Zim pays price for sub economic power tariffs
According to the World Bank’s Migration and Development Brief 37, Zimbabwe is expected to receive just above US$2 billion in inward remittances in 2022. This will be the second highest since 2012 and makes up 5,3 percent of the country’s GDP
Former Zesa Holdings chief executive, Engineer Josh Chifamba, has spoken about Zimbabwe’s power situation, saying the sub-economic tariff, which the power utility has been charging “for a long time” is the main reason for the current crisis.
Zimbabwe is bracing for the worst power crisis in five years after Zambezi River Authority (ZRA), which manages Kariba Dam, ordered ZESA early this week to stop production at the Kariba South hydroelectric plant because of low usable water levels.
ZERA said it will review the situation in January, assuming there would be meaningful inflows, but significant inflows are normally received around mid-year.
Meanwhile, economists have warned the power crisis would seriously undermine the country’s growth prospects, urging authorities “to immediately act”.
Chifamba said the sub-economic price had prevented ZESA to invest in base load facilities such as coal-powered plants and heavily relied on Kariba as a base load station.
Kariba is the country’s largest power plant, with the capacity of producing 1 050MW and has been the most reliable. Hwange Thermal Plant, the country’s second-largest plant has become so unreliable because most of its equipment is obsolete.
“Issues in the sector have been left unresolved for far too long,” said Chifamba.
“The main Achilles heel have been sub-economic tariffs and an unfavourable macroeconomic environment,” said Chifamba, who is now a consultant in energy management, electricity retail and renewable energy. “That has to be fixed.”
On Thursday, Zimbabwe had a shortfall of nearly 900MW, according to ZESA’s internal daily updates.
Last year, ZESA executive chairman, Dr Sydney Gata, warned of severe power cuts, saying the non-cost reflective tariff continued eroding the viability of the power utility.
Gata in an interview said the viability of the power utility had been eroded “because the tariff is severely frustrated and (the situation) is becoming a time bomb.”
“We are heading for another severe load shedding,” Dr Gata warned.
“How long can you stay in business when you produce at a cost nearly twice what you are selling at?”
Energy and Power Development Minister, Zhemu Soda, also said Zimbabwe’s power situation would remain “fragile” in the absence of an economic tariff, which continues to push up “unproductive” demand and reckless use of electricity.
In October, the Zimbabwe Energy Regulatory Authority (ZERA) chief executive, Eddington Mazambani, said Zimbabwe would gradually move towards a cost reflective tariff over the next three years to avoid “any potential economic shocks.”
Currently, customers are paying US9,2c kWh, excluding exporters, which can be paid in local currency at the prevailing interbank rate. Exporters, with effect from October 1, 2022, are paying US10,12c per kWh. The World Bank carried out a study on the country’s power tariff regime and recommended a cost reflective price of US15c kWh. The journey towards a cost reflective tariff would take not less than three years for a smooth transition. We want to do it in a way that does not cause shocks to the economy,” said Mazambani.
Last week, Finance and Economic Development Minister Prof Mthuli Ncube, said the 2023 Budget would prioritise developmental outlays that improve the reliability of public services and enablers such as electricity, water, transport and housing.
Appropriate pricing of public goods and services, such as telecommunication charges, electricity, water and fuel, will be considered, based on affordability and the user-pay-principle, in order to increase the ability and reduce the subsidy burden on the fiscus.
Over-reliance on Kariba
He said the rationale for Kariba expansion was that with additional generators, load shedding, especially at peak, would be alleviated. Kariba would change from running as a base load (24-hour) station and operate as a mid – merit cum peak (18-hour) station.
“You cannot run Kariba as a base load station because that consumes a lot of water,” said Eng Chifamba.
“The impact on the economy can be so huge. We had a similar situation in 2015 when water levels declined
and production went down to around 200 MW. That is why we resorted to bring on Dema (diesel power plant) (The situation was so bad.
“So the addition of generators at Kariba is not, in and of itself, the cause of the water problem at Kariba,” said Eng Chifamba. ZESCO, with the same capacity as ZESA at Kariba; after having built new power stations; has kept within its water allocation.
“I’m glad the Minister of Finance had quite a lot to say about the electricity sector in his budget speech. The structural issues, with regard to the many boards referred to, are only a small fraction of the problems, if they are.”
Crisis mitigation
Chifamba said ZESA should immediately move towards a cost-reflective tariff to enable the country to import. He also said the coming on stream of unit 7, at Hwange before the end of this month, with production capacity of 300 MW and unit 8, with the same capacity during the first quarter of 2023, would mitigate the impact.
“They should try to mop up power in the region’ so they need to revise the tariffs so that they will have (enough) equivalent Zimbabwe dollars to pay for the imports,” he said.
Harare-based economist, Prosper Chitambara, said the current power situation presented a “major downside risk to the economy. “It threatens to reverse some of the gains we had achieved in terms of stability in the economy. It’s a major downside risk for the economy, it affects business, and it increases the cost of doing business which is inflationary. We are not sure when the situation is going to improve.”-ebusinessweek
