The Financial Gazette

Tinashe Madava, Staff Reporter

ZIMBABWE’s electricity woes are set to continue next year despite the government having issued operating licenses to several Independent Power Pro-ducers (IPPs), amid revelations of capital challenges and low investor confidence in the country.
The country’s energy sector regulator, the Zimbabwe Electricity Reg-ulatory Commission (ZERC) has so far licensed 13 IPPs. 
More companies have applied for licenses and ZERC is in the process of vetting them.
But most of the proposed power stations are small. Of these, six have been completed and five are operational with a combined capacity of 83 megawatts (MW).
They are generally lighting up the Lowveld and keeping a sawmill running. The bigger power plants such as Sengwa power station and Lusulu are still negotiating financing.
Sengwa, in Gokwe North, is expected to produce 2 400 MW of electricity while Lusulu in Binga would produce 2 000MW.
“The major problem that is being faced is financing. Locally, financing institutions do not have capacity to provide long-term finance as they can only do so on short-term basis. Most foreign financial institutions still have a perception problem on Zimbabwe as a safe investment destination,” said Peter Mufunda, ZERC administrator, in response to written questions from this paper.
Sengwa Power Station, owned by RioZim (Pvt) Limited, is facing uncertainty as its parent company is currently facing a financial crisis after shareholders voted against a management bailout last week.
RioZim has a license to operate the Gokwe North Power Project, which it intended to build with foreign investors at a staggering cost of over US$3 billion.
This figure is up from a cost of US$1,68 billion when the project was conceived over a decade ago.
It has now emerged that RioZim’s South African partners have bulked at the last minute due to the company’s financial position, which would mean it may not be able to raise the required money for the 51 percent shareholding.
Lusulu Power is a subsidiary of Pan-African Energy, while the Gayirezi Pungwe and Mutirikwi hydroelectric power stations are believed to be owned by local firms and foreign entrepreneurs.
However, most of the running IPPs are small. The big ones like the RioZim project require huge cash injections and hence the need for capable foreign partners.
Worse still, the country’s indigenisation laws require foreign-owned companies to cede 51 percent stakes to locals, a requirement many analysts have blamed for the low levels of foreign direct investment.
Consequently, many projects requiring investor capital are on the brink of collapse as foreign investors who are the ones capable of pumping the required cash into energy and other sectors have shied away from the country.
“In the event that there is no progress on the ground, the authority (ZERC) reserves the right to cancel a license and consider other interested investors.
“At the moment, the authority is closely monitoring licensees and any licensee not making pro-gress will have their license cancelled,” Mufunda said.
He added that so far six licenses have been cancelled including those for Condo, Duru, Tsanga and a Demand Side Ma-nagement project.
In his 2012 National Budget presentation, Finance Minister Tendai Biti pointed to the need for government cooperation with inv-estors in the energy sector.
“Uninterrupted electricity supply will, however, hin-ge on sustained investments in po-wer generation and transmission, which, Mr Speaker Sir, will require the contribution of all beneficiaries,” Biti said.
Biti added; “In 2012, electricity output is projected at 1 244 MW, refl-ecting only a 4,5 percent growth, a far cry from power supply levels required to drive sustainable increased production activity.
“Hence, power supply remains a major noose arou-nd the economy”.
“Mr Speaker Sir, notwithstanding targeted and on-going rehabilitation programmes at Hwange, Kariba and small thermal power stations, po-wer supply remains a major challenge for economic re-covery,” said Biti.
However, business research and consulting firm, Frost & Sullivan, is confident that Zim-babwe, despite its energy and economic woes, is progressing towards meeting its requi-red increases in electricity generating capacity.
Power utility, ZESA Holdings ea-rly this year called for “expressions of interest” to find financiers and contractors for the planned US$1,3 billion expansion of the Hwange and Kariba power stations.
The country currently has an available capacity of 1,400 MW, including about 300 MW of electricity imports.
“An increase in electricity generating capacity of 900 MW by 2013 will bring total available capacity to within 300MW of projected demand,” explains Frost & Sullivan.
In June, the research firm noted that it would be interesting to see how ZESA’s expansion of the Hwange and Kariba Power Stations will affect plans for private sector participation in power generation.
“It is possible that the government of Zimbabwe has concluded that large- scale privately-owned po-wer plants will not be constructed in the short-to-medium term, due to a wide variety of constraints, and has decided to increase ZESA’s capacity,” said Frost and Sullivan.
So, power cuts are unavoidable in the new year, especially in winter when the power utility diverts electricity to winter wheat farmers.
Also, “big power generation projects have long lead times.
“Such projects can require between four to six years.
“It is therefore expected that assuming the large power projects start immediately, supply can only be realised at least four years from now.
“The small projects can assist but their effect cannot be felt especially given the current supply deficit the country is experiencing,” concluded Mufunda.