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What Chasi Said About The Energy Sector [Full text]

By Daniel Chigundu

 Zimbabwe is facing a lot of challenges which are affecting economic revival efforts and some of the challenges have to do with the availability of power and fuel.

Fuel shortages have become a chronic challenge since the ouster Robert Mugabe in November 2017 and there appears to be no solution to the problem as queues have continued around service stations.

Besides the fuel situation, industry and businesses are also being affected by the power shortages which have forced ZESA to institute load-shedding.

Load shedding is reportedly making it difficult for the manufacturing sector to produce.

Energy and Power Development Minister Fortune Chasi took time to inform Parliament about the current state of the energy sector in the country.

Below is the full text of what Minister Chasi said in the National Assembly:

 

STATE OF THE ENERGY SECTOR (extracted from the Hansard)

Honourable Fortune Chasi: I wish to thank the House for this opportunity to give a statement on the state of the energy sector in the country. Mr Speaker, I believe that this is a very serious matter which is of immense public interest and I would plead that Hon. Members give me the opportunity to deliver my statement without undue heckling. I want to start Mr Speaker, by saying that the energy sector is as good as the governance that we have got over it. I am going to be speaking about this in more detail later on in the speech but I want to start by ensuring that we are all at the same level regarding roles and responsibilities.

I want to speak about the Energy Regulatory Authority Act of 2011. This is the Act that creates the regulatory board that we commonly refer to as ZERA. This Act contains in Section 4, a panoply of mandates for ZERA, in fact about 18 of them. The responsibilities of this authority range from importation, transmission, distribution and many other aspects of the petroleum industry. ZERA is given unfettered power to preside over this industry. I also want to say that the same law requires that as ZERA does its work, it must not be subject to direction by anybody. I want to underline that anybody also refers to me as the Minister responsible for energy.

I also want to state my role as Minister of Energy and Power Development so that Members understand and are clear. The law also stipulates that the role of the Minister is simply to issue general policy direction. I have given this preface so that the Hon. House is very clear as to what is expected of me and what is expected of ZERA itself. In broad terms, I have clarified the role of ZERA and the role of the Minister

Mr Speaker, I have given the background relating to the law because I intend to be legal in everything that I am going to be doing.

Mr Speaker, I want to underline that regulation is about law and I want to apply the applicable law. I also want to state that the problem we have in this sector arose from disrespect for the law, lack of corporate governance and I will be able to demonstrate that as I go through the statement. I then want to say having identified that problem, because I have read a lot about each of the parastatals, it is quite evident to me that whether structure or foreign currency is in place we will not be able to sort out the issues at hand unless we deal with the issues of corporate governance.

As a result Mr Speaker, it is necessary that we carry out a review from a corporate governance point of view of each and every parastatal that is under the ambit of the Ministry to examine whether we have adequate and proper skills within the board, and also skills within the management of the parastatals. The country’s vision in this area is to achieve universal access to sustainable and modern energy in Zimbabwe by 2030. The mission is to ensure the provision of adequate and sustainable energy supply through formulating effective policies and regulatory framework. For those who may care to know, these are the pieces of legislation that are relevant to the sector which I would urge those with an interest to be familiar with – the Electricity Act, the Energy Regulatory Authority Act, the Rural Electrification Fund Act, Zambezi River Authority Act and the Petroleum Act.

I also want to take this opportunity to inform Hon. Members of the various policies and plans that are in place in this particular area. We have got the National Energy Policy Act of 2012; the Independent Power Producers Policy which is actually under development;  National Integration Energy Resource Plan which we have commenced work on; Rural Energy Master Plan also under development; National Renewal Energy Policy which we intend to launch in the not too distant future; then the National Bio Fuels Policy which we also intend to launch in due course.

Performance of the Power Sector

I want to make reference to the current electricity supply status; the situation of electricity in the country.  I want to draw the attention of the Members here present that the situation is dire and that as a nation, we must be strategic in our planning for energy and also its use.  The electricity sector is currently dominated by State-owned power generating transmission and distribution companies; Zimbabwe Power Company and Zimbabwe Electricity, Transmission and Distribution Company. ZPC has a total of five power stations in operation.  I have attached a table there so that when this is circulated, Members will be able to see but these are basically Kariba Power Station, Hwange Power Station, Harare, Munyati and Bulawayo Small thermals. All in all, when fully operational this gives us 2 260 megawatts.

