Politics clouds electricity tariff talks

Source: Politics clouds electricity tariff talks | The Financial Gazette July 14, 2016

THE prospect of the electricity tariff going up before the make-or-break 2018 elections now looks doubtful.
ZESA Holdings has, for the past four years, been pressing government to approve a tariff increase of about 12 percent, but its pleas have found no takers at the highest level.
Vice President Emmerson Mnangagwa recently told a Confederation of Zimbabwe Industries (CZI) conference held in the mountainous city of Mutare that Cabinet, which is chaired by President Robert Mugabe, had shot down the proposed tariff increase.
In fact, ZESA got more than it had bargained for.
Apart from dismissing the proposal, the power utility was asked to put its house in order first.
Mnangagwa said the parastatal was failing to collect about US$1 billion from defaulters, which means that it still has got a lot of work to do in order to reign in all its debtors.
Also, ZESA is losing half of its electricity during transmission, an indication that it is not being efficient in the discharge of its mandate.
If what Mnangagwa said is anything to go by, Cabinet merely stated what the majority of Zimbabweans already know.
What Cabinet did not say is that most of ZESA’s problematic customers are the politicians themselves, who are refusing to settle their obligations.
ZESA is owed a substantial amount of money by its VIP customers, the majority of whom are ZANU-PF politicians who are running commercial farms and businesses whose electricity bills keep on accumulating.
The parastatal has also been complaining about the theft and vandalism of its assets, which has led to the loss of power during transmission.
Again, government has not been too helpful in ensuring that ZESA’s assets are protected.
Having put these issues in their proper context, what is coming out clearly is that Cabinet is trying to hide behind the finger.
By giving a proposed tariff increase the thumbs down at Cabinet level, the ruling ZANU-PF party is afraid that its popularity ratings may plunge further as that would be met with disapprovals from both domestic and commercial users ahead of crucial elections in 2018.
Only recently, the country was literally shut-down after residents in its towns and cities decided to stay indoors on July 6 to show their anger over how the country is being run.
Approving a tariff increase of 11,5 percent under the circumstances, is therefore proving to be an adventure government has no appetite of embarking on.
In the meantime, ZESA is bleeding heavily as the current tariff is below economic levels.
This week, the chief executive officer (CEO) of the Zimbabwe Energy Regulatory Authority (ZERA), Gloria Magombo said the authority was not giving up on the tariff increase.
“The process leading to the finalisation of the approval of the tariff in terms of section 53(1) of the Electricity Act (Chapter 13:19) has not yet been concluded. The regulator will make the decision public in due course after all the consultations and the concerns of all the relevant stakeholders have been addressed,” Magombo told the Financial Gazette.
Business has previously warned that any tariff hike would undermine efforts to rebuild the industrial sector and boost exports.
ZESA last reviewed the electricity tariff in 2011 when it went up from US$0,0753 cents per kilowatt hour (KWH) to US$0,0986 per KWH, which it says is insufficient to support power projects.
While the Confederation of Zimbabwe Industries (CZI) had successfully challenged the hike in the Administrative Court, it appears that ZESA refused to budge and maintained the tariff at the contested level.
The Administrative Court had ruled in 2011 that the tariff increase by ZESA was illegal and ordered its reversal.
However, ZERA and the Zimbabwe Electricity Transmission and Distribution Company (ZETDC), a unit of ZESA, approached the Supreme Court challenging the nullification of the tariff increase.
ZERA and ZETDC contended that the decision by the Administrative Court would open floodgates for litigation by various consumers who had been paying bills based on the “illegal tariff”.
They also argued that ZETDC would become bankrupt if the ruling was enforced.
Apparently, ZESA has in fact been proposing tariff increases every year since that Administrative Court’s ruling, but the country’s integrated electricity generation and distributing company had been restrained from making any increment due to the wider effects of such a move.

Chamber of Mines’ chief executive officer, Isaac Kwesu, said any tariff hike would “undermine the competitiveness of the mining sector”.

“As much as we understand the justification that government is increasing electricity to support the high cost of importing electricity, it’s coming at a time when the sector is currently fragile, experiencing high cost structures. Electricity cost constitutes a big chunk of the production costs,” said Kwesu.
Zimbabwe National Chamber of Commerce CEO, Chris Mugaga, said the advocacy group had been assured by Mike Bimha, the Minister of Industry and Commerce, that there would be no electricity tariff hike despite pleas from ZESA.
“We had a meeting with the Minister responsible for our sector, Mike Bimha, who assured us that there will be no electricity tariff increase. We were also told by the Minister of Energy and Power Development, Samuel Undenge, that there will be an increase in tariff. This means there could be a lot of chaos in terms of co-ordination,” said Mugaga.
Mugaga, however, said he did not think an 11,5 percent tariff increase would “translate into a huge price surge”.
“But my fear is about the application of the funds. The funds might be channelled towards administration costs, paying salaries and so forth. This will not motivate us. This might mean serious cost build up on all other utilities. ZERA should appear to be independent without being pressured. Yes we were consulted by ZERA, but you could tell the consultations were not done in good faith,” said Mugaga.
CZI president, Busisa Moyo, said the planned increase “goes against initiatives of reducing the ease and cost of doing business” in the country.
He said the move was particularly worrying given that it was coming at a time industry was trying to substitute imported products with locally manufactured products and to generate competitive exports in a United States dollar environment.
“The lack of exports and a high import bill is the reason for cash shortages. ZERA would be insensitive to approve this request as it undermines the over-arching needs of the economy … Business cannot afford cost increases at this point,” said Moyo.
ZESA has been making tariff increase requests for the past four years, arguing that failure to do so would plunge the country into darkness.
It has been difficult for the parastatal to service its debts, now at more than US$1 billion, while at the same time investing in new capital projects in the wake of frequent plant breakdowns.
The country is currently facing a critical shortage of power due to low local production and has been forced to import expensive power from the region.
ZESA is importing about 300 megawatts (MW) of electricity from Eskom of South Africa and 100MW from Hydro Cahora Bassa of Mozambique to cover for the deficit in local electricity generation.
The power utility will also soon be purchasing expensive electricity from the Dema Diesel Power plant, established in Seke District, at a cost of US$0,15 per KWH, while selling at US$0,0986 per KWH.
In 2013, consultants, Norconsult, recommended a cost of US$0,14 per KWH.
Inefficiencies at the country’s thermal power stations have affected the cost of electricity.
During the Zimbabwe dollar era, government reviewed electricity tariffs yearly by about 10 percent.
But since the country ditched its currency in 2009, government has been coy on reviewing the tariffs.
But for the past year, Undenge and his permanent secretary in the Ministry of Energy, Patson Mbiriri, have been pushing hard for an increase in electricity tariffs.
With an economical tariff, much of the funding to be unlocked from the increase would cater for the Zimbabwe Power Company (ZPC), which is the electricity generating arm of ZESA.
ZPC is under extreme pressure to raise more than US$500 million dollars to meet its commitments on Kariba and Hwange Power Station expansion projects.
ZPC needs cash to repay the loans under the engineering, procurement and construction contracts at the two power stations.