Zesa on brink of collapse

By Staff reporter | 01 Sep 2019 at 21:03hrs
Zesa
ZIMBABWE'S state-owned power utility Zesa Holdings (Zesa) is on the brink of collapse due to a plethora of problems.

It is beset by multiple crippling factors, including rampant power theft, non-payment of electricity bills, vandalisation of infrastructure, as well as insufficient foreign currency, an explosive internal report reveals.

Energy and Power Development minister Fortune Chasi, who confirmed the confidential report to the Zimbabwe Independent this week, said there are even cases where some power sub-stations are running without being connected to the national grid, leading to loss of electricity. This comes as Zesa is pleading with government for a subsidy to cover funding gaps created by its refusal to approve the company's periodic requests for upward electricity tariff reviews, without which its operations are severely compromised.

Zesa says that the funding gap could balloon to ZW$2,8 million by the end of the year if the government does not approve its requests for higher tariffs. It also says it is failing to repair its critical machinery due to acute foreign currency shortages, as it cannot procure required spare parts sourced outside the country.

Chasi said he will present the report to the next sitting of cabinet, where he will also call for adoption of solutions which can rescue the perennial loss-making parastatal from the brink, including a vigorous debt collection strategy, revival of vandalised power infrastructure and introduction of severe and deterrent measures against vandals and thieves who have decimated Zesa infrastructure in recent years. He said the document sheds light on the true state of affairs at Zesa and what needs to be done to save the company and possibly redefine the country's power systems.

Chasi said he commissioned the compilation of the report after he learnt of the existence of large-scale abstractions of electricty, where some sub-stations are not linked to the national grid.

"We have cases where some of the Zesa sub-stations are not linked to the national grid and yet the power goes to clients. This can only imply that there is a lot of power being lost. We are currently undertaking thorough investigations on this matter to try and establish the extent of the problem but it appears to be rampant," Chasi said in an interview this week.

"So this report will guide us in terms of trying to save Zesa and map the way forward in terms of curbing these massive power thefts. We have also established rampant cases of illegal connections. The result of this has been that commercial loss of power in Zimbabwe has gone beyond the internationally agreed limit because the losses are quite significant.

"We have also faced serious problems regarding the vandalisation of power infrastructure and theft of electricity transformers and cables. So when I take the report to Cabinet next week, I am going to propose that as a country, we should tighten the law to, for instance, introduce a mandatory 30-year sentence for those convicted by the courts for committing these sorts of offences. We have been studying what is done in other countries. For instance, in South Africa they have a mandatory 30-year sentence which I think is more deterrent than the 10-year sentence we have here."

The report recommends that Zesa should have demand-side management strategies for it to survive.

"A number of demand-supply management opportunities are available but their implementation is being guided by their level of complexity, cost, planning, data availability, technological advancement and implementation complexities. General available opportunities include loss of efficiency arising from poor maintenance practices of electric motors, reduction of power abstractions and power theft as well as availability of new generation efficient motors and adjustable speed drives. The absence of reliable power supplies cripples economic growth and retards socio-economic development," the report reads.

The report further indicates fears that Zesa may collapse if the debt situation is not immediately resolved.

"Zesa has been in a drive to collect its dues from the clients. This is an effort to turn around the fortunes of the company. The debt overhang has resulted in poor cashflows which have negatively impacted performance of the company and is threatening its survival. Various initiatives have been put in place in an effort to collect from the clients," the report reads.

Zesa, in the report, is also appealing for a subsidy from government to the tune of ZW$1,4 billion which it claims to have lost between January and July this year when President Emmerson Mnangagwa's administration refused to approve its tariff hike proposal. Government only approved a power tariff increase last month when Finance minister Mthuli Ncube presented the Mid-Term Fiscal Policy in parliament.

However, Zesa is still requesting for more tariff hikes and fears that the funding gap could balloon to ZW$2,8 billion if government does not approve such proposals.

"The recent 2019 tariff adjustment resulted in a tariff of ZWLc38,61/kWh from ZWc9,86/kWh (292% adjustment). The delay in the award has resulted in a funding gap of ZW$1,4 billion for the period January to July 2019. A tariff of ZWLc79,20/kWh has been applied to July target revenue as per application. The failure to implement the proposed tariff of ZWLc79,20/kWh from August to December 2019 will result in a funding gap of ZW$1,44 billion. Hence the total funding gap for the year is ZW$2,8 billion, which could cripple operations at the company," the document further reads.

Zesa has also been battered by insufficient foreign currency revenue inflows from its encumbered and non-encumbered exporting customers, who are required to pay electricity bills in forex.

"On average about US$8,5 million (including levies and VAT) per month is expected from customers encumbered on the Afrexim Bank loan facility that provides funding for Hwange 7 and 8 Expansion Project. Then about US$12,7 million (including levies and VAT) is expected per month from the exporting non-encumbered customers. The assumption is that levies and VAT will be paid in local currency to enable enough funding to meet current import bills," the report says.

"The United States dollar payments from these customers will be used to clear the current bills for power imports. However, the expected USD inflows are not sufficient to meet the average import bills of US$15 million. Hence, the RBZ (Reserve Bank of Zimbabwe) will have to assist in clearing the current bills in addition to clearing the outstanding arrears with a payment plan of US$890 000 per week.

"Though funding for power imports may be met by revenue inflows from potential exporters, funding for critical spares, repair and replacement of vandalised and faulty transformers, just to name a few, remains outstanding."

Zesa is owed a total of ZW$1,2 billion by consumers who are mainly government departments, parastatals, local authorities and commercial farmers.

The country is currently in the middle of an unprecedented power crisis which has forced Zesa to come up with a severe load-shedding programme which has seen most areas go for up to 18 hours without electricity.

Zimbabwe requires 1 800 megawatts per day, but currently there has been a scaling down at the Kariba Power Plant due to low water levels in the lake, which have limited power production to just 190MW, down from 1 050MW per day. The ageing and frequently breaking down Hwange thermal power station is producing 522MW per day, while the country imports 50MW per day from Mozambique and 400MW per day from South Africa's Eskom.

Small thermal power plants contribute just about 35MW per day, leaving a power deficit of 700MW per day, which is being managed through rolling load-shedding.

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