must not procrastinate, these are issues that they knew, but they don’t seem to be picking up their feet to act. We seem to hear so many excuses, one excuse after the other, and yet we don’t seem to see action,” she said.
As the CCZ vented its concerns over the crisis, consumers, 20 000 of whom have lost jobs in a bloodbath on the labour market in the past three months, were grappling to come to terms with long hours of darkness.
The consequences have so far been disastrous, with even waterworks being affected by the power crisis.
Families complained of water cuts, which sparked fresh fears of epidemic diseases associated with water shortages.
“We are living like animals,” said Monica Ndlovu, a resident of Mabvuku in Harare.
Mabvuku in eastern Harare has been one of the worst hit.
In some areas, residents have experienced water and power shortages for over 12 months.
Monica’s family was relying on firewood for cooking, but the price of wood was hiked after demand soared.
A bundle of firewood, enough to prepare one meal, cost US$1 before the crisis.
It is now selling at US$2.
“We are living in darkness,” she said.
“Meat, milk and other perishable foods have gone bad. We have suffered seven consecutive days of blackouts because ZESA says it wants to help industries, but the industries are also complaining.”
There has been a sudden switch to alternative sources of power.
Hard pressed urbanites have turned to imported gas stoves from South Africa for cooking.
In response, retailers have hiked prices by over 100 percent.
A four plate gas stove which cost about US$170 last week is now retailing at US$400.
Gas prices have also surged.
“We have been holding workshops on power management that could save 200MW per year,” said Siyachitema.
“We must move to energy savers (bulbs); we must invest in solar geysers and those with money should buy solar panels so that we don’t have to look up to ZESA in the short-term, and consumers must pay for their power. We want to see if gas stoves are on the duty list. We will lobby to have the duty removed,” she said.
As the crisis bombarded the power grid, the thermal power plant at Hwange was overwhelmed after reduced generation at Kariba.
Government said it would sacrifice domestic consumers to give priority to productive sectors.
The notice by ZESA showed this plan was not followed.
“We are very concerned,” said Moyo, the CZI president.
New investment in back up power generators has been piling up pressure on already frail manufacturing firms.
Scores of these staggered to losses during the half year to June 30, 2015 and the outlook is bleak.
The Zimbabwe National Chamber of Commerce (ZNCC) said in the past week, it had been on a whirlwind tour of members’ businesses countrywide.
Power costs were now accounting for up to 15 percent of overheads, said ZNCC chief executive officer, Takunda Mugaga.
“Our members are crying and crying so much over that,” he told the Financial Gazette.
Mugaga said firms have been paralysed, and may be forced to hike prices.
“The lack of availability of power is likely to further raise the price of products as manufacturers recover overheads over a few number of units,” Moyo concurred.
“Our electricity costs are very high given the fact that users can import power from the region for US$0,03 on landed basis. At US$0,09 to US$0,12, it means US$0,06 to US$0,09 covers ZESA transmission costs and overheads. These are some of the factors that add to Zimbabwe’s lack of competitiveness,” the CZI president said.
But again, highly priced goods from Zimbabwe have failed to compete on the export markets.
This has been affecting exports and the trade balance, which was as high as US$3,5 billion in the first quarter of the year.
“If the power cost was US$6 000 per month, this has doubled because a company may spend another US$6 000 to import back up power generators,” said Mugaga.
“This is the general trend that we have seen. Now, the appetite to recruit has diminished. Our members are not recruiting because of the high power costs. Prices are guided by the power dynamics, such as running automated teller machines on generators for banks. We need to attract investment into the power sector. We have been very poor in terms of investing in the energy sector since 1980,” said Mugaga, an economist, adding that when ZESA starved domestic consumers, hundreds of small to medium scale enterprises (SMEs) suffered.
There has been an exodus from industrial estates to home-based production as SMEs flee a cluster of hurdles, such as high rentals and a crackdown of defaulters by the taxman.
Mugaga spoke as government said independent power generation projects worth over US$10 billion were battling to takeoff due to lack of funding.
Government has meanwhile proposed to ban the use of geysers.
Yet geysers are part of the market that attracts investment.
Government is decimating that market in Zimbabwe.
In a public notice, the permanent secretary in the Ministry of Energy and Power Development, Patson Mbiriri, said his ministry, in conjunction with ZERA, ZETDC, ZESA and the Rural Electrification Agency had embarked on a national solar water heating programme “in an effort to mitigate this power shortage”.
“It will soon be a requirement that all new buildings and structures are to be fitted with solar geysers and not electric geysers. Electric geysers in old buildings must also be replaced with solar geysers,” said Mbiriri.
He said the country had about 250 000 electric geysers which should be replaced under the new policy or retrofitted with solar geysers.
This, some experts contend, is a myopic response to the electricity crisis. If investors are to come and invest in power generation in the country, they will require a market for the electricity.
Power generation companies cannot invest in a country on the basis of an assumed export market. If Mozambique, for example, has power supply problems, they would rather invest in Mozambique and not Zimbabwe.
So, logically, if investors are to invest in Zimbabwe, it has to be on the basis of a domestic market demand; surplus power can then be exported to countries that may need it.
The question then is: When electricity supplies improve, will government lift the electric geysers ban to ensure there is sufficient demand for power on the domestic market?
Such is the folly of the Zimbabwe government’s bureaucrats, and that is highlighted by their failure to act ahead of time as the current power shortages had been anticipated years ago.
It is clear that the unrelenting power crisis that has crippled the nation has not been met with a sense of urgency, clearly betraying the fact that the country’s politicians and their technocrats are now desperate.
With the local economy only generating US$3,6 billion in annual revenues, Zim-Asset was anchored on the mobilisation of US$27 billion, which had been expected to come mostly from the fastest growing economies of Brazil, Russia, China, India and South Africa (BRICS).
Evidently, the economic blueprint was adopted without taking due consideration of the realities on the ground.
The BRICS have no history of lending.