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Interim coal price set after depletion of reserves in Hwange

By Business Reporter – Monday 25 March 2019

HARARE (Mining Index) – AN interim price has been set after coal producers expressed dissatisfaction with the pricing model, which saw a depletion in coal production in recent weeks as producers could not sustain the rising cost of production against stagnant selling price.

For 8 years, the price of coal remained unchanged at $26.50 per tonne, despite change in policy that has seen prices of most commodities in all sectors of the economy being reviewed upwards.

According to a source, Zimbabwe is expected to have at least 25 days of coal reserves at any given time but as of last week, there were coal reserves to supply the country for only 5 days, potentially threatening electricity generation and supply.

According to Zimbabwe Power Company (ZPC) website, of the 1030MW of electricity generated locally, thermal electricity from Hwange Power Station recorded 218MW, Munyati 17MW while Bulawayo and Harare were not generating power both recording zero megawatts. Kariba however generates the bulk contributing 795MW of hydro power.

One of the major coal producers acknowledged coal pricing model, together with fuel and foreign currency shortages as bottlenecks hindering effective mining operations to procure equipment and explosives.

“We had issues and that has been resolved. As of last week, we had viability challenges in terms of coal price versus cost of production,” said Makomo Resources Director, who is also Coal Producers Association Chairman Ray Mutokonyi.

“We have been talking to ZPC and the Ministry of Energy and Power Development. The Ministry of Mines and Mining Development got involved last week and an interim price has been put.”

Mutokonyi could however neither be drawn to reveal the interim price nor how much coal producers are expecting to be paid per tonne.

“We are expecting viable prices looking at the cost of production that aligns with the changes in the economy.”

“The three active coal producers in Zimbabwe namely Makomo Resources, Hwange Colliery Company and Zambezi Gas applied for viable selling price. An interim price was offered last week,” he said.

“We started operations in 2010. In July 2011, the price of coal per tonne was gazetted at $26.50 and that price has remained since last week. We have been asking for a review. The fundamentals of coal production have not changed. It has been impossible to produce but we soldiered on,” he added.

Coal producers have been receiving $26.50 per tonne until last week despite a series of macro-economic changes implemented since October last year.

“As coal producers, were not spared by the October 2018 inflation which came after the announcement of the MPS (Monetary Policy Statement) by the reserve bank. The increase in the price of diesel on 12 January 2019 from $1.30 to $3.11 impacted on our cost of production. The mid-term monetary policy of 20 February MPS impacted directly on cost of production. We were negatively impacted, true for the other coal producers,” he said.

“With all these challenges, we found ourselves with limited capacity,” said Mutokonyi.

He noted that challenges being faced by coal producers go back to the pricing model. Currently, coal producers retain 50 percent foreign currency with the remaining 50 percent payable in local RTGS Dollars.

“Operational costs such as diesel, equipment spares and explosives are all imported and require foreign currency.”

While government liberalised fuel imports earlier this month, he however said his organisation was not capacitated to import fuel for coal operations citing limited foreign currency.

“For fuel, we will continue to buy from what government brings in. The little foreign currency we get from government will go towards import of spares and explosives.”

“The three coal producers in Zimbabwe use open cast mining that involve heavy machinery and explosives which require foreign currency to import, although Hwange does a bit of underground mining,” he added.

Makomo supplies coal by road to Hwange Power Station and uses rail to transport coal to Munyati, Bulawayo and Harare Power Stations.

Mutokonyi said production at Makomo Resources is driven by demand and orders from ZPC.

“We operate on orders and those vary from mine to mine. For Makomo Resources, we have a pending order of 90 000 tonnes of coal to supply Hwange Power Station for the month of March.”

“ZPC is our biggest customer by volume which normally ranges between 250 00 to 300 000 tonnes per month for Hwange Power Station alone.”

He said Makomo Resources exports 2 percent of its total production to Zambia, DRC and Malawi. ENDS//

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