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Zimbabwe: Coal Output Plummets

ZIMBABWE’s coal production has plummeted to unprecedented levels, crippling thermal electricity generation in the country.

The Financial Gazette’s Companies & Markets (C&M) can report that coal output, which is integral to Zimbabwe’s energy industry, recorded a significant decline in 2016, a situation likely to worsen the electricity situation in the country.

Coal production was at 2,7 million tonnes last year, representing a 38 percent decline from 4,3 million tonnes in 2015, according to the Chamber of Mines of Zimbabwe statistics seen by this newspaper.

The slump in production has been blamed on working capital constraints, increased production costs and a general decline in global commodity prices.

For the past two weeks, Munyati and Bulawayo Power stations were not generating electricity due to shortage of coal. Hwange Thermal Power Station, the country’s largest coal-fired power plant which has a generation capacity of 920 megawatts (MW), was producing about 264MW. Harare Power Station was producing 26MW of electricity.

Zimbabwe’s maximum power demand stands at 1 600MW of electricity but has been producing less than 1 000MW.

This means Zimbabwe has to import the bulk of its power from regional countries, mainly South Africa and Mozambique.

Zimbabwe hosts large reserves of coal in the lower Karoo formations of the Zambezi basin and the Save-Limpopo basins with an estimated resource of more than 12 billion tonnes.

The country has two major coal producing mines, namely Makomo Resources and Hwange Colliery Company. Coal Brick and Chilota Colliery are also known producers of the commodity.

The four are, however, operating below capacity, resulting in viability challenges as the mines find it difficult to break even.

Although coal production was previously confined to the Zambezi Valley, particularly at Hwange Colliery, small scale coal mines also exists in the Sengwa coalfields near Gokwe, Mkwasine coalfields near Chiredzi and the Tuli coalfields near Beitbridge.

The bulk of the coal produced by Hwange Colliery and Makomo Resources is taken up by Hwange Power Station which consumes between 3 000 to 4 000 tonnes a day, while the remainder is supplied to small thermal power stations as well as regional markets.

The substantial decline in the production of coal has left the coal mining firms failing to meet demand for power generation.

Coal is the dominate source of the country’s electricity generation, but production of the resource has been declining significantly.

This decline appears to be worsening.

Makomo Resources executive director, Raymond Mutokonyi, confirmed to C&M that coal production had plummeted by 40 percent at their operation.

“We used to produce about 215 000 tonnes of coal per month but now this has gone down by 40 percent,” said Mutokonyi.

Mutokonyi blamed the Zimbabwe Power Company (ZPC), the largest consumer of coal in the country, saying the power utility was failing to pay for coal supplies.

He said: “ZPC owes us US$23 million as of Friday last week. When we ask them, they tell us that they don’t have the money. But we have realised that they are not prioritising us but foreign suppliers such as Eskom of South Africa. This adversely affects our production.”

Coal production at Hwange Colliery has shrunk from 300 000 tonnes to about 30 000 tonnes a month.

This has resulted in the country’s oldest coal company rationalising its business to cope with the downturn.

The production problems in the coal mining sector have triggered layoffs, with thousands of workers thrown onto the street as mines tries to cope with the situation.

Serious funding challenges prompted Hwange Colliery to rope in Portuguese contractor, Mota-Engil, a few years ago. Production improved but its problems worsened last month after the Portuguese firm suspended operations at an open cast mine due to a payment dispute.

The Zimbabwe Stock Exchange-listed coal miner, which also has shares on the Johannesburg and London stock markets, had for the past three years relied on the Portuguese firm for output but has failed to pay an accumulated debt amounting to US$50 million.

This forced Mota- Engil, which signed a five year mining contract in 2014, to suspend operations at HCCL’s Chaba open cast mine.

Under the terms of the five year contract worth US$260 million, Mota-Engil has been mining 200 000 tonnes of coal a month from Chaba.

Hwange Colliery used to be the largest coal miner in the country but has come under pressure from new producers such as Makomo Resources, which have chipped off its market share.

Hwange Colliery used to employ thousands of people but with the closure of its underground mine, the 3-Main Underground Mine, the main source for coke and coking coal, many workers lost their jobs.

The mining firm, however, recently said it was looking for a partner to help resuscitate its underground operations, which were closed two years ago.

About US$6,4 million is required to resuscitate the mine.

Government is the largest shareholder in Hwange Colliery, with a 37 percent stake while multi-millionaire British tycoon, Nicholas van Hoogstraten, who is the second largest shareholder, holds 30 percent shareholding.

The National Social Security Authority has a 5,87 percent shareholding while Mittal Steel Africa Investments controls a 9,76 percent stake.

In 2015, Hwange Colliery acquired mining equipment from India and Belarus under a government-facilitated deal in a bid to improve production.

These included 10 dump trucks, five front-end loaders and two wheel dozers from Belaz of Belarus. Two excavators, two water bowsers, three front-end loaders, three bulldozers, three drill rigs, a motor grader and one tyre handler were supplied by Indian firm, BEML.

But the company has been battling to turn around its fortunes largely due to recurrent breakdowns of some of the machines acquired from BEML under a US$13,3 million vendor financed transaction facilitated by the Export-Import Bank (Eximbank) of India.

The other batch of equipment worth about US$18,2 million from Belaz was financed by a PTA Bank loan facility.

Hwange Colliery expected production to increase to 450 000 tonnes per month after delivery of the new machines but it emerged some of the equipment under the deal had faults, denting efforts by the coal giant to increase production.

In 2015, government granted Hwange Colliery new concessions at Western Area and Lubimbi East and West.

The two concessions, which hold deposits in excess of one billion tonnes of coal, are expected to increase the life of the mine by about 70 years.

In recent years, coal companies had pinned their hopes on exports, as coal remained an important power source in Asia and Europe. But a global slump in the price of coal has led to a decline in coal exports

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