Mr Speaker Sir, the hydrological condition of Kariba Dam has been the subject of discussion of late.  As of last week, the dam was 32%, and as of Monday, it had dropped to 29%.  So, we can all do the mathematics involved in that to show and understand the problem at hand in terms of reduction of water levels at Kariba.  If that trend continues at that pace, this means that in theory, within 14 weeks, Kariba will not be able to deliver power.        This means that those who were responsible at ZESA in particular, ought to have understood the magnitude of this problem and taken steps to plan for it in accordance with the issues at hand.  I will speak to that later on.

I now move to Independent Power Producers – a number of IPP’s also generate electricity to feed on to the national grid. These include sugar and ethanol producers that primarily generate for own use and sell the excess to ZETDC.  They include Hippo Valley, Triangle and Green Fuels.  These sugar producers are also net importers of electricity. Their installed capacities are shown in the diagram that I have here, but all in all, it is about 136 megawatts arising from IPP’s.

If I move on to actual electricity demand and supply profile and I think this is very important for us to understand the implications of what is happening and what may happen in future regarding power and then the overall impact on our economy.  Zimbabwe’s current average internal electricity generation is about 1200 MW.  The country’s maxim demand is estimated at 1 700 MW giving a supply-demand gap of about 300 to 500 MW at a maximum which is usually met by exporting from ESKOM and Kabora Basa of Mozambique.

So, I want to emphasise that we have got a gap in terms of availability of power versus what we consume every day. The challenges and proposed mitigation measures – the country is currently faced with a power supply deficit which has seen some of the ZESA customers being load shed for as long as 10 hours and in some instances, I have had complaints from members of the public that they have gone beyond that time which exceeds the time that may have been stated in the schedule by ZESA.

This deficit is due to a combination of factors some of which I now turn to  – Receding water levels at Kariba Dam.  I think I have already made it clear.  This has resulted in the Zambezi River Authority now rationing water between Zambia and Zimbabwe.  There is an arrangement between us and Zambia regarding the management of water on the Zambezi, so, further depleting water that is available for the generation of power.  So, each of the two power stations, in other words, the Zambian one and our own, are now allowed water enough to generate an average of 358 MW per day, much reduced from what traditionally has been available.

An improved rainy season in 2017/18 saw the water allocations increased to allow each power station to generate an average of 480 megawatts per day.  Currently, the receding water level at Lake Kariba has resulted in the sealing down of power generation in order to comply with reduced water allocation by the Zambezi River Authority.  The reduced power generation has resulted in load shedding and I am sure all of us are familiar with it and its effects.   In order to match power supply demand, load curtailing as it also know by others, is currently averaging 350 megawatts and we expect this amount to rise to 600 megawatts in June, given that it is going to  be very cold and people will begin to use heaters and other warming devices which may include electric blankets and all.  The peak that causes us to load shed and I know that there are many misunderstandings about load shedding; it is a very tortuous decision to make but it is a necessary one that has got to be done.  The peak arises from about 6 to 9 pm at night when people get home, all the lights are switched on, the stoves operate, televisions and so forth.  The increase in our consumption on any day is so significant that I want to appeal to all of us here within our own families and our own constituencies to do whatever we can to conscientise our families and constituents to conserve power.

Performance of Hwange Power Station

Hwange Power Station is currently performing below its average due to its obsolete plant long past its life.  This general comment is applicable to almost all the infrastructure that relates to the generation of electricity, which means that we must, in some instances, invest in the maintenance and invest in new installations or renewable methods of coming up with power.  The reduced power generation has resulted in load shedding in order to match power supply and demand.  I want to emphasise that if we continue to consume at the rate that we are doing if we continue to leave our houses with lights on all the time, Government buildings with lights on all the time, things can only get worse.  If we continue to use bulbs that consume a lot of power, things can only get worse.  There are things that can be done to make more power but there are things that we have to do to ensure that we are all responsible when it comes to consumption of power.

There are remedial measures Mr Speaker that we are working on as a Ministry to ensure that we save on power.  It is very expensive, we are short of foreign currency so we cannot afford the luxury of just spending power having swimming pools running 24 hours and people never swim.  Maybe they swim once in six months.  We are not just going to concentrate on supply.  Everyone, including those who are shouting, must be responsible, first in how you consume electricity –

Mr Speaker Sir.  I have dealt with the performance of Hwange.  We have challenges there due to obsolete equipment.  We need to put more power to make sure that it is operating at full throttle.  I also want to deal with thermal power.  We rely on coal and we do have coal supply challenges. Currently, ZPC is receiving coal supplies from two main suppliers; mainly the Hwange Colliery and I do not need to repeat the state regarding the state of that entity and its capacity.  The other one is Makomo.  The company also receives much smaller quantities from Zambezi Gas.  Of late, the thermal power station or power stations were facing coal supply challenges due to liquidity constraints, pricing as well as foreign currency shortages.  The price of coal was recently increased from $326. 50 to RTGS$886 per metric tonne in order to address the concerns of the suppliers.

