Zesa's govt subsidies now unsustainable

UNECONOMIC electricity tariffs and high country risk have resulted in state power utility Zesa Holdings subsidiary, Zimbabwe Electricity Transmission and Distribution Company (ZETDC), planning massive power tariff hikes and charging in foreign currency.

The company has lost in excess of US$120 million in potential revenue, as the state-owned firm is failing to clinch investment deals for critical projects. It has also lost over US$500 million due to uneconomic tariffs.

ZETDC - mulling huge tariff increases or charging in foreign currency any time soon - says investors are shunning the company, citing these factors.

To remain afloat in a tough economic environment, ZETDC has had to pursue various options which include levying a forex tariff on clients who can afford to pay as electricity tariff subsidies become increasingly unsustainable.

The company says it is failing to attain financial closure on vital projects that are meant to bring stability to the grid, and also to the sub-transmission.

The state-owned power utility has incurred cumulative losses amounting to $524 million since dollarisation emanating from a non-cost-reflective tariff, and losses of $9 million per year due to a shortage of transformers, while saddled with a US$71 million import bill. It is also reeling from a $3,6 million loss due to theft and vandalism.

The company's corporate commercial services manager, Richard Mariwa, told businessdigest on the sidelines of an Energy Outlook 2019 Dialogue in Harare on Wednesday that the entity is technically insolvent and in need of foreign currency as well as an upward tariff review to be able to meet its requirements. The country's tariff has been further eroded by the introduction on February 20 of inter-bank forex trading to about US$0,03 per kWh, the cheapest in southern Africa.

Mariwa pointed out that the two issues are stalling the implementation of potentially viable investment projects.

"We can safely say in terms of the potential investment that we stand to lose from tariffs that are not properly dimensioned is quite significant. That and the high country risk have really affected some of our critical projects. We have some projects that we want some assistance with to bring stability to the grid, and also to the sub-transmission," Mariwa said.

"Those are the major projects that are right now being stalled, we have not gone to financial closure because of those two issues.
Because once financial closure has not been reached, the project now stands on a 50-50 chance, it's either you get it through or lose it. We are talking about projects in excess of US$120 million. We are getting the proposals but we have to go through the motions of whether we are able to repay, what are the tarrifs and so on. That's where the mechanics of things really come in."

He added that the low confidence drives away potential investors for critical projects such as reticulation, network refurbishment and expansion.

Mariwa said the recent February 20 Monetary Policy Statement (MPS) has reduced the electricity tariff to ridiculous levels.
"US0,003 cents is ridiculous. For now we are saying if we can go back to US9,3 cents it will give us relief. But then we now need to look at all the other factors. Remember we are looking at Hwange 7 and 8, we are also working on other components that has foreign currency elements," Mariwa said.

"We also need to factor the interest payable when we come up with a tariff. We can then work on how it is going to be affected based on the MPS. Maybe we will then say let's maintain it, while we give relief to customers or we might then want a small increase. All that is being worked on and by the end of the month we will be able to bring back the proposal to customers,".

Marima said ZETDC is considering charging a larger number of customers in forex to help reduce the company's debt.

"We will get a component of the bill which we can say can they settle in forex and these are things we are grappling with. If we are able to get some forex, we will then be able to pay some of the creditors some of the money, we will purchase a few commodities as well as assist our sister company to recapitalise some of the operations. We will also be able to maintain service," he said.

ZETDC has made several proposals to increase the electricity tariff, citing uncompetitive pricing, but it has been rebuffed by the Zimbabwe Energy Regulatory Authority.

Last month, government approved the merging of various units of Zesa into a vertically integrated company, with the subsidiary companies becoming divisions of the new enterprise.