Uneconomic tariff cost ZESA $500m

By Staff reporter | 15 Mar 2019 at 08:49hrs
ZESA Holdings' unit, the Zimbabwe Electricity Transmission and Distribution Company (ZETDC), has accumulated a loss of more than $500m due to non-cost reflective tariff, Business Times can report.

The ZETDC has been charging electricity consumers ZWL$0,0986 per kilowatt hour (kWh) since 2011, the last time the power utility was granted a power tariff increase. This has left the company in the red.

Richard Mariwa, ZETDC commercial services manager, told an electricity sector meeting organised in Harare yesterday by the Energy Council of Zimbabwe that the non-cost reflective tariff has resulted in high reliance on borrowings, currently at more than RTGS$1bn.

"…For the past [eight] years, ZETDC has been operating with a non-cost reflective tariff. It's not only sub-economic but ridiculous," Mariwa said, adding that the current tariff was driving away potential investors for critical projects such as reticulation, network refurbishment, and expansion.

"[Investors] will not invest because they will say you are not able to repay because of your non-economic tariff," Mariwa explained. "This has also or will also result in creditors seeking legal action or charging
exorbitant prices. Apart from that, it has resulted in increases in losses for the power utility. We have accumulated loses more than half a billion dollars."

Mariwa said ZETDC's status had also been affected, which means the power utility may require a financial bailout in the near future from the government as the company is technically insolvent.

"This also results in us delaying in attending to faults due to resource incapacitation," Mariwa continued. "We have also deferred planned maintenance, which results in unreliable supply of electricity. We also lose potential revenue as a result of faults."

The sub-economic tariff, he said, was not enough to pay for the power generator (mainly the Zimbabwe Power Company).

"Our network is also constrained in terms of power evacuation, meaning our network is not reliable at the moment. The network is very old," Mariwa said. "The system has gone for many years without being changed. So its capacity has gone above its design capacity, especially the cables. We have no resources to replace the cables because of the non-cost reflective tariff."

As a result, the company's suppliers charge exorbitant prices to factor in delay in payment. This means some suppliers resort to legal action.

Worse, the ZETDC is struggling to collect about ZWL$1.07bn owed it by defaulters. The biggest culprits are local authorities and domestic consumers who respectively owe ZWL$344m or 32% and ZWL$263m or 24 percent of the total debt.

Farmers come third, owing the ZETDC ZWL$124m or 12%, industry come fourth owing ZWL$97m or 9%, mining follows with ZWL$81m or 8% of debt, parastatals owe ZWL$45m or 4% of the debt, and other government departments owe ZWL$21m or 2% of the total debt.

This means the power utility is grappling with negative working capital, and is losing a huge amount of electricity during transmission.

It is also battling high maintenance costs and low reliability of supply due to its aged infrastructure. Currently the ZETDC has a critical shortage of transformers, resulting in the company losing about ZWL$9m a year in potential revenue.

In recent years, Mariwa said, the ZETDC has been pushing for a tariff increase but the government has been turning down its proposals.

ZESA maintained the 2011 tariff despite the fact that the Confederation of Zimbabwe Industries successfully challenged the ZWL$0.0986 per kWh tariff at the Administrative Court.

ZESA maintained the tariff regime after appealing to the Supreme Court, saying the junior court judgement would open the floodgates of lawsuits from consumers who had paid bills based on the new tariff. A court ruling on the ZESA appeal has not yet been made.

ZESA is pushing for a 52% tariff increase to ZWL$0.15 per kWh to help in the maintenance of the electricity infrastructure and in the importation of electricity due to low local generation. But the government recently rejected ZESA's proposals.



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