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Zesa gets nod to buy coal in forex

by Staff Reporter
22 Oct 2020 at 07:21hrs | Views
The government has rescinded its earlier decision to bar power utility Zesa from paying for its coal supplies in foreign currency, fearing the move could trigger crippling load shedding, Business Times can report.

In May, permanent secretary in the Ministry of Finance and Economic Development, George Guvamatanga wrote to his Energy and Power Development counterpart Gloria Magombo, blocking Zesa from settling 50% of its obligations with coal suppliers in foreign currency.

He wrote in a May 26, 2020 letter that Zesa lacked the capacity since the power utility was not an exporting entity. Guvamatanga said Zesa does not generate foreign currency from its operations, effectively closing the door on Zesa's plan.

 Well-placed sources in the Ministry of Finance and Economic Development, told Business Times this week that the Treasury has since rescinded its earlier directive.

Treasury has now written to the Zimbabwe Power Company (ZPC), a power generation unit of Zesa Holdings, saying it can go ahead and pay 50% of its coal supplies in foreign currency, sources told Business Times.

However, the Treasury has now suggested Zesa needs to find sustain able and practical ways to address the coal supply issue.

"In as much as there might be issues around Zesa's capacity to settle its obligations in foreign currency, the Treasury has to find a practical way of dealing with the coal supply issue to avoid any more load shedding," a source said.

"Following some discussions it was agreed that it was actually cheaper to pay coal suppliers in foreign currency compared to the amount used in importing power."

The sentiments were echoed by several other Treasury sources that are familiar with the developments.

ZPC's acting managing director Wellington Maphosa has since promised to pay Makomo and other coal miners 50% of their invoices in foreign currency.

In a letter addressed to Makomo Resources managing director Ray Mutokonyi dated July 13, 2020, seen by Business Times, Maphosa advised on the coal price and payment modalities which are to be partly done in foreign currency.

"Following the meeting held on July 1, 2020 at the Zesa National Training Centre chaired by the Zesa executive chairman, (Sydney Gata), (this) letter serves to confirm ZPC's intention and preparedness to implement the position communicated to the coal suppliers after the several representations done through various stakeholders," Maphosa said.

"Further to the above, it was resolved that 50% of the invoice for coal delivered to specification will be paid in foreign currency into your nostro account."

Maphosa also said ZPC would communicate the payment modalities for this in due course and the other 50% of the value of the invoice will be paid in ZWL$ at the prevailing foreign currency auction rate.

However, ZESA has not honoured what it promised, according to Mutokonyi, who is also chairman of Zimbabwe Coal Producers Association.

"Zesa through ZPC just wrote us a letter but they have not yet honoured what they stated in the communication. They only told us that the issue is still being discussed.

As coal miners we believe the 50/50 arrangement will allow us to recapitalise and secure spares for our operations," Mutokonyi said.

Zesa has had a love-hate relationship with coal suppliers.

Zimbabwe's three major coal suppliers-Makomo Resources, Hwange Colliery Company Limited and Zambezi Gas-have in the past threatened to suspend the supply of the fossil fuel over ZESA's failure to honour its earlier agreement where it was supposed to clear its debt estimated to be over US$70m.

They have also threatened to cut supplies which could trigger power cuts at ZESA's four power plants in Harare, Bulawayo, Munyati and Hwange, the largest coal-fired power station.

Early this year, Gata touched off a storm saying the power utility would not pay for substandard coal describing some coal producers as ‘makorokozas'.

Repeated efforts to get a comment from Guvamatanga were futile.

Recently, Zesa Holdings asked for a financial bailout from the government to help fund its operations. The power utility is struggling to settle its debts estimated to be over US$1bn and is struggling to collect over ZWL$1bn it is owed by electricity consumers.

The use of coal in power generation is likely to remain dominant and significantly increase when ZPC officially launches two additional units, with a combined output of 600 megawatts, at Hwange Power Station by end of 2021.




Source - businesstimes

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