Below cost billing cost ZETDC $524m
Phillimon Mhlanga
The Zimbabwe Electricity Transmission and Distribution Company (ZETDC), a unit of the country’s integrated power generation and supply company ZESA Holdings, has incurred $524 million losses since 2009, due to below cost billing.
Peggy Mhlanga, ZETDC tariffs manager, said the current tariff of $0,0986 per kilowatt hour (kWh), was not cost reflective and this was likely to end up in a chronic debt problem. She said the power utility’s actual cost averages $0,11 per kWh a year, meaning the obtaining tariff has been insufficient to support power projects.
ZETDC has been proposing tariff increases every year since 2012, but the country’s power utility had been restrained from making any increment, a move which has seen the company sinking deeper into insolvency.
Compared to regional peers which have since moved to cost reflective rates to enable viability in their power utilities, South Africa is charging a tariff of $$0,10 per kWh, Mozambique ($0,11 per kWh), Zambia ($0,07 per kWh), Tanzania ($0,17 per kWh), Namibia ($0,15 per kWh) and Swaziland is charging $0,11 per kWh.
In 2013, consultants, Norconsult, recommended a tariff of about $0,14 per kWh but this has not been implemented. During the Zimbabwean dollar era, government had been reviewing electricity tariffs yearly by about 10 percent.
But, government last reviewed electricity tariffs six years ago to $0,0986 per kWh from $0,0983 per kWh.
Mhlanga said an increase in the electricity tariff would enable the power utility finance critical commitments.
“Electricity is a key enabler to the economy. However, since dollarisation, ZETDC has been operating with a non-cost reflective tariff. Cumulative financial losses of about $524 million emanating from a non-cost reflective tariff,” Mhlanga said.
Mhlanga said it has been difficult for the parastatal to service its debts and at the same time investing in new capital projects in the wake of frequent breakdowns of its ageing electricity plants.
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.
Zimbabwe requires about 1 600 megawatts (MW) a day but generates about 1 250MW on average. To cover for the shortages, the power utility is importing about 300MW from Eskom of South Africa on a non-firm contract basis, meaning the South African power utility can only supply Zimbabwe if it has surplus power. Zimbabwe also imports about 50MW from Hydro Cahora Bassa of Mozambique on a firm contract basis.
“The impact of a non-cost reflective tariff has been that we have seen an increase in creditors,” Mhlanga said.
“This may result in them seeking legal action or charging exorbitant price to factor in delays in payment and this will also increase financial losses for the utility.
“In addition, this may affect the going concern status of the utility, meaning the utility may require financial bailout from the shareholder in the near future due to technical insolvency. This may also result in delays in resolving faults due to resources incapacitation and compound network reliability and availability. This means the utility may suffer losses in potential revenue as a result of faults. ZETDC may also fail to sustain the business and contribute significantly to economic recovery,” Mhlanga added.
