Zimbabwe: Coal Firms Incur Heavy Losses

Source from:  Financial Gazette (Harare) 11 November 2008 11/17/2008

THE country's three major coal producers are incurring huge losses because of the tight grip on prices being maintained by the government-run National Incomes and Pricing Commission (NIPC), The Financial Gazette can reveal. While the bulk of the coal firing Zimbabwe's embattled industries and tobacco farms is produced by the Zimbabwe Stock Exchange (ZSE)-listed Hwange Colliery Company Limited (HCCL), there has been a significant throughput from Sengwa Mine in Gokwe and Thuli Mine in Beitbridge. These mining operations have, however, in recent weeks plunged into serious problems threatening their going concern status as a result of the chronic foreign currency shortages, fuel supply bottlenecks, intermittent power cuts and high costs of production. Figures obtained by The Financial Gazette this week indicate that coal might remain a scarce energy source in industry because of the poor prices dictated by the NIPC. While it costs in excess of US$19 to extract a tonne of coal, the Commission has restricted its selling price to US$6 per tonne. This means producers are incurring a loss of US$13 per tonne of coal. The NIPC, which has been in operation for the past 12 months, has directed that coal mined locally should be sold at the Zimbabwe dollar price of $200 000 per tonne, a figure that is not enough to buy a standard loaf of bread. The losses have been heavier for HCCL because of the ZSE-listed concern's sheer size and its ownership, which is part-government. Of the coal mined at the colliery, 72 percent of it is consumed by the troubled power utility, ZESA Holdings, which ironically only provides 28 percent of HCCL's revenue. While the rest of the consumers of the product are only accessing 28 percent of the coal, they however, account for 62 percent of HCCL's revenue. Industry sources said in order to contain the bleeding, coal producers would be forced to scale down production, causing carnage in industry, where manufacturers are now resorting to expensive sources of energy to power their operations. Last year, most companies were forced to import coal from South Africa at Z$40 million per tonne after the supply situation in Zimbabwe deteriorated to unsustainable levels. During that time, HCCL was selling a tonne of coal at Z$14 million. HCCL's coal deliveries to the Zimbabwe Power Company's Hwange Power Station were also down from 1,330 53 tonnes in 2006 to 1,315,799 tonnes in 2007. But with intermittent power cuts being the order of the day, the manufacturing sector is suffocating due to the non-availability of coal. Manufacturing sector contribution to the country's Gross Domestic Product has dropped from 25 percent in the 1980s to 10 percent this year. Capacity utilisation in most companies has plunged to about 20 percent due to the erratic deliveries of coal -- a critical input in most industries whose reserves in Matabeleland North alone are estimated to last 500 years. Output in industry is expected to decline further if the economic turmoil, which has prevailed for the past nine years, continues. PG Industries chief executive officer Nyasha Zhou, whose group is partly dependent on coal, said it was sad that government had chosen to kill a critical sector that holds the key to the survival of many companies. "$200 000 for a tonne of coal is the approved price from the NIPC," Zhou said last week. "It is not enough to buy four loaves of bread," he added. With analysts forecasting a gloomy economic outlook and little prospects for major investments into coal mining in Zimbabwe, coal output is expected to remain stagnant. Enditem