Power crisis weighs on business viability

10 Nov, 2023 - 00:11 0 Views
Power crisis weighs on business viability ZETDC

eBusiness Weekly

Nelson Gahadza

Business Writer

Zimbabwe’s power supply situation remains a liability to businesses with the sustained electricity tariff hikes, without guaranteeing consistent supply, disrupting operations and threatening viability, business member groups and analysts said.

This comes after the Zimbabwe Electricity Transmission and Distribution Company (ZETDC) received regulatory approval to review the tariff level by 2 US cents per kilowatt hour, a rise of just under 19 percent for domestic consumers.

ZETDC has been facing rising costs at a time when the reduced Zambezi River flows have led to tighter water rations by the Zambezi River Authority for the two Kariba hydropower stations on the north and south banks of the dam, a situation that has resulted in lower power output.

While the commissioning of the two 300-megawatt generators at Hwange Power Station earlier this year was expected to improve the security of the power supply, State power utility Zesa Holdings said recently that technical faults at the thermal power plant had led to a decrease in power generation, resulting in increased load shedding.

Zesa said the new Hwange Unit 7 was presently undergoing necessary Class C Maintenance, after running for a defined period, requiring it to be offline for 30 days.

This has knocked off significant supply off the 1 520MW station whose reliable supply is, however, much lower than the rated capacity due to some of its aged equipment.

According to the Confederation of Zimbabwe Industries (CZI), the electricity situation has significantly affected business cash flows and the competitiveness of local products at a time when imports are gaining a foothold in the local market due to dollarisation.

The country’s most influential industry representative body said the cost of production will shoot through the roof, with most producers running on diesel-powered generator sets, which require significant foreign currency outlay.

“Capacity utilisation in the sector has dropped as most businesses cannot operate on the usual number of shifts due to power cuts; this means that productivity no longer matches the fixed costs of running plants and machinery.

“Significant time is lost when there is no power during the daytime. This also takes into consideration the fact that generators cannot be run continuously without rest,” CZI said.

CZI said producers were struggling to meet supply deadlines for the local and export markets, which posed serious threats to well-developed export markets and foreign currency earnings.

The Chamber of Mines Zimbabwe, in its State of Mining Industry Survey Report for 2024, said large-scale miners project electricity demand and diesel consumption in the sector to increase by 20 percent and 35 percent, respectively, in 2024 due to ongoing capital projects.

The report noted that power supply was generally fragile, and unscheduled power outages had resulted in production stoppages and output losses.

Economist Vince Musewe said consistent power is essential for any business, but once that becomes disruptive, it distorts pricing and stocks, particularly those that need to be kept refrigerated.

“As a result, people and businesses are going to reprice their products in order to regain their profit margins, and it is inflationary.

“Therefore, this is not good for the economy, and the sooner it is addressed, the better,” he said.

He said given relatively high fuel prices, solar energy becomes the next best and optimal energy source, but installation lag for heavy energy consumers means disturbances in production in the short to medium term.

National Foods, in its 2023 annual report, said diesel for power generation increased by 582 930 litres to 712 851 litres in 2023 from 129,921 litres in the full year 2022, owing to continuous power outages.

The impact of Zimbabwe’s unreliable energy supply, which is now one of the nation’s major Achilles heels, comes as the government is attempting to entice investment into the country, amid concern that the frequent power outages would undermine investor confidence.

“Business was more reliant on generators in full-year 2023 with 3,175 more hours of generator power, which attributed to the 448 percent increase in usage,” the group said in its 2023 annual report.

Recognising the economic, environmental, and logistical challenges of running large-scale diesel generators for extended periods, National Foods is working on a 2MW solar project.

Economists said the 712,851 litres of fuel used by National Foods in 2023 translates to about US$1,3 million spent on petroleum energy at current market prices and over a third of the company’s US$3,6 million electricity expense.

“Our electricity conditions have worsened over the last two decades because everything is growing faster, from the population to the economy, and the demand is many times greater than the supply of power in the country.

“However, direct investment in the development of infrastructure projects like electricity is limited by heavy capital requirements,” said another economist, Denzel Rusike.

Tanganda Tea Company, the largest producer, packer, and distributor of tea products in Zimbabwe, recently said that in a bid to reduce dependency on both thermal and hydro power from ZETDC, which over the years has been erratic and costly, it had adopted a strategy to invest in solar power plants, which would also reduce the usage of diesel generators.

“The use of renewable energy is expected to grow as the company works on the three remaining solar power sites,” the company said in its annual report.

Simbisa Brands said it was proactively addressing the multifaceted economic risks stemming from the persistent challenges faced in Zimbabwe, such as soaring inflation, volatile exchange rates, uncertain economic policies, and energy deficiency.

starafrica believes Zimbabwe’s operating environment is expected to remain challenging, largely because of the prevailing inflationary pressures.

However, experts argue that Zimbabwe’s current power crisis had no short-term remedy except for hope for a good rainfall season that will boost water levels at Kariba Dam.

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