Reduced Electricity Imports

Zimbabwe is a member of the Sothern African Power Pool (SAPP) and is interconnected to all its members.  Further, it is located at the regional geographical centre, making it the hub for power trading in the SAPP network.  ZETDC has power purchase agreements to trade electricity with ESKOM of South Africa and HCB of Mozambique.  The shortage of foreign currency in the country has had a negative bearing on electricity supply as ZETDC is struggling to meet its electricity is approximately $830 million.  As a result, of this, importers are reluctant to supply electricity to Zimbabwe and ZETDC is currently getting very minimum imports from outside.  Zimbabwe is also exporting 80 megawatts of power daily to Namibia in fulfilment of a loan used to fund ZPC’s contribution to the funding of the Kariba South Extension Project as required by the main financier, China Exim Bank.

Electricity Infrastructure Vandalism

This Mr Speaker is going to be a key determinant in the success or failure of the generation of electricity in the country and its distribution to the public.  Electricity infrastructure vandalism has also contributed to a number of areas having no access to electricity in the country.  Transformers are being stolen daily and there is a deficit at the moment.  I am told of 2000 transformers that were stolen that need replacement.  These transformers are not cheap and are as much as $50 thousand each.  It is necessary to take action to stem the thefts that are occurring

 Intervention measures in the power sector

Load shedding is not a sustainable method to deal with the problems that I have spoken to.  Load shedding is not sustainable for exporters that are earning the country’s much needed foreign currency and contributing to the economic growth of the country.  For every unit of unsaved power arising from load shedding of productive sectors, the country losses, according to research, $3.20 in its GDP.  We have transformers that have gone missing in farming areas and now the thieves have moved to the high-density areas where they are operating in groups and action needs to be taken.

However, there are quick win interventions in power imports from ESKOM and HCB.  The power imports of up to 400 megawatts can be unlocked by a bankable plan to both ESKOM and HCB.  The imports would securitise power supply for the exporting mines and industries and release power for the other customers, some of whom are prepaying.  It is proposed that exporters pay their electricity bills in foreign currency in proportion to their foreign currency retention percentage.  This arrangement is estimated to raise $11 million against an estimated bill of $14 million per month.

A Statutory Instrument to this effect is being considered.  The foreign currency generated would go towards meeting the current power import bills plus a portion for the amortisation of arrears.  In addition, a portion would be used to fund the procurement of critical generation spares to sustain output of the old Hwange Power Plant.  Critical transmission, grid stabilisation and distribution spares such as transformers, prepaid metres and so on, would be also funded from these inflows.

The replacement of 2000 vandalised transformers would see power restored to over 25 000 customers that have gone for long periods without electricity.  These include schools, clinics, growth points, farms, businesses and domestic points.

The Hwange power station expansion flagship project whose groundbreaking was commissioned last year is under consideration and will remain on track including repayments for Kariba South Extension.  An urgent support bailout of RTGs 63 million monthly from Treasury is required to enable ZETDC to continue supplying electricity to the nation and support economic activities.  This will cover the funding gap created by the absence of a tariff adjustment which recognises the monetary policy and introduction of the interbank market to cover foreign currency purchases.

With the current tariff, ZETDC is collecting between RTGs 60-70 million against a monthly budget of RTGs 130 million to cover the bare essentials.  ZESA is technically solvent and I am sure Hon. Members are fully aware of this.  It is struggling to fully fund operations.  The severe cash flow crisis being experienced would see operations grinding to a halt in the not too distant future unless support is rendered as the funding gap increases every month cumulatively, as people fail or decide not to pay the bills.  The price of critical generation consumables has increased by an increase of 250%.  Coal suppliers at the moment are agitating for a price review.  Import duties should be exempted.  We submit on diesel for power generation and importation of critical spares for the generation transmission and distribution networks

Over time, once stability in the economy has been achieved, ZESA can be allowed to have a staggered approach to increase tariffs in order to achieve cost reflectivity or in sync with economic activity.  There is a need to review the tariffs in order to cater for inflation and make the tariff cost effective.  We have a number of priority projects that need to be executed diligently. In order to address the power deficit in the country, a number of priority projects are at different stages of implementation by ZESA.  I will just mention the names of the projects:

Hwange Power Station Expansion Unit 7 and 8, Bulawayo Power Station repowering.

