CEO of ZESA Holdings
With an average of 320 days of sunlight a year and vast amounts of wind, Zimbabwe provides the perfect haven for renewable energy investment and development
After a decade of stagnation, Zimbabwe is now back, with economic growth at 9.3%. That has declined slightly because of the global economic downturn to 6%, but that is still quite impressive for an emerging economy. In your opinion, which factors influenced the new opportunities that have arisen in the economy?
It is true that we are on the rise in terms of growth, which is very encouraging. Obviously the major contributor to this is the political settlement in the country. I come from the power sector, and I know for certain that there is a strong correlation between GDP growth and power supply. We are very happy that in 2009, capacity was around 19%, but right now in 2012, capacity is around 52 to 54%, according to confederations of other industries and economic sector bodies. So there has been an improvement in power supply and the reliability of power supply. That has happened on the back of some of the work that we have done. That has helped a lot, although obviously there are a lot of other factors that are helping outside of the power sector. We should help the power sector develop as quickly as possible in order to ensure economic growth.
The Government has recently announced its very ambitious goal to achieve a $100 billion economy by 2040. As you said, energy is the foundation of growth. In line with that vision, on the energy side you are trying to achieve 10,000 MW to support that $100 billion plan. As an operational arm of the Ministry of Energy, what is your role when it comes to fulfilling that plan? How are you making sure that in the short-term, the targets set by the ministry are going to be met?
A lot needs to be done in terms of power supply. The youngest power station in our fleet was built eight years ago, so we are lagging behind in terms of developing new generation power generation sources, so that needs to be addressed. But before we get there, the first thing to be done which will tide us over is to achieve energy efficiency. We estimate that we can have as much as 255 MW of energy savings in the short to medium-term. That is what we are focusing on. We will be looking at moving towards fluorescent lighting and we will be introducing demand-side management techniques. But as the economy moves and the industry recapitalizes, that recapitalization in itself will bring in more efficient plants.
We are actually in the process of making arrangements to expand the capacity of … 4:51 by 600 MW as well as Cariba by 300 MW. We are working on those two medium-term projects. We hope to complete these by the end of this year or at least by the first quarter of next year. Of course, there are also other projects that need to be developed. The challenges are enormous – going from 10,000 MW to 12,000 MW is obviously a challenge. We are also appreciative of the fact that the market has been liberalized and independent power projects have come in to take a bite of the cherry.
The Minister has also unveiled the unbundling plan for its operational arm. Could you please shed some light on that? I think that should be completed by January 2013. What opportunities does that present to a foreign investor? How does that affect the consumer?
The unbundling plan is all part of the electricity reform initiatives. The idea is to make sure that the different segments in the value chain are standing on their own. They want to go into generation, transmission, distribution or retail, so that is going to provide a very good opportunity for the sector to attract investment from various stakeholders who would be interested in looking at different areas of the value chain. The establishment of the national grid services company is also very important, which will be ZESA Holdings’ successor company. It is essentially a transmission company. We want to open up the market in such a way that independent power producers (IPPs) will have unbridled access to the transmission grid.
I am sure that with time, the reforms will enable customers to select their suppliers. We want a situation where the industry is sufficient and transparent. We want tariffs to be transparent, and this in turn will encourage investors to come to Zimbabwe and operate in an area where they can strengthen competencies.
Zimbabwe has incredibly vast potential as far as renewable energy is concerned, with over 320 days of sunlight, as well as considerable wind power. How are you planning to make sure that you capitalize on that?
Our experience so far is having a mix of thermal and hydro power plants. It is much easier to manage hydro plants than it is to manage thermal plants. The logistical requirements of managing a thermal plant is very onerous. We think there is a very good case for going renewable. If I had a choice, I would say that the Government should focus on hydro projects whilst the private sector focuses on non-renewables.
If you look at the reliability of Cariba compared to … 10:00 Cariba is more reliable, with very little maintenance required and low operating costs. In the long-term, I think that is the way to go. We need to commission more of these projects. I think it would be very good if we could get 50:50 hydro and thermal. There is also talk of going solar on some projects and we are thinking about developing a 100MW solar plant. That will help alleviate the crisis and support the drive towards renewable energy.
