Mining down down 10% due to ZESA cuts
THE Zimbabwe Mining sector can only pay electricity tariffs in forex to Zesa Holdings if the Reserve Bank of Zimbabwe increases its foreign currency retention threshold, a top mining official has said.
The power utility has been crippled by various challenges such as failure to settle its debts for power imported from Eskom in South Africa and Hidroeléctrica de Cahora Bassa in Mozambique. They owe the two power utilities a total US$83 million for electricity imports.
This has resulted in Eskom cutting power supplies to Zimbabwe from 450 megawatts to just 50 megawatts which has contributed to the intensified power outages countrywide. Zesa has proposed that the mining sector pay its tariffs in forex to assist them to pay its foreign obligations.
In an interview done before the return of the Zimbabwe dollar on Monday and the banning of foreign currencies as legal tender, Bindura Nickel Corporation MD and immediate ex-president of the Chamber of Mines Batirai Manhando said the ability to pay Zesa in forex is dependent on the central bank increasing the forex retention threshold to mining companies.
“The mining industry is not averse to the idea of paying electricity tariffs in foreign exchange. The only challenge is that the current retention thresholds as agreed with RBZ covers the procurement of inputs for production excluding electricity and assumes power is paid in RTGS dollars,” Manhando said.
“Thus, any further demand for foreign exchange from the mining industry should be compensated by a commensurate increase in retention thresholds. Meanwhile, we are engaging RBZ, Ministry of Energy and Zesa to resolve the matter and support Zesa in meeting their foreign obligations.”
Manhando said the current power outages have had an adverse impact on the operations of the sector and warned that this could result in mine closures.
“The mining industry requires uninterrupted power supply because it’s a round-the-clock business. The current situation where on average the mining sector is getting four days of power per week has resulted in widespread output losses. Production statistics for the first four months of 2019 show that all key minerals recorded output declines of not less than 10% compared to the same period in 2018 due to power outages,” Manhando said.
“The use of diesel generators, which are expensive to run, has led to an increase in the cost of production impacting negatively on the viability of the mining industry. The immediate implication of this is a decline in foreign exchange earnings from the mining industry and if the situation is not resolved, we will witness some marginal mines closing their operations in the next few months.”
He said the mineral output for the year is dependent on the successful resolution of the various constraints afflicting the mining sector which also includes inadequate foreign currency allocations and a high-cost structure.