The government is not serious about reducing power shortages that are affecting key revenue sources like mining because its budget for the Ministry of Energy has been declining every year for the past five years and treasury does not release all the money from the meagre budgets allocated to the ministry.
The Portfolio Committee on Mines and Energy said the budget for the ministry was reduced from $10.6 million this year to $6.8 million in 2016.
What is more disturbing is that that out of the $10.6 million for 2015 only $868 576 had been allocated by the end of September and a mere $275 317 was for operations while the balance went to salaries.
“It is of concern to note that for the past five years, the ministry has not been able to get the whole amounts allocated in the budgets. This trend implies that the ministry’s activities also suffer from the failure by Treasury to timeously release funds allocated in the budgets.,” the committee said.
“For example as at 30 September 2015, only 8.2% of the Ministry’s 2015 budget had been released. It is therefore recommended that Treasury releases 2016 budget allocations for the Ministry of Energy to be able to implement its planned activities in 2016.”
MINISTRY OF ENERGY AND POWER DEVELOPMENT
3.1 Overview of the Ministry’s Budget
The Ministry’s budget constitutes 0.20% of the total budget for 2016 which is lower than its allocation in 2015 when it got 0.29% of the total budget. This indicates a slight decrease in priority accorded to the Ministry in 2016.
The overall allocation of the Ministry will decrease by 35.7% from US$10.592 million in 2015 to US$6.81 million in 2016. The decrease in the Ministry’s allocation is in line with the declining economic performance during the past three years. However, to compensate for the decrease in the amount allocated, the Ministry will be allowed to use the statutory fund estimated at US$91.544 million.
The Ministry is not among the top ten priorities of Government as judged by the share of the total budget allocated. Between 2012 and 2016, the Ministry’s allocations have been decreasing.
3.2 Ministry’s Operations 2015 Budget Performance
Out of a total budget allocation of US$10.592 million for 2015, a total amount of US$868 576 was released and spent by the Ministry as at 30 September 2015. This amount released constitutes only 8.2% of the Ministry’s 2015 budget. Of the US$868 576 released, US$593 259 was for salaries. This means that a total amount of US$275 317 was released by Treasury for Ministry’s operations for the whole period, an amount that falls far below the requirement of the Ministry.
3.3 Key Achievements in the Energy Sector in 2015
In 2015, despite the macro economic challenges facing the country, a number of achievements in the energy sector were noted. A number of energy infrastructure deals were sealed which are aimed at increasing the supply of energy in the country. Some of the major achievements in the energy sector include the following:
Kariba South Extension
- Contractor has already completed excavations on Adits 1 to 6 including concreting of crane beam and access roads.
- Manufacturing of electrical and hydro mechanical equipment is in progress.
- US$171 million has already been spent to date.
Hwange 7 and 8 Expansion
- The Government is in the final stages of negotiations with China Exim Bank for financing of the Hwange 7 and 8 Thermal Power Station.
Small Thermal Power Stations
- Government concluded and signed a loan facility amounting to US$87 million for the repowering of the Bulawayo Thermal Power Station which will result in the improvement in generation capacity by additional 60MW.
- ZPC to date has started the procurement process and detailed designs necessary for ensuring commencement of works in 2016.
Independent Power Producers
- In 2015, Government initiated the concept of independent power producers to provide additional output to the national grid.
- There are five independent power producer projects which are at various stages of project development.
- The Rural Electrification Fund has managed to provide electricity in some of the country’s outlying rural areas.
- Ninety two domestic and eight institutional biogas projects were constructed in 2015 in the country and plans are at advanced stages to construct 32 institutional biogas digesters in 2016.
New connections and prepaid meters
- Thirteen thousand four hundred (13 400) new electricity connections in 2015 and 551 446 prepaid meters were installed against the ZIM ASSET target of 800 000.
Power imports from South Africa
- In 2015, ZESA started the importation of power from South Africa. Currently, ZESA is importing about 100 to 300 MW from South Africa, this has helped in reducing power shortages.
3.4 Key Priority Areas for the Ministry in 2016
The Committee is happy to note that despite the low funding to the Ministry’s operations, the 2016 budget managed to provide some funding allocations to the energy sector that will assist in ensuring that the Ministry achieves its set targets for 2016. The following are some of the key priority areas for the Ministry of Energy and Power Development based on the 2016 Budget.
Achieve financial closure for Hwange 7 and 8 expansion. Treasury has budgeted US$219 million for the expansion of the Hwange Thermal Power Station in 2016. The project is expected to contribute 600MW and US$3 million has already been spent to date for Topographical and Geo-Technical Surveys.
Continue work on the expansion of Kariba Hydro Power Stations. The 2016 Budget has targeted that an amount of US$132 million will be mobilized to fund the expansion of Kariba South Power Station so that the project is completed by March 2018.
Introduce emergency power plants.
