5 January 2013

Zimbabwe: Accelerate Installation of Prepaid Meters


The tariff manipulations made this month by Zesa, which see a tiny rise in average payments balanced by reductions for those who use very little electricity, are not likely to have much effect on the utility's balance sheet.

The main thrust of the adjustment, slightly lower tariffs for small users and for those prepared to use power away from peak times, and slightly higher tariffs for larger consumers, may help even out demand and make load shedding less severe, but that does require all consumers to take more care over their consumption patterns than is usually the case.

But certainly it will not do harm, and the tariff changes will benefit residential and business consumers prepared to take a little trouble.

Zesa did want, as a result of the adjustments of its tariff regime, a very slight revenue increase of around 1 percent, suggesting that the utility does not see any serious drop in consumption, but perhaps more of a holding operation with sales remaining about the same while the economy continues to grow. The regulator cut even that tiny increase to almost nothing when the final tariffs were set.

There is always, during a tariff adjustment, of comparison with regional tariffs. This does not make much sense since so much depends on what each regional utility has in the way of generating capacity and what its short-term and medium term plans entail in boosting that capacity.

At one extreme we have Mozambique, with its huge Cabora Bassa hydro-electric scheme largely paid for and yet demand still well below capacity. At the other extreme we have the countries, including Zimbabwe, that generate most of their electricity from coal, and a thermal station costs far more to run than a hydro station, with an urgent requirement to substantially increase capacity, requiring large cash flows to meet capital needs.

A utility with a larger store of existing plant still needs capital, but the capital component of the tariff will be less.

Zimbabwe, unfortunately, has to catch up and first build the stations it should have built in the 1990s as well as the ones it must build in the 21st century.

The paid-for Kariba South station helps a great deal in moderating Zimbabwean tariffs, but because we really need to think about doubling generating capacity as quickly as possible, that moderating effect is dwarfed by the need to create revenue flows that will allow investment in new stations.

But Zesa is not in quite so bad a position as it could be. The utility has finally taken the plunge and is following the rest of the region in switching to pre-paid meters. So far 55 000 have been installed, an achievement but there is still a long long way to go.

The prepaid meters have several major positive effects on a utility. First there is a one-off gain in the switch from payment in arrears to payment in advance. But that is probably chewed up by the costs of switching meters and systems. But at least the switch is thus neutral when it comes to cash flows.

The other two gains are more lasting. First Zesa gets all the money it makes when it sells energy. There are no bad debts if there are no debts.

Industrial consumers, with their different tariff structure whereby they buy power rather than energy, are still paying at the end of the month, but with the overwhelming bulk of other consumers on pre-paid energy supplies, once the new system is fully implemented, Zesa will have the resources to read meters and take action against late payers.

The second advantage Zesa gets is the far greater interest consumers are taking in monitoring and controlling their consumption. They should have been doing this with the old meters as well, but they always felt they could at least delay payment until after the next payday and in any case Zesa was not going all out to make defaulters pay promptly. Now they do have to make what is pre-paid last until payday, so they take greater care.

That means Zesa does not to build so many new power stations so quickly, although obviously has to build some.

It seems that installation of pre-paid meters has slowed a little. That is unfortunate. It in fact needs to be accelerated. South Africa, Namibia and Botswana switched over long ago and have far healthier utilities as a result.

Most Zimbabwean consumers want the switch and any resistance from a tiny minority is easy to overcome; the choice is simply pre-paid or a generator in your backyard.

Once the exercise is complete, and cash flow and revenue start being roughly the same figure, weare sure that Zesa and its regulator will be able to re-examine tariffs, and start moving further from the traditional one size fits all and maintain momentum on measures that will boost load factors by switching more consumption from peak to off peak hours, and give adequate cash flows to turn the dreams of new power stations into concrete and steel.

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