14 January 2016

Zimbabwe: Stakeholder Concerns Critical

editorial

The country's integrated power utility, ZESA, has lodged a new application for an increase in electricity tariffs this year. And Energy and Power Development Minister, Samuel Undenge, has said a tariff hike is definitely coming.

This is both worrisome and exciting.

Worrisome in that the electricity tariff increase will erode the competitiveness of products coming from Zimbabwe's industries, currently buffeted by high utility and transport costs. The cost of fuel, predominantly diesel, has gone down significantly on international markets, but that benefit has not been passed on to Zimbabwean consumers owing to a hike in duty by government to protect its revenue inflows.

Now, the burden of an additional cost to electricity will inevitably penalise industry, which is grappling with antiquated machinery, which has equally made their production processes uncompetitive.

But the proposed tariff increase is equally exciting because it will make the cost of electricity viable and therefore attractive to investors seeking to start new generation projects in the country.

The Zimbabwe Electricity Transmission and Distribution Company (ZETDC) and the Zimbabwe Power Company, both units of ZESA Holdings, have indicated in their application to the Zimbabwe Energy Regulatory Authority (ZERA) that consumers would enjoy improved electricity supplies and higher security of supplies should they be awarded a tariff hike. They have also promised reduced load-shedding, improved service delivery and improved investor confidence and higher economic activity should tariffs be allowed to go up. Their application seeks an increase in electricity tariffs from the current average level of US$09,86 per kilowatt per hour (kWh) to around 14c/kWh.

ZETDC said they had arrived at the proposed higher tariff using the approved rate of return methodology provided in section 52 of the country's Electricity Act. The methodology was approved by government in 2004.

ZETDC intends to procure 200MW from emergency power sources to cover the shortfall due to low supply from the Kariba Power Station owing to receding water levels. The company also intends to procure additional power from both local and regional power producers to complement local supplies.

The proposed tariff would, therefore, cover the increased costs of importing power and additional imports to maintain supply at current levels and avoid shrinking the economy, ZETDC argued.

When ZESA increased electricity tariffs in 2011, industrialists launched a successful court challenge that resulted in a reversal of the increase. They had argued that ZESA had deliberately misled consumers and industry into believing the increase was 30 percent yet it was 50 percent.

The industrialists had also challenged the tariff on the basis that ZERA was not properly constituted as it was then. Two years ago, the industrialists again opposed a proposed five percent tariff increase, saying it would erode the little competitiveness left of any of the remaining industries. Zimbabwe has experienced large-scale de-industrialisation over the past 15 years, much of it blamed on an economic crisis triggered by the expropriation of white-owned farms for distribution to blacks. It would be important for ZERA to take into account the interests of all stakeholders before giving a determination on the issue.

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