ZESA fails to honour ring-fencing agreements

By Staff reporter | 11 Nov 2019 at 20:57hrs
Players in the mining industry say the country's power utility, ZESA needs to honour its contractual agreement of placing mining firms on dedicated power lines, as incessant blackouts continue to pose a threat to output.

This comes as most mining companies signed and prepaid in forex dedicated contracts with ZESA for electricity supply.

Chamber of Mines Lead Researcher Albert Makochekanwa told a breakfast meeting while presenting  the State Of The Zimbabwe Mining Industry Report that the majority of mining companies surveyed this year had highlighted that ZESA was not honouring what it had signed for.

In the report, 70% of respondents are expecting the power situation to deteriorate in 2020, while 30% are of the view that the power situation will remain the same. The respondents said power outages had resulted in output losses with 50% of respondents having lost more than 20% production.

ZETDC retail manager Owen Mavengere admitted that the power utility had not kept its side of the bargain mainly due to expensive imports.  "I will agree that perhaps, we could not give power 24/7 per contract because of various issues. Primarily because the imports we are talking about are extremely expensive. When Eskom turns on their gas turbines the tariff goes to as high as 31 US cents. During such periods we then cannot afford to have power".

Zimbabwe's mining industry has projected that power requirements will more than double in the next two and half years in line with the country's ambitious plan to raise mining output and earn the country US$12 billion a year.

On high cost of production, almost all respondents (100%) indicated that their cost of production had increased by more than 20% in 2019, compared to 2018. They argued that the surrendered portion to RBZ is liquidated at the interbank rate at a time local inputs are priced at a factor which is around twice the interbank rate.

"All respondents indicated that their viability has been impacted negatively with 80% failing to break even," reads the report.

Chamber of Mines chief executive Isaac Kwesu said that local suppliers had increased prices by up to 30 times this year, which meant the Zimbabwe dollar payments at the official exchange rate were inadequate. Some of the suppliers are pricing their inputs according to the inflationary pressures and parallel exchange rate which makes it difficult for miners to bear the burden.

"Our miners are now paid at a deep discount, which makes us uncompetitive when compared with our neighbours."

"They argued that the surrendered portion is liquidated at interbank rate, while local inputs are priced at a factor twice the interbank rate. Almost all respondents said that this situation has impacted negatively on viability of their operations, with 80% respondents indicating that they were failing to break even," the report stated.

Almost all respondents indicated that the current foreign exchange retention thresholds are inadequate due to high imports of critical materials for production and emerging demands on mining for payment of electricity bills, royalty and fuel in forex.

Delays in payments for gold delivered to Fidelity Printers and Refiners were highlighted in the report.

The mining industry is projected to record decline in output growth with majority of respondents indicating that their output for 2019 will be less than 2018 by a range of between 10-40% on the back of power outages, in adequate foreign exchange retentions and high cost of production.

Average capacity utilization for the mining industry is at around 70% in 2019, compared to 75% in 2018.

In 2019, the activities in the mining sector remained predominantly concentrated on six key mineral categories (gold, PGMs, diamond, nickel, chrome and coal) accounting for 95% of the value of minerals generated this year. But, the recent emergence of lithium onto the global mining space has brought a new dimension to the Zimbabwe mining landscape.



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