Electricity costs to go up in Zimbabwe

Consumers of electricity should get ready to pay more for power to enable the cash-strapped government of President Robert Mugabe finance critical commitments, without which Zimbabwe could plunge into darkness.

Government last reviewed electricity tariffs in 2012. In the past four years government has suppressed a tariff adjustment at the expense of power utility, ZESA Holdings, which is sinking deeper into insolvency.

It has therefore been difficult for the parastatal to service its debts while at the same time investing in new capital projects in the wake of frequent breakdowns of its ageing electricity plants.

Benson Munyaradzi, director for policy and planning in the Ministry of Energy and Power Development, said government was seriously contemplating reviewing electricity tariffs for the first time in four years.

“Our tariff at the moment is not cost reflective,” he told the Financial Gazette this week.
“Look, we have new (Kariba and Hwange) power projects which we are working on. This means that if we continue with the existing electricity tariffs, we will find it very difficult to continue with the projects,” he added.

Currently, the tariff is pegged on average at US$0,0986 per kilowatt hour, which is insufficient to support power projects currently underway.

In 2013, consultants, Norconsult, came up with a cost of US$0,14 per kilowatt hour but issues of efficiency at the country’s thermal power stations have affected the actual cost of electricity.

Industry experts say consumer should brace for a price adjustment of at least 25
Percent, which will put the tariff at US$0,12 per kilowatt hour.

ZESA’s bid to increase the electricity tariff may, however, meet resistance from some government officials, especially from the Energy and Power Development Minister, Samuel Undenge, who in May this year suggested that ZESA should slash consumer bills for residents of Mutare’s Dangamvura-Chikanga area by 30 percent. The populist call was in the run-up to a by-election that was to be held in the area on June 10.

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 half a billion dollars to meet its commitments on Kariba and Hwange Power Station, which are undergoing expansion.
The ZESA subsidiary has incurred debts amounting to close to US$2 billion, which accrue interests.

Apart from its commitment towards the two mega projects, ZPC is also at risk of failing to service a US$533 million deal with the Chinese firm, Sino Hydro Corporation, if the current tariffs are not adjusted.

The loan relates to a deal between government and Sino Hydro reached last year to expand Kariba South Power Station’s capacity by 300 megawatts (MW).

The situation has been worsened by the fact that local banks do not have the financial wherewithal to support ZPC to that level.

Every year, ZESA has been proposing tariff increase, but the country’s integrated electricity generation and distributing company had been restrained from making any increment in electricity tariff to cushion consumers who are already struggling to make ends meet because of the harsh economic conditions.

In comparison, South Africa has a five-year rolling tariff whereby the tariff is increased gradually at a certain percentage in order for the country to reach a cost reflective tariff.
In other words, South Africa increases the electricity tariff every year.

Last year, South Africa increased its tariff by 25 percent.

“The normal thing for us is that tariffs should be reviewed yearly. During the Zimbabwean dollar era, we were reviewing our tariff yearly. There was an increase every year, about 10 percent but since 2012, we have not been reviewing tariffs,” said Munyaradzi.

“Every year, ZESA sends a proposal to increase tariffs, but the ministry because of our considerations; we were not able to review for past few years. But this time, we are seriously considering reviewing the tariffs because we have Kariba and Hwange Power Station expansion projects. We need to pay back the loan for that and the Engineering, Procurement and Construction (EPC) contracts that we sign requires us to funds our own contribution towards the project.

How are we going to finance that? We also have other projects like Harare, Bulawayo and all other power stations. These projects are funded through loans. So we need to pay back these loans. So how are we going to do it, if we don’t increase the tariffs?”

The country has been experiencing crippling power shortages due to machine breakdowns at the country’s five power stations in Kariba, Hwange, Munyati, Harare and Bulawayo.
The country’s failure to invest in new and major electricity supply projects has also contributed to power shortages.

ZPC has signed a number of deals to improve its generation capacity. China Exim Bank gave Zimbabwe US$319 million to fund the expansion of Kariba South Power Station project.

In this project, ZPC is expected to provide about US$213 million towards the project.
ZPC has also signed an EPC contract amounting to US$1,174 billion with Sino Hydro Corporation, for the proposed expansion of Hwange Power Station, the biggest coal-fired power plant in Zimbabwe.

The cost would rise to US$1,5 billion, including development costs such as technical consultancy fees, loan interest and trust account for servicing the loan once draw-downs on the loan begin.

Sino Hydro, however is still to secure funding for the Hwange project but it is most likely that the China Exim Bank will provide funding with sources familiar with developments saying financial closure for the project is expected to be concluded in November this year.

Zimbabwe currently generates about 1 400 megawatts (MW) against a national demand at peak periods estimated to be about 2 200MW. The country has been importing electricity from regional power utility to cover the shortfall, but this also has not been enough to meet demand.

The expansion of Hwange Thermal Power Station unit 7 and 8 will add 600MW to the national grid. The project will take 42 months to complete from date of financial closure, which is expected to be concluded in November this year.

Electricity is expected to be one of the key drivers of government’s economic blue-print called Zimbabwe Agenda for Sustainable Socio-Economic Transformation which envisages increased access to electricity by domestic consumers, both within urban set ups and rural communities.

The electricity situation has serious repercussions on the recovery of the productive sectors of the economy such as manufacturing, agriculture, mining and tourism, which government wants to drive the country’s economic recovery.

Presently, most households and industries in Zimbabwe are subjected to longer hours of load-shedding daily. Munyaradzi said the utility’s consumer debt inches towards US$1 billion with firms and individuals continue to default on payments. Financial Gazette