Power supply remains a threat for companies

THE country’s power supply situation continues to be a liability as companies are losing production hours and using expensive alternatives, which are driving production costs up.

Companies and most economic sectors of any country are heavily dependent on sustainable, consistent energy supply, and this has been a major concern as regional utilities resort to load shedding to manage the crisis.

Zimbabwe recently commissioned a huge investment in thermal energy in Hwange Power Station units 7 and 8, financed through US$1,5 billion in financial assistance from China. The project increased the country’s power generation capacity to 600MW.

While Harare recently added 600MW to the grid, combined domestic generation of just 1 000MW of available capacity remains far short of national demand, which peaks at between 1 800MW and 2 200MW, depending on the season.

Zimbabwe had, until completing the addition of two units at the 1 050MW Kariba South hydropower station in 2018 and the Hwange Power Station expansion this year, not invested significantly in power generation infrastructure.

Selected Zimbabwe Stock Exchange (ZSE) listed counters in their recent financials complained of power outages that impacted production cycles.

Nampak Zimbabwe, in its 2023 financials, said the trading year saw a lot of complexities in the operating environment, particularly around currency, inflation, and power shortages.

“The group will continue to focus on cost control and margin preservation in order to meet these challenges,” it said.

The group’s plastics and metals segment, Mega Pak, saw full-year sales volumes decrease by 2,5 percent compared to the prior year, mainly due to severe power outages throughout the year in Ruwa, which hampered the ability to produce at full potential.

This was despite strong demand across all product categories.

Brick manufacturer Willdale Limited said throughput and efficiencies were affected by intermittent power outages that prevailed throughout the financial year.

The company said capacity utilization averaged 75 percent despite electricity supply deficits; hence, the board is exploring various options to enhance plant capacity in the short term and intends to leverage its existing assets to source appropriate funding.

“Electricity supply must improve in order to boost capacity utilization and efficiencies and put more bricks on the market,” it said.

The World Bank (WB) estimates that power shortages are costing Zimbabwe 6,1 percent of its Gross Domestic Product (GDP) annually.

In its report titled Electrifying Growth Through Reliable and Universal Energy Access, the WB revealed that this is made up of 3,8 percent of GDP from the downstream costs of unstable electricity and 2,3 percent from generating inefficiencies and excessive network losses.

Zimbabweans experienced a steady supply of electricity from the end of June until September.

ART Holdings Limited said in 2023, demand in the formal markets was depressed while rising energy prices and power shortages heavily impacted the manufacturing sector.

The company highlighted that overall battery volumes declined by 3 percent from the prior year due to the power challenges experienced in the first half of the year

Morgan and Co., in its Econet’s review, said the group’s service delivery has been severely affected by the resurgent power cuts, which are reminiscent of the 2019 energy woes.

The country’s challenges with electricity generation stem from obsolete thermal energy generation infrastructure and the record-low dam levels at the Kariba plant.

“Given Econet’s expansive infrastructure, maintaining service coverage using alternative power will add further pressure on the EBITDA margins, which we expect to soften to 47 percent in FY23,” said Morgan & Co.

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

The 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 forex outlay.

The Chamber of Mines Zimbabwe, in its State of Mining Industry Survey Report for 2024, says 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 have resulted in production stoppages and output losses.

Economist Vince Musewe said that 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.

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