PHILLIMON MHLANGA
A 25-year coal supply deal b e t w e e n Hwange Colliery C o m p a n y
Limited (HCCL) and the Zimbabwe Power Company (ZPC), is hanging in the
balance following the government’s decision to withdraw the coal miner’s
concessions in the Western Area coal fields in Hwange District.
Government, which is the largest shareholder in HCCL, currently under
administration since 2018 following persistent losses, as well as technical insolvency among others, withdrew the concessions recently, which
are now understood to be in the hands of a Hwange businessman.
Government controls a 37% stake in HCCL while the second largest shareholder, the British tycoon, Nicholas van Hoogstraten, holds a 27%
stake in the company through his investment vehicle Messina Investments.
Apparently, ZESA, a wholly-government owned power utility, which 17 years ago was awarded a special mining grant by a Cabinet resolution to mine the same concessions is, according to several people at the power
utility familiar with the matter, said to have launched a legal recourse to reclaim the concessions which interest was repossessed by the government
from ZESA seven years ago.
This came after the power utility failed to develop them despite having splurged more than US$20m on exploration and feasibility studies at the
concessions. The concessions were granted to HCCL in 2013.
ZESA executive chairman, Sydney Gata recently said the power utility was seriously considering venturing into coal mining to guarantee coal
supplies at its four power stations in Hwange, Harare, Bulawayo and Munyati.
HCCL, which has been suspended from trading its shares on the Zimbabwe
Stock Exchange because it was placed under administration in 2018, has since lost these concessions also resulting in ZESA trying to reclaim the
concessions through the legal route, which could be a huge blow to the agreement signed between HCCL and ZESA.
To worsen the situation, current resources at HCCL’s open cast operations are on the verge of depletion and deposits will not go beyond five years from now, according to the miner’s administrator, Bekithemba Moyo. He said it was now critical for the resources firm to scale up operations at the Option Areas and Lubimbi coal fields.
The repossessed concessions could have increased the life of the mine by more than 70 years as they hold deposits in excess of one billion tonnes of
coal consisting of both coking and thermal coal at Western Areas and Lubimbi West.
Underground operations have, however, a much longer mine life than its open cast concessions.
Moyo, this week admitted government’s decision to repossess the concessions could change the direction of the deal. In the event government
fail to grant HCCL alternative concessions, Moyo pointed out, the company will find it difficult to fulfil the ZESA agreement.
“The life of mine at the current open cast operations is estimated to be less than five years. Therefore, the development of the Option Areas and Lubimbi coal fields to full-scale mining operations is critical,” Moyo said.
“The loss of the Western Area Coal Fields is now a threat to the 25 years coal
supply agreement which was signed with the Zimbabwe Power Company’s Hwange Power Station Stage 3 expansion. There is, therefore, need for the company to be allocated an alternative resource to be able to fulfill the agreement which is critical to the electricity supply in the country.”
ZESA is expanding Hwange Power Station, the country’s largest coal-fired plant by two units which will add 600MW to the national grid. A Chinese
contractor Sino Hydro Corporation is undertaking the expansion project. It is, therefore, critical to have a steady supply of thermal coal for electricity generation.
In its financial results published this week performance improved in
the 12 months to December 31, 2019, compared to 2018 despite decreased production and sales volumes.
“Production and sales were adversely affected by the shortage of diesel coupled with the unavailability of wagons.
There was a production gap of 54% in total coal mined of 1 013 932 tonnes, compared to sales potential of 2 819298 tonnes,” Moyo said.
Although HCCL’s own production increased 27% during the reviewed period, overall production, however, decreased 43% largely as a
result of the contractor, Mota Engil’s production at Chaba Mine which dropped by 75% to 306 825 tonnes in the reviewed period from 1.2m
tonnes in the previous year.
As a result overall opencast mine production in 2019 was 52% below that of 2018. This was mainly attributable to low contractor activity and working capital challenges, shortages of diesel in the market and foreign currency
to buy spares and explosives.
Mota Engil’s contract expired at the end of last year and was not renewed.
The underground operation at 3 Main Mine produced 268 603 tonnes in 2019, which was an increase of 37% from 2018 production of 196 060
tonnes.
Total coal mined by opencast operations totalled 756 279 tonnes, a 52 percent decline in production from the previous year. Total coal from HCCL pits was 449 454 tonnes, a 22 percent increase in production from 2018
while the contractor Mota Engil mined a total of 306 825 tonnes, which was a 75% decline in production.
A total of 554 619 tonnes of coal was delivered to Hwange Power Station during the course of the year.
On a historic cost basis, HCCL posted a gross profit of ZWL$182m in the reviewed period from a gross loss of ZWL$3.3m in 2018.
The net loss position, however, increased widened to ZWL$91m from ZWL$78m due to an exchange loss of ZWL$322m on legacy foreign
creditors.
On an inflation-adjusted basis, HCCL posted a gross profit of ZWL$422m in the reviewed period from a loss of ZWL$21m and a net profit
of ZWL$1.5bn during the reviewed period from a net loss of ZWL$487m in 2018.
