Zimbabwe fails to capture $3bn energy FDI

Zimbabwe fails to capture $3bn energy FDI

Untitled 2

ZIMBABWE failed to attract foreign direct investment (FDI) into its energy sector between 2016 and 2017, despite its regional peers attracting US$3 billion during the same period, the Zimbabwe Energy Council (ZEC) has said.
It said harsh economic policies and a flawed tariff regime had dissuaded investment into the country. In a power sector report released last week, ZEC said even Chinese investors, seen as the country’s closest allies, had ditched Harare. ZEC chairman, Amiel Matindike, said in an analysis of the industry that FDI into Zimbabwe had been hampered by the country’s high risk profile, which forced investors to ground big and small deals.
The report could explain why nearly 30 independent power generation projects licenced by the Zimbabwe Electricity Regulatory Authority (ZERA) by October last year failed to take off.
The projects, some of which have been on the cards for over a decade, had a combined capacity of more than 5 000 megawatts (MW).
Implementation was affected by lack of funding.
Government opened the power sector to private investors about five years ago due to power shortages in the country, a move that resulted in a number of independent power producers (IPPs) being licenced to complement the country’s integrated power generation company, ZESA Holdings.
ZEC said the move was noble, but billions were not finding their way into the country to finance private projects.
“No significant inflows of foreign direct investment were recorded,” said ZEC, the country’s energy sector lobby organisation, which said Southern African Development Community (SADC) countries had received a combined US$3 billion in investment for their energy sector projects.
“SADC region received close to $3 billion in 2016-2017 in the form of private sector investment in the energy sector. Regrettably, the country did not receive any form of traceable private sector investment in the sector. Many of our members who are IPPs can bear testimony that it has been very difficult to convince funders on the various licensed projects. It has been surprising that even the Chinese investors, whom we thought were our all weather friends, have been wary,” said ZEC.
ZEC said at the heart of the investment drought was a flawed power tariff administration by ZERA, which is blamed for grave errors in setting power tariffs.
But it warned that these errors were fast mutating into the greatest threat against efforts to tackle de-industrialisation that has fuelled high unemployment rates.
The power sector last had a tariff review in 2011.
However, viability of investors in the sector is determined by tariff levels, according to ZEC.
“Generously and loosely speaking, no serious investor would invest in a sector where the power is procured at 14c kWh and sold at 9.8c kWh to the end user.

Finance and Economic Development Minister, Patrick Chinamasa

Finance and Economic Planning Minister, Patrick Chinamasa

“To exacerbate the situation, there is no subsidy to cover for the shortfall, since the government is financially hamstrung,” said ZEC.
“As long as it is not pragmatically and decisively managed, it will cause some distortions in business planning. Already, there is some discord in the sector over tariff reviews. Gold miners are demanding a 7ckwh, chrome miners 4ckwh and the Confederation of Zimbabwe Industries 7c kWh,” the energy lobby group said.
Implications of the FDI fatigue have been dire.
The Ministry of Energy and Power Development told the Parliamentary Portfolio Committee on Energy and Mines last year that a staggering 80 percent of Zimbabweans had no access to power.
“There seems to be no political and economic willpower to extend the grid to the 80 percent of the population,” said ZEC.
Since 2010, there has been no significant investment and funding to accelerate energy access.
The State funded Rural Electrification Agency has been hamstrung and handicapped by funding challenges.
The country is struggling to provide enough electricity due to reduced power generation at power stations in Kariba, Hwange, Bulawayo, Munyati and Harare.
Currently, Zimbabwe is generating about 1 000MW on average against a national demand at peak periods of about 1 400MW.
Industry players have 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.
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 projected that the energy sector would 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.
To cover for the shortages, the power utility has been importing up to 300MW from Eskom in South Africa and 50MW from Mozambique’s Hydro Cahora Bassa.
The US$553 million Kariba hydro-power expansion project, funded by the Chinese government, is underway, and is expected to help address the crisis.
The project was started outside ZEC’s review period.
“Many of our members who are IPPs can bear testimony that it has been very difficult to convince funders on the various licensed projects,” said Matindike.

Connect With Us

Fingaz Polls

CEO term limits...good or bad idea?