Zimbabwe: Mixed Feelings Over Forex Electricity Bills

3 December 2019

EXPORTERS have expressed mixed feelings over Statutory Instrument 249 of 2019 that compels exclusive and partial exporters to pay electricity bills in foreign currency.

The regulations introduced by the Reserve Bank of Zimbabwe are with effect from this month and will see exporters (both exclusive and partial) paying electricity bills in hard currency for six months, which will be reviewed thereafter. This comes amid power outages in Zimbabwe that have haunted most businesses for a long period as Zesa is struggling to supply adequate power for both industry and domestic use.

While Zimbabwe already faced acute power shortages, the problem got worse this year due to the impact of drought on Lake Kariba, a major hydro-power plant and the country's large source.

Acute shortage of foreign currency for imports from the region have also not helped matters, prompting measures for Zesa to bill in hard currency to sustain imports.

Zimbabwe requires about 1 800 megawatts at peak periods of demand but can only manage about 700MW to 800MW at best, including after factoring in imports.

This sees Zesa resorting to load shedding customers to balance available supply and demand, which is disruptive and costly as companies resort to expensive alternatives such as diesel generators while others have started pursuing solar options.

Exporters and the industry at large expressed some approval of the new statutory instrument, while others criticised the decision saying it was backward movement in the Government's efforts to create strong confidence in local currency.

Horticultural producer and exporter, Nhimbe Fresh Exports' chief executive officer, Edwin Moyo, applauded the move as positive given businesses might be assured of continuous power supply to preserve the quality of fresh produce for export. He, however, noted that without proper management, the new development might render the exports uncompetitive as it would lump additional costs on exporting firms.

"This is very positive. We had actually suggested this to the Minister (Finance) when power outages started. Bottom line is that we cannot do without power because our industry requires the cold chain management which is so critical to our quality. This year's quality appeared compromised because of these power outages. Our only hope is that, as we pay in foreign currency, we will receive preference on power.

"On the other hand, our Zesa cost becomes a real cost in US dollar terms which if not managed properly, would make us cost uncompetitive. Bonus is that all other costs like wages are in Zimbabwe dollars."

Mr Moyo had earlier in September said power outages hit the horticultural exporter as it approached the tail-end of the export season with plans emerging to install solar on farms.

The newly appointed president of the Hospitality Association of Zimbabwe, Clive Chinwada, also commended the statutory instrument, but also expressed his misgivings. He noted that the measure will go a long way in improving electricity availability, but warned its potential impact on competitiveness in the hospitality business.

"The general sentiment is that the instrument is piecemeal and undermines the confidence that Government is seeking to build in the local currency. The cost of electricity has significantly risen in the past three months to the detriment of the competitiveness of the hospitality industry and this measure will worsen that position.

"Given that the exchange rate to be used when settling electricity bills is at the time of invoicing, there is going to be a mismatch between revenues and costs in those situations where operators will opt to pay in local currency as exchange rate will certainly vary between the dates operators account for their income and the time that the bills will be invoiced making the energy cost a moving and elusive target.

"However, industry understands that this measure is meant to improve the availability of electrical energy in which case should it turn out to be so, then the measure will have to applauded," said Mr Chinwada.

Another exporter, Schweppes Zimbabwe marketing and public affairs director Una Nyikadzino, said the company is yet to discover the actual implications of the Statutory Instrument, but said their export business constitutes a small proportion of the company's revenue.

"We are in the process of understanding the implications of the Statutory Instrument to our business and conferring with relevant industry associations.

"Exports constitute about 5 percent of our beverages business governed by franchise agreements. The bulk of our business is still currently driven by the domestic market," said Ms Nyikadzino.

She added that Schweppes is currently installing solar panels as an alternative power source after it recently commissioned a 1 megawatt solar facility to complement power from the national grid.

"We have as of Friday commissioned a 1MW solar facility at the Willowvale plant, which should see us reduce our electricity requirements from the national grid during the day and save us 34 percent on the current utility bill. We will be rolling this out to other facilities within the group in the coming year to reduce power demand from the national grid and reduce our carbon emissions and mitigate climate change in keeping with our sustainability strategy.

"We look forward to net metering and other incentives which the authorities can extend to organisations investing in renewable energy and reducing demand on the national grid," she said

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