We also have candidates of projects that we would like to pursue with vigour in view of the dire situation that we face on the power side.  These are the Gairezi Mini-hydro, the Batoka Hydro Electric scheme, Mutare Peaking, Insukamini Solar Power plant and Harare Thermal Power repowering.

There are also a number of transmission projects.  Several projects are lined up to reinforce the grid and boost the country’s transmission grid’s capacity for wheeling power to enable it to perform its key role in the regional power trade.  The list includes Zizabona and Mozisa interconnectors, the Alaska-Sherwood, Alaska-Karoi and Orange Groove-Triangle lines. Currently, ZESA is in the process of securing funding for these projects.  Prepaid meter project is also currently being implemented to enhance revenue collection by ZESA which will help in sustaining operations.

We need to put emphasis on demand-side management.  As I averted to earlier on, we need to deal with matters of energy efficient lighting.  The Ministry will be promoting the use of energy efficient light bulbs (LEDs) in order to reduce demand in buildings and at the household level.

We are also going to be promoting solar water heaters in place of electric geysers for water heating.  Statistics compiled so far indicate that from January to April 2019, up to 3000 solar geysers had been installed.  There is meaningful progress being made but we need much more than this if we are going to save on power.

Ripple control of electric geysers – using the ripple control system, ZESA is able to switch off electric geysers at night and during the peak periods in order to reduce domestic demand.  This will help manage electric demand in the morning and evening peak periods. We intend to launch a Switch off Switches (SOS) campaign that will sensitize the public to save power.

Let me now turn to the fuel supply situation.  Generally, the fuel supply situation remains constrained due to what we believe is panic buying on the part of consumers.  Because of panic buying, not all service stations have fuel at any one time this results in queues at service stations that may be having fuel.  The market is receiving reasonable volumes of fuel to keep the country running.  Panic buying originates from speculations that fuel prices are going to increase sharply.  Some fuel retailers actually make unilateral increases to such levels as we had in the past week.

On bonded fuel stocks, the country always has fuel stocks at NOIC’s bonded storage in Msasa.  This fuel belongs to international oil traders and does not belong to us.  It is the fuel that is stored there for ease of access.

The country continues to blend petrol with ethanol in accordance with the law.  The blending ratio varies, depending on the availability of ethanol on the market.

Interbank foreign exchange rate – the Reserve Bank of Zimbabwe had been providing foreign currency for fuel procurement even after the parity between the US$ and the bond note had been removed.  However, the system as Members are aware has now been changed to the interbank rate.

Oil companies are now supposed to access foreign currency at the interbank rate.  Even the letters of credit for fuel procurement are now priced at the interbank rate as pronounced by the Reserve Bank. The interbank rate also applies to ethanol.  The price of ethanol was last pegged in 2016 when the parity between the US$ and the bond note was still in place.  After removal, the producers of ethanol obviously seek to have that revised. 

Challenges in the petroleum sector

The main challenge is the shortage of fuel on the market.  The efforts being made to ensure fuel availability include: issuance of letters of credit to oil companies by the Reserve Bank for fuel procurement, negotiating with international oil traders for long term fuel supply arrangement, curbing malpractices in the industry compound the challenge by causing artificial shortages of the fuel and enforcing discipline in the consumers to stamp out or minimise fuel boarding.

Fuel Price Fluctuations

The other challenge is related to fuel price fluctuations. In the past, fuel price changes were caused mainly by the changes in the price of fuel on the international market. Such changes were usually minimal. Now the Interbank Rate, at least up to the time it stabilizes, will also be causing fuel price changes. Currently, the changes are upwards and more significant than the price changes caused by the international prices of fuel.

To curtail the fluctuations in the short-term, the Reserve Bank will hold the fuel exchange rate constant for two weeks. In the long term, the Ministry will be proposing a Fuel Stabilisation Fund which would act as a subsidy to cushion the consumers from acute fuel price increases.

Legacy Debt

Due to foreign currency constraints, the oil industry has accrued a huge debt for fuel supplied in the past. This resulted in the oil companies being unable to extend further credit, preferring to be paid up-front. Given the foreign currency challenges that the country faces, it is proving difficult to pay upfront for enough fuel to meet demand, hence the establishment of Letters of Credit for current consumption.

