Zesa seeks 9-fold tariff hike

By Staff reporter | 26 Jul 2019 at 17:53hrs
Zesa wants to convert its old 9,83 cent kilowatt hour to RTGS dollars at the interbank rate, a near 9-fold increase to almost $1 a unit.

Zesa is seeking Government approval for customers to pay the interbank rate equivalent of the 9,83 US cents per kilowatt hour (kWh) tariff, in order to cushion itself from the rising operating costs, according to chief executive Patrick Chivaura.

This comes as costs of operating thermal power stations have risen sharply after coal producers started pegging the US dollar linked price of the commodity using the interbank rate.

Coal producers have maintained the price at US$26,50 per tonne, but it is pegged to the ruling interbank rate, which stood at $8,89 against the greenback yesterday.

At yesterday's exchange rate, the proposal would see the tariff rising by 790 percent.

Chivaura told Business Weekly in an interview this week the tariff had "been degraded so badly" with the power utility now essentially providing a service for "free".

In US dollar terms, the power tariff has been eroded to a cent from 9,6 cents approved in 2013.

"What we are seeking is simply restoration of value of the old approved tariff so that it does not come as big bang. If we are going to have an upward review, it will be minimal," Chivaura said.

The proposal has already been submitted to the Minister of Energy and Power Development, Fortune Chasi, who could not be reached for a comment by time of going to print.

Minister Chasi is in South Africa where he in negotiating a new power import deal with Eskom.

Zimbabwe is facing severe power cuts, which usually last for about 18 hours, resulting from subdued generation as well as depressed imports. Zimbabwe has two major power stations - Hwange with installed capacity of 920MW but only produces a maximum 700MW due to antiquated equipment, if all units are in production.

Kariba South, a 1 050 MW plant is currently allowed to do an average of 358MW due to low water levels. Three other small thermals (which average 120MW each) namely Bulawayo, Munyati and Harare, are occasionally brought back on line (a sign of the desperate situation) after being decommissioned, do very little to help the situation. Zesa last applied for a tariff hike of 30 percent early this year, but the proposal was rejected.

Finance and Economic Development Minister professor Mthuli Ncube warned against the move, arguing it was inflationary as it would trigger a wave of price increases.

Despite keeping the tariff at sub-economic level, Zimbabwe has seen price increases across the board after the RBZ abolished a 1:1 official peg to the greenback in February. Inflation rose 175,66 percent in June this year from 97,85 percent in May.

However, inflationary started building since September last year when the central bank directed banks to separate foreign currency (US dollar) and RTGS dollar balances.

Spike in coal prices

Coal Producers Association chairman Roy Mutokonyi, told Business Weekly that producers agreed to keep the price at US$26,50 per tonne, but is rated using interbank market.

Zesa's power generation subsidiary, Zimbabwe Power Company (ZPC), consumes nearly 80 percent of coal produced by local firms for its thermal power stations.

"We have maintained the price at US$26,50 per tonne, but we are using the interbank market rate," said Mutokonyi in an interview with Business Weekly this week.

Zesa, which is owed $1 billion by customers including Government, has kept the tariff unchanged, further hurting operations of a power utility struggling to meet demand.

Cost reflective tariff

The African Development Bank said a cost reflective tariff was needed to put Zesa on sound financial ground to become acceptable partners to potential investors.

"If the financial position of Zesa is to be improved, adjustments in power tariffs would be essential," said AfDB in a report on Zimbabwe's state of infrastructure released recently.

It said SADC Council of Ministers had given directives for member states to gradually migrate to cost reflective tariffs on the basis of the agreed regional framework to attract investors, but Zimbabwe has not revised its tariff structure since 2013.



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