ZIMBABWE’S ferrochrome producers have paid $10 million in advance to help power utility Zesa pay for electricity imports from regional suppliers. Under the agreement, ferrochrome producers will get power at a discounted rate, which can be renewed on expiry.
Zesa imports power from regional utilities including Hydro Cahorra Bassa and Eskom of South Africa to cover local supply gaps due to limited capacity. Zimbabwe requires an average of 1 400 megawatts against an average generation of 1 000MW.
The power utility has been struggling to pay for the imports due to high levels of defaults from both commercial and domestic consumers, who owe Zesa about $1 billion.
Last month, the Treasury issued about $520 million worth of bills to settle debts owed by state enterprises and local authorities to Zesa, which cut the debt to about $480 million.
“The bills are tradable and Zesa used them to clear their debts with coal supplies and settle their outstanding obligations,” a senior official with the Finance Ministry said last week.
Zesa receives a weekly allocation of $5 million from the Reserve Bank to import power, but the shortage of hard currency has seen the central bank sometimes to disburse this amount in full, resulting in the debt to regional supplies escalating to nearly $70 million.
Analysts have warned that the arrangement between Zesa and ferrochrome producers might not be sustainable since a drop in metal prices could squeeze the cash flow for local producers.
Stainless steel producers in China are scaling down production as a supply overhang has pulled down prices, according to reports. Last year, China, the world’s second largest economy accounted for nearly 25 million tonnes or about 54 percent of global stainless steel production.
“The arrangement is not only limited to ferrochrome producers, but to all exporters and discussions with other consumers in this category are ongoing,” said a source familiar with the arrangement.