The Ministry continues to engage the Reserve Bank to come up with modalities to extinguish the debt. The oil companies also continue to raise concern over the issue. Their view is that the Government is focusing only on paying for new suppliers, ignoring the legacy debt.

Promotion of New and Renewable Energy Sources

The country has abundant Renewable Energy resources that have largely remained untapped, especially for large scale power projects. These include solar, biogas, biofuels and wind energy sources. The Ministry seeks to increase the share of renewable energy sources in the supply mix. In order to accelerate the uptake of renewable energies, the Ministry has completed the drafting of two key policies.

 The current state of Renewable energy projects

Several renewable energy projects are underway as detailed briefly below:

(a )    Mini-hydropower projects in the Eastern Highlands are contributing more than 30 MW to the national grid. ZESA has already engaged a contractor to develop the 30MW Gairezi mini-hydropower plant and ZERA has licenced a reputable IPP to develop the 15MW Tugwi-Mukorsi mini-hydro power station. Detailed feasibility studies and technical designs are underway.

(b)     The Rural Electrification Fund has distributed solar mini-grids to schools, police posts, business centres and rural clinics.

(c )    The Rural Electrification Fund is promoting Biogas Digesters for institutions and households. To date, more than 60 institutional (large scale) digesters and numerous domestic digesters have been built. In addition, more than 80 builders have been trained to construct biogas digesters.

(d)     The Ministry is also promoting the adopting of solar water heaters. Since January 2019 to date, records show that more than 3 000 solar geysers have been installed. The Ministry aims to promote the installation of more than 250 000 solar geysers by 2030.

(e)     The Ministry is also promoting solar street lights. This is evident in Harare, Chinhoyi, Beitbridge and other local authorities. To date, more than   1 200 solar lights have been installed countrywide.

(f)     Working closely with the International Renewable Energy Agency IRENA), the Ministry has developed a Solar Atlas for Zimbabwe and has also identified sites that are suitable for developing wind power plants. Going forward, the Ministry intends to go to tender for wind power plants at these sites.

(g)     The Ministry is also keen to accelerate the development of 3 x 100MW solar projects at Gwanda, Munyati and Insukamini.

 Licensing of Renewable Energy Projects

The law allows private players or IPPs to generate additional power to the grid. These projects have faced a number of challenges such as inability to reach financial closure, currency risks and profit repatriation issues, requirements for risk mitigation through Sovereign Guarantees and the limited capacity of the local financial sector to finance the projects.

Going forward, the Ministry will continue to engage Treasury on financial risks and guarantee issues, migrate from Unsolicited Energy Auction in order to attract cost-effective projects and also streamline and improve licensing procedures among others.

Renewable Energy Policy and Biofuels policies

These policies have been submitted to Cabinet for approval. Primary objectives of the Renewable Energy Policy include the setting of overall targets for renewable energy, promoting investment in the renewable energy sector by providing specific incentives; providing National Project Status to all the renewable energy projects, recommending of Prescribed Asset Status for renewable energy projects and specific incentives for promoting third party sale of power.

In conclusion, as articulated above, it important that we must have an effective corporate governance framework for all the players those are in this field. Significant investment is required in Zimbabwe’s Power and fuel sector in order to make the country self-sufficient and thereafter export energy products. My Ministry welcomes investment in this sector and will continue to work on policy frameworks to make the investments viable, but of importance Madam Speaker is the fact that we would like all information that investors would need in order to decide to invest in this sector to be publicly available together with the attendant incentives.

Lastly, service delivery in the energy sector like the other sectors of the economy is also severely affected by foreign currency challenges. Going forward we expect to see a highly disciplined sector that is regulated properly with provisions of self-regulation where that is applicable. I thank you.

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Daniel Chigundu

Daniel Chigundu is a male journalist in Zimbabwe and has been practising since September 2009. He writes for The Business Connect (newspaper) in Harare, has his own news website Tourism Focus which is biased towards the tourism sector. Daniel is also working with Magamba Network on their project called Open Parliament where they do live coverage of Parliamentary activities on Twitter and Facebook. He is currently the secretary general of the Zimbabwe Parliamentary Journalists Forum, is a member of Zimbabwe Small Broadcasters Association. He holds a Diploma in Communication and Journalism from the Christian College of Southern Africa (CCOSA), a certificate in Youth leadership training from the Friedrich Ebert Stiftung (FES), a certificate in Citizen Journalism from Magamba Network and is currently a first-year student at Zimbabwe Open University studying for a Bachelor of Arts Honours in Ethics and Organisational Leadership.

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