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ZPC Chairman's mid-year statement
Zimbabwe Power Company
July 03, 2011

As Chairman of Zimbabwe Power Company, whose raison d'étre is to provide power to the nation, I believe that it is important, from time to time, to keep all stakeholders and customers informed directly.

This statement builds on information already given in my earlier résumé of January 2011. I urge readers to remind themselves of what was said in that statement.

Current Status (3 July 2011)

Over the past few weeks ZPC's generation has been fairly stable and at levels we consider will be the maximum for the next year or so - around 1,400 MW. In other words, until the circumstances allow us to add new units at Hwange Power Station, the generation output will remain (short of unexpected outages) at recent levels. Of the 12 large units (six at Kariba and Hwange respectively) there have been 11 operational. In addition between 80 and 100MW are being produced from the "Small Thermal Stations" (Harare, Munyati and Bulawayo). I must stress, however, that our main focus is now on trying to achieve stability of production. The generation forecasts can be thwarted by aging pumps, pipelines, boiler tubes etc. at any moment.

At the time of writing this statement (3rd July) we took Unit 5 at Hwange off-load to attend to a pump on Friday night (1st July) and intend bringing it back on Monday (4th July). In addition we lost two units (3 and 5) at Kariba at 10:21 and both were back by 11:52 on Saturday (2nd July) due to grid surge from Cabora Bassa.

Considerable work remains to be done to the units and support infrastructure at Hwange, and the station remains fragile and unpredictable. Planned unit-by-unit outages will resume from August through to the middle of next year to attend to this ailing infrastructure - funds permitting.

On a more positive note the momentum gained in recent months is very encouraging in spite of having to manage the business on a strict cash flow basis. At Hwange Power Station the relining of the two large raw-water reservoirs is nearly complete, replacement of the 3 km ash-disposal pipeline is underway, ash-disposal pumps are on order, the water treatment works for the boilers is nearing completion and tenders for overhauling the precipitators have been awarded.

Please note that the daily generation status is updated every week day on the home-page of the ZPC website: www.zpc.co.zw

Our stations are extremely vulnerable to regional grid swings. We lost Hwange Power Station completely on the 16th May due to a surge from Cabora Bassa and again on the 23rd May 2011 due to a surge from Kafue. The last being a loss of two units at Kariba, on the 2nd July, due to a system surge from Cabora Bassa.

Tariff

I must now draw your attention to the critical issue of our suppressed tariff and the serious ramifications to ZPC's operations if an increase is not approved. In the absence of an increase to the tariff, ZPC has now had to slow down its efforts to stabilise and optimise power from its existing power stations. In addition efforts to raise capital for adding generation capacity (a four to five year process from when funding is secured) will be thwarted. Load shedding will remain a way of life and overall economic growth will be stunted until generation capacity is expanded to fully support households and business needs.

The ZPC tariff (which is the approved price that is charged by ZPC to our sister company ZETDC) I believe is the lowest hydro/thermal blend tariff in the region. The thermal element of this tariff, I am reliably informed, is one of the lowest, unsubsidised, tariffs in the world.

The tariff was set in February 2009 and 28 months later we still await approval of a "cost reflective tariff". Over this two and a half year period ZPC has had to absorb all cost increases. The main cost-driver increases have been : coal 51%, diesel 44% (a major cost component of Hwange Power Station) as well as spares and components imported from non-US$ countries against a US$ which has weakened against most global currencies. Our efforts continue to improve efficiencies and productivity as we know there is still room for improvement, but these efforts can in no way compensate for over two years of cost increases. In the meantime the only way to compensate for a sub-economic tariff is to cut back on maintenance and ongoing refurbishment. This is clearly not sustainable and if the situation is not addressed urgently, the lights you have from time to time today will go out tomorrow!

It is my understanding that at a recent stakeholders meeting there was full support for a tariff increase. I therefore urge Government to give this matter urgent and positive attention.

I take this opportunity to thank the Ministry of Finance for their fiscal contribution towards 50% of this year's refurbishment programme. Sadly in the absence of a tariff increase ZPC will be unable to fully match the funding that is required to see this programme implemented to a satisfactory level.

Increased generation capacity

I reiterated that load shedding will remain a way of life until we expand generation at Hwange and Kariba. New investment and private sector funding into generation capacity will not be forthcoming while our tariff remains sub-economic and in the absence of a long-term tariff formula.