What is the quality of the dialogue between the private and public sector?
I think the main thing was the establishment of the Zimbabwe electricity regulatory authority. Electricity prices have been our Achilles heel when it comes to developing new supply. It has been removed from Government and put to some institutions where people can adjudicate on matters of pricing. It is also interesting that we have now moved into a multicurrency regime. I am not necessarily saying that this regime will remain, but I think the key thing that we have all learnt from this is that the sector is a veritable user of foreign currency. You actually want a situation where you can remove any mismatches which may exist from the revenues you get and the capital expenditure or otherwise.
If you look over the years, that mismatch has always been our nemesis when it comes to not being able to post a profit, because every time you apply finance strategies to an operational surplus, the results went into the red, simply because of things like exchange losses etc. So the stability of the currency is very important. At the moment with the multi-currency environment we have, I think we have a very good chance of attracting investment. In fact, a lot of people have come forward to express their interest to invest in the sector.
We are now retailing at an average of about 9.85 cents per unit, which is a very good price by any measure, even if you compare it with other countries in the region. The tariff has to increase, but we are getting closer to a point where you can attract investment from outside with these tariffs. On the other hand, you also want the government to play a role in terms of clarifying issues regarding indigenization and security of investments and things like that, and I am sure the Government is working on that. There is a lot of discourse at the moment about the indigenization policy, but I am sure that it is very clear that investments will not be under threat. I am encouraged to see the amount of investment taking place in the mining sector despite all this, and I think if we adopt the same strategies, we will be able to attract investment and have enough supply for the country.
There is lots of potential in this country, if we have sufficient supply. There is so much that can be done in terms of mining, and reviving resources and other economic activities.
In a regional context, you are a member of the Southern Africa Power Pool (SAPP). When do you think Zimbabwe will be able to support the region and perhaps become an exporter as well?
We are part of what they call the central transmission corridor on the
Southern Africa Power Pool. In that respect, we provide a passage for power that is moving from the north to the south, and vice versa. There are two projects that are being undertaken currently, which will further enhance that position. These projects are very important, and will enhance Zimbabwe’s capacity to support the region. We are very excited about that. It will provide us with revenue and if we reach a point where we have surplus power, we will be able to export it. When will we be able to export power? Right now we are supporting power to Namibia at off-peak times.
We require both base log plants 17:54 and picking plants. I would say that in the next ten years, we should be in a position to start being a useful player in the region in terms of buying power and exporting power.
From an American investor’s point of view, which opportunities would you highlight as the most lucrative? Could you also comment on the ROI (Return on Investment)?
I think if coal bed methane is fully developed, it could be very exciting for the US. The US is one of the veritable users of coal for generation, and I think with our vast resources of coal, we can get involved. I can see Americans investing here and getting good returns. As far as returns are concerned, it is based on the risk of the country, but I would imagine that in a country like ours, a 19% return is quite achievable.
What skills do you think a leader should possess in order to lead such an organisation forward towards success?
First and foremost, you need business acumen. When I look at companies like EDF in France, they are actually not running at a loss. You also need a vision. The vision we have of Africa may be different to what you have in Europe, because they are more mature countries and you have achieved electrification years ago, but our focus at the moment is to ensure that the vast majority of our people also get access to electricity. You obviously need some technical skills, and at the moment, we are still not mature enough. We are still developing our networks. I am an electrical engineer by profession, and I think that you have to understand the challenges of the industry and the sector. You have to be business and financially savvy to be able to understand issues regarding pricing, understanding tariff methodologies etc. But above all, you need to be development-oriented.
What final message would you like to send to the readers of USA Today?
I would like to say to them that Zimbabwe is one of the best countries in Africa; in fact I consider it to be the best. We have got very strong and developed human resources and we have got a wonderful education system here. We may have gone through a tough period over the past ten years, but we are coming out of the hole in a very strong way. We are aware of where we went wrong, and we know in the future how to deal with situations. I believe that this country is going to be one of the best destinations for investment. Even though our infrastructure needs to be repaired here and there, it is by and large very well-organized and up to standard. More investment is required, but I think we are on a path that would ensure that whatever investment comes in, that investment will really be in safe hands.