As part of the Ministry’s short term measures to cover up for the reduced generation out from Kariba, the Ministry has targeted the use of diesel powered generators to supply electricity. These will be used in the short term as the country embarks on long term projects aimed at ensuring adequate power supply. The project is expected to generate 200MW and therefore reduce the power shortages the country is currently experiencing.
Expand the use of solar power. The Ministry will embark on solar power projects in 2016 which will include the installation of solar water heaters and the construction of solar plants. To date, ZPC has started working on the construction of Insukamini and Gwanda Solar Plants which have potential to generate 100MW each.
3.5 Ministry activities with potential to raise revenue and contribute to economic growth
If Treasury timeously releases the allocated funds to the Ministry, the Ministry of Energy and Power Development will be able to implement its programmes which in turn will assist in raising revenue for the Government and contribute to economic growth. Some of these projects which are implemented will raise revenue for the Government include the following:
Development of Renewable Energy Policy. If the Ministry manages to develop a policy on renewable energy use, this will result in increased renewable energy use such as solar which in turn will release pressure from the conventional energy sources. This will ensure that industries will have enough power and notwithstanding other challenges, will increase their capacity utilization and expand the tax base for the Government.
Completion of current energy projects.
If the projects currently being undertaken in the energy sector continue to receive funding as outlined in the 2016 Budget, the power shortages currently being faced will be eased. These projects include the Kariba South Expansion, Small Thermal Power Stations, Deka Pump Station, Hwange 7 and 8 expansions and the mini hydro power plants. The success of Treasury in collecting tax revenue depends on the performance of the mining, manufacturing and agriculture sectors which heavily reply on electricity. If the above mentioned projects are implemented and completed, the country will have a reliable energy supply which will attract investment in the country.
Installation of prepaid meters for all users of electricity.
To date, ZESA has installed over 500 000 prepaid meters mainly to domestic users of electricity. If the project is rolled out to the rest of the users including commercial users, ZESA will collect more revenue and improve its viability and will have funds to invest in electricity generation. In addition, if ZESA is back on a sound financial position,this will unlock new funding from new investors and thereby reduce the burden from the Government as it will no longer be releasing any funding to ZESA. Instead, the Government as the major shareholder in ZESA will be able to get some dividends.
The Committee observed that most potential investors in the energy sector are being scared away by a number of statutory fees that the investors are required to pay. When these investors compare these fees with what is obtaining in other countries in the region, Zimbabwe’s fees are higher than in most countries in their region. For example, the Hwange expansion project, EMA requires fees to the tune of about US$22 million. The committee therefore recommends that large and national projects which have the capacity to solve the energy problems be exempted from paying these fees or the fees are significantly reduced. Another option would be to defer the payment of the fees to a later time when the investor would have started operating and have re-occupied a large part of the capital outlay.
The Committee appreciates the various initiatives proposed in the 2016 budget aimed at boosting electricity generation in the country that includes the Hwange 7 and 8 expansions, Kariba South Extension and the Diesel Powered Emergency Power Plants. It is recommended that Treasury moves with speed in the mobilization of resources to support the ongoing works so that they are completed within the set time frames. In cases where the Government cannot raise the required funds on its own, it should consider partnering with private investors.
It is of concern to note that for the past five years, the Ministry has not been able to get the whole amounts allocated in the budgets. This trend implies that the Ministry’s activities also suffer from the failure by Treasury to timeously release funds allocated in the budgets. For example as at 30 September 2015, only 8,2% of the Ministry’s 2015 budget had been released. It is therefore recommended that Treasury releases 2016 budget allocations for the Ministry of Energy to be able to implement its planned activities in 2016.
The Committee noted that the amount owed to ZETDC stood at US$1 billion and is growing, thereby undermining the parastatal’s capacity to pay for emergency power supplies, undertake critical maintenance and develop new capacity for both generation and transmission of infrastructure. It is saddening to note that Government has also contributed to the problems facing ZETDC by failing to pay its bills. The Committee therefore recommends that in 2016, Government takes a leadership role by paying up its electricity bills arrears.
Finally, Government should allow ZESA to install prepaid meters to all electricity users irrespective of one’s status in the society. This will improve revenue collection by ZESA and instill discipline in the use of electricity.
Zimbabwe faces crucial decisions regarding its mining sector, which ultimately will affect its long-term development and progress and for the Ministry to continue to increase its revenue generation capacity and to be able to carry out its priority projects and programmes in line with the ZIM ASSET, the issue of capacitation is critical. Despite enjoying an endowment of many mineral resources globally, Zimbabwe’s mining industry could help propel projected 2.7% growth for the country in 2016.
In fact, the performance of mining sector will be an important factor for Zimbabwe to achieve this growth target. The mining industry has the potential to create millions of additional jobs by 2018. For this to happen, the Government and mining industry should work together to unlock the country’s potential in mining. In addition, the lack of new investment in power generation during the past five years is a cause for serious concern and it is hoped that the proposed energy expansion projects will get the required funding.