Meanwhile ZPC, with the help of its technical partner (HATCH), is well advanced in updating feasibility studies for the expansion programmes at both Hwange and Kariba. We will be calling for "Expressions of Interest" in the next two weeks and (tariff and funding permitting) will be in a position to go to tender in September/October this year,

Following the award of a tender by State Procurement Board, ZPC has finalised an agreement to secure the services of KPMG Consortium who will assist and address all aspects of the financial process for this capital raising programme.

Small thermal stations

In consultation with the mining industry, the small thermal stations have been brought back into partial service. Due to their distance from the coal fields and the age of the technology the power from these stations is more expensive. The power from these stations is matched, on a 1:1 ratio, with power from the grid and sold to major customers at a blend price. Only those companies who have dedicated lines and who are prepared to comply with stringent payment conditions are eligible for this scheme. This arrangement should have no negative impact on the load shedding of ordinary customers as those companies who have, voluntarily, joined the scheme were already getting their share of power from the grid - their top-up power comes from the small thermals at a higher price.

Congratulations to Kariba Power Station

The team at Kariba in line with their mission statement committed themselves to high standards and undertook to achieve ISO rating. This resulted in their being awarded ISO 9001/2008 in March this year. Well done to Mr. J. Chirikutsi, the General Manager of Kariba South Power Station and his team at the station!

Coal into the future

ZPC has managed to rebuild its strategic stock to capacity and now receives coal for immediate consumption purposes only. I wish to thank our coal suppliers for their support. I hope that over time, as they increase their markets of other coal products, they will be able to invest in infrastructure such that the "mine-mouth" cost of coal is aligned to regional benchmarks.

ZPC have applied for an extension to their grant for the Western Coal Fields as this grant is a central component of its expansion programme for units 7 and 8 at Hwange Station.

There are ongoing improvements in environmentally responsible technology in the thermal arena. Further there has been a loss of confidence in nuclear powered stations in any seismically unstable counties. These two factors may imply a long term future for thermal power. I urge the authorities to be mindful of the global pressure for coal over the next century. It would be shortsighted to issue concessions on all the coal fields around Hwange now as these will get mined concurrently. Much of this coal would be exported, and while this will be of benefit to our economy in the short term, I am concerned that this concurrent depletion of our coal reserves will leave our children, and future generations of Zimbabweans, with a coal challenge. This can be avoided by formulating the correct policies around preservation and optimal use of this strategic resource at this stage.

Alternative power sources

ZPC have identified a suitable location in Zimbabwe for a bulk solar power station but the capital costs of such an installation remain prohibitive. Wind power is not an option for bulk electrical power but localised opportunities exist and these should be exploited by smaller independent power producers. ZPC, some years ago, applied for a CBM (Coal Bed Methane) grant but still await a decision from the authorities.

Welcome

I take this opportunity to welcome Mr. Joshua Chifamba to ZESA Holdings as Group Chief Executive Officer. He worked for ZESA as a post graduate trainee up to Board Member after which time he then joined Lesotho Power Utility in 2006's as their CEO. This was followed by a period where he mentored the present incumbent in Lesotho before returning to Zimbabwe this year. We look forward to his leadership during this exciting and challenging period that lies ahead.

Thank you's

I take this opportunity to thank Honourable Ministers: Mangoma, Nyanhongo and Biti for their respective support of the energy sector. In addition I thank the Permanent Secretary, Mr. J. Mupamhanga and the Director of Power, Ms. F. Chikonye for their administrative and technical support.

I thank fellow ZPC non-executive board members: Mrs. G. Chela, Mr. D. Matete, Mr. V. Gapare and Mr. T. Zengeya for their diverse and incisive contributions to the business.

Executive directors, management and staff are well aware of my confidence in their ability, both current and latent, to improve their individual contributions towards implementing our agreed strategies. I thank them for their efforts to date and in anticipation of them reaching their full potential.

In closing

I remind you all that power cannot match demand in the medium term and hence everyone of us needs to take full responsibility for using it wisely. In addition, like any other fuel, it has a cost and hence needs to be sold at an economic price. Payment of your bill on time is crucial for the future of electrical power in Zimbabwe.

With winter on us we will all feel the impact of an increase in load-shedding. Let us pull together - by switching off a light you do not need you are lighting up someone else's life.

Thank you,

R. Maasdorp

Chairman Zimbabwe Power Company

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