The Exchange Control (Payment for Electricity and Related Services in Foreign Currency by Exporters and Partial Exporters) Order, 2022 was published in Statutory Instrument 131/22 on July 11, 2022.
I will refer to it as SI 131/22. It grants power to Zesa Holdings (Zesa) to charge exporters and partial exporters for electricity in foreign currency for the next six months.
“Exporters” are defined as businesses that export on average 80 percent or more of the work product it offers in Zimbabwe per quarter. This, no doubt, targets some large producers of steel and other similar manufacturers who have international clientele.
Mining companies, in my view, stand to be significantly affected, at least in comparison to other contributors to the economy.
“Partial exporter” means a business that exports less than 80 percent of its work product but nevertheless lawfully gets paid in foreign currency.
What SI 131/22 is essentially saying is if you earn foreign currency from exporting, you are liable to be charged for electricity by Zesa in foreign currency. It would appear that partial exporters do not have to pay the entire bill in foreign currency. They are charged up to 35 percent of their electricity bill in foreign currency with the balance to be paid in local currency.
The wording of the provision is open to much interpretation, but a careful reading seems to suggest that exporters will pay 100 percent of their bills in foreign currency.
SI 131/22 also provides that businesses can enter into agreements for the payment of electricity bills with Zesa. It is not clear if these contracts are for arrear payments or cater to future obligations. Looked at from another perspective, these agreements do not appear to be strictly payment plans.
This might mean that the legislature is alive to the possibility that Zesa might want to avoid businesses defaulting on payments by negotiating flexible terms or even discounts.
In another part of SI 131/22, it is provided that exporters and partial exporters can agree with Zesa to pay for electricity in advance, suggesting that agreements with Zesa are to cater for arrear payments. It must be noted that Zesa can begin charging in foreign currency from July 11, 2022. Either way, the objective of the SI will be met (securing payment in foreign currency).
Some might ask if the legislature had not already declared the Zimbabwe dollar as the sole legal tender in Zimbabwe. That is still the case, except that SI 131/22 suspends the operation of this legal position to allow for payment of electricity bills in US$. This is in my opinion another piece of legislation that confuses the already complicated exchange control framework even further. I address this issue further below.
Why was the SI introduced?
SI 131/22 will be in effect for six months, so it will lapse in January of 2023. The limitations placed on Zesa as to how it can spend any money received in foreign currency shows what the purpose of the SI is. Zesa can only pay for purchasing electricity outside Zimbabwe, purchasing critical equipment and components, payment of external insurance for critical infrastructure and payment of foreign loan repayments.
The real idea behind this SI is to capacitate Zesa to settle its obligations that can only be settled in foreign currency. It makes sense. It does, however, have implications on the exporters and partial exporters’ viability over the next six months.
Analysis
Our monetary regime is already convoluted and confusing. SI 131/22 adds to that confusion by suspending the operation of SI 142/19 in very limited circumstances, albeit for a limited period.
The effect that this is going to have is that the market will complain about the partial treatment that this SI will cause. No two exporters are going to be affected the same.
For example, mining companies will be particularly affected as they are typically businesses that export the majority of their work product.
SI 131 speaks directly to them to the exclusion of other high users of electricity who sell on the local market.
Further, exporters such as mining companies already have their income earned in foreign currency retained. This means that 40 percent of their earnings in US$ are already being retained by the State through the RBZ.
SI 131/22 places in additional burden on exporters in that from the foreign currency they have left over from transactions, they must further deduct 35 percent of the electricity bill from that figure.
Mining is a very energy-greedy activity. For example, comminution (the action of reducing a material, especially a mineral ore, to minute particles or fragments) utilizes approximately 6.7 megawatts of electricity per kiloton.
This is a significant amount of energy which is also a significant part of the expenses that every mining company must pay. So, combining the retention of foreign currency by the central bank with the addition of a further expense in US$, surely affects mining companies’ bottom line.
For the avoidance of doubt, I refer to mining companies because their business is primarily export-based. My sentiments in this article apply to any exporter or partial exporter affected by SI 131.
Muza is a duly admitted lawyer with expertise in business law, labour law and commercial litigation. He writes in his personal capacity. For feedback, email him at hilarykmuza@gmail.com or call on +263719042628.