eBusiness Weekly
Tawanda Musarurwa
Zimbabwe Electricity Supply Authority Holdings (ZESA) has accumulated losses of over $444 million since dollarisation with the state institution attributing this position to the prevailing low tariffs.
The country’s sole power utility has, for the past few years, targeted an upward tariff review but its proposal has been constantly rejected by regulator, Zimbabwe Energy Regulatory Authority (ZERA).
In 2016, ZESA saw its proposed 49 percent tariff increase rejected by Government, which put forward that such a tariff increase would go against efforts to reduce the costs of doing business.
ZESA subsidiary, the Zimbabwe Electricity Transmission and Distribution Company (ZETDC) says it has accrued losses of nearly half a billion dollars since 2009 due to the low tariff.
Said ZETDC tariffs and pricing manager Peggy Mhlanga:
“In the past few years we have been operating with a non-economic tariff, therefore we have been experiencing a lot of losses. Currently we are above $444 million since dollarisation.
She said this in a recent presentation to the World Energy Council.
ZESA’s “last significant” tariff increase was in 2011.
At the time, the tariff for domestic consumption was increased from 7, 53 cents per kilowatt hour (kwh) to 9, 94c/kwh – a 30 percent increase.
Indications are that the power utility is seeking to increase the tariff by at least 3c/kwh to stem the losses.
This will price the average tariff at circa 12, 9c/kwh.
According to Mhlanga, ZESA’s actual costs in 2017 amounted to 12,34c/kwh (down from 13,99c/kwh in 2016) although the electricity tariff has been constant at 9, 86/kwh since 2013 (having recorded a marginal increase from 9,83/kwh in 2011).
The gap is currently being met through borrowings and creditors, she said.
Although ZESA has apportioned electricity supply inefficiencies to the ‘low tariff’, some analysts argue that the power utility should consider changing its tariff model in order to strengthen its internal capacities for the rehabilitation of the country’s energy infrastructure.
This is because the current pricing model has become unfeasible in terms of ensuring future infrastructure rehabilitation the extensive debts owed to ZESA by consumers.
In 2011 when the “significant tariff increase” was effected, consumers owed the utility more than $450 million.
This has increased to around $1 billion, according to figures outlined by Mhlanga.
“Blame can also be equally apportioned to the Rate of Return (ROR) price determination model, which only caters for revenue collection meant to cover recurrent expenditure, but not capital expenditure which is very high for ZESA.
“The implicit assumption built in the ROR methodology is that infrastructure rehabilitation and development should be met from the returns on assets which is pegged at 8, 5 percent of the net asset value. However, ZESA has not been able to get a return due to the inability of consumers to pay.
“Even if the consumers where in a position to pay the 8, 5 percent of the net asset value, it is still inadequate to improve the dilapidated power generation, transmission and distribution infrastructure given the fact that the funding needs of ZESA are in excess of $8 billion,” said one observer.
