The Sunday Mail
Engineer Julian Chinembiri
Current demand for electricity is slightly under 2 000MW. We are getting 285MW from Kariba because of water rationing by the Zambezi River Authority.
Hwange, which has a capacity of 520MW, is generating 423MW. Hwange is an old power station and you can’t expect it to have high efficiencies.
We also get some power from small thermal power stations while independent power producers, Pungwe B and Green Fuels, are contributing 6MW.
HCB of Mozambique has been giving us 100MW but in the last two months, they have reduced to 50MW because of accumulated arrears.
Eskom of South Africa is giving us 350MW during off-peak.
During peak periods, we get 50MW and during standard time we get 100MW.
The 13,5c per kWh tariff is applicable to peak hours.
During off-peak, Eskom gives us power for as low as 4c per kWh.
We deliberately get more during the night so as to save water at Kariba.
The diesel plant at Dema gives us 100MW. Of course we started getting power there in the last two months but arrears have started to accumulate.
About 63 percent of revenue goes towards power purchases while 16 percent is for the payroll, versus a benchmark of 25 percent. You can see that we don’t earn much as you think.
Since 2009, the last meaningful tariff was awarded was in 2011 from 7,83c per kWh to 9,83ckWh and then a token increase in 2012/13 of 0,03c per kWh.
So, from 2009 to 2015, the cumulative loss was US$517 million because of a low tariff.
Motivation for 2016 tariff increase
We apply for 14,69c per kWh this year to mitigate the cost of supply. We needed to procure diesel for Dema and more power from Eskom since production at Kariba South had declined.
Now that the tariff has been rejected, we are projecting a loss of US$189 million because of a low tariff. But we need to regain capacity for us to help meet ZimAsset’s objectives.
According to Zim-Asset, energy is the economic driver.
In other countries, tariffs are low because there are government subsidies. Zesa does not get subsidies from Government.
Other countries depend on hydro-power which is cheaper to generate.
Zambia increased its tariff despite dependence on hydro mainly because of low water levels at Kariba and they had to get power from a diesel plant based in the Indian Ocean.
Even though, the Zambia government put US$200 million into Zesco to get power from the Indian Ocean.
In Tanzania and Uganda, their tariffs are high because they use diesel power.
So ZETDC gets revenue from clients and loans.
The largest power source in Zimbabwe is Hwange at 44 percent, Kariba 24 percent, Dema 6 percent, Eskom 7 percent and HCB is 8 percent.
Debt by sector
The mining category owes us US$252 million, industry US$230 million, commercial US$236 million, domestic US$294 million and the farming community US$84 million.
You recall that soon after our elections (2013), there was a debt write off for farmers but the debt has accumulated again.
One thing I should also mention is that in 2009 upon dollarisation, everything went to zero.
There was nothing taken from the Zim dollar era to dollarisation but we still had US dollar debts, for example, with HCB and other power supplies. So we carried the debts from power, we didn’t benefit.
The largest (contributor to debt) is commercial, followed by domestic. But domestic debt is peculiar because we have a lot of pre-paid meters.
We have put the debt pre-payment platform and get 50 percent when you buy your electricity and we are fine with it.
We have ring-fenced that debt and we use it to pay our dues with Afreximbank.
But I don’t think we will recover what we are owed by farmers. We wanted to put pre-paid meters at farms but there was resistance.
We want to put meters at farm houses.
Impact of not awarding a tariff
We are struggling to pay suppliers. The power supply situation is seriously compromised. We are actually fighting and negotiating daily basis with our colleagues in Eskom because we have accumulated about US$8,8 million.
Similarly, HCB no longer gives us 100MW but 50MW because of arrears.
They always threaten to disconnect us.
Failure to get power from HCB will jeopardise a lot of projects such as the expansion of Hwange 7 and 8 and we need some liquidity.
The power purchase debt has accumulated to US$734 million, it includes internal and external suppliers.
We owe ZPC about US$700million and it compromises their performance.
When we fail to procure power, we start load shedding.
All of us don’t want to hear about it because we have been enjoying no load shedding since December 15 last year.
We want to continue that way.
Our mandate is not to load shed but to supply power and we hope with support from clients we will eradicate load shedding from our vocabulary.
We might talk about stable power supply but we don’t talk about the system itself which transmits power, it needs maintenance.
I think people are just interested in saying we have power from Hwange, we have power from Kariba, but nobody is talking about the maintenance of the network itself.
If you look at most — I can say all — of our spares we import. We don’t manufacture most of these spares, most of them are imported.
So we need about US$20million to replace the transformers at our sub stations, those are primary substations. At the moment we don’t have capacity, we have only one transformer there.
If that transformer fails it means all the customers who are being fed from let’s say Alaska will spend some time without power because those are big transformers, they take at least 18 to 24 months to manufacture.
And we need also about US$12 million to replace faulted distribution transformers. I think this is where we have a lot of customers.
What is really affecting us on the distribution network is vandalism and theft of the transformer oil.
Every day, we need to replace these transformers instead of expanding our network with the meagre resources which we have, we are now buying transformers to replace vandalised transformers.
And critical spares, like I said before, we import all of our spares.
Planned maintenance has been deferred because of scarcity of spares. If we don’t maintain, we will have forced outages and even the response time to faults will increase.
It is already happening, especially in Harare, where we have a lot of cables that need to be replaced.
The cables were put in the ‘50s and ‘60s and their carrying capacity is now inadequate.
A long time ago, the backbone infrastructure was being done from loans we got from the World Bank.
Now we don’t have loans from the World Bank.
Most of us have complained that ZETDC is taking long to attend to faults.
Some have gone even for three weeks without power.
In Nembudziya, 200 clients have been without power since February.
Prepayment
We are supposed to get a delivery of 130 000 pre-paid metres and payment for the meters is a challenge.
We actually have 4500 meters stuck at Beira for the last month or so because of payment.
We only got a supply of 2000 pre-paid metres and our target was to complete the installation of 130 000 meters by year end. We may not meet that target.
We were also looking at having 40 000 for industry.
There is need for US$14 million for the Kariba cables which evacuate power from the station to the grid. The power cables are very old.
I am unsure if we will conclude it because of cash flow challenges.
Creditors
Some creditors are not very pleased with me.
As ZETDC we are increasing borrowings so that we can have secure supply and of course this has an impact on the company’s ability to service our suppliers.
If they agree to deal with us, then they have to factor in a delay in payment.
We have some of our creditors taking us for litigation.
The financial position of ZETDC
We are technically insolvent as a company. Since I started working for ZETDC, we thought they were going to turn around the company.
Creditors are owed close to a billion.
The company requires a financial bail-out but from where? Fiscus does not have money.
Investor confidence has reduced. Before our tariff application was rejected, we had investors every day. No one is coming any more.
But we need to survive and we can’t bury our heads in the sand like ostriches.
As professionals and people with a passion to take the industry forward and help in economic turnaround, we came up with survival strategies.
We have a revenue assurance strategy intended to reduce loss.
We have a new department in ZETDC. The guys were sent to other utilities outside the country to learn how others do it. We also have a crack team to fight theft and fraud. We are also prioritising the way we are procuring.
We have also enhanced our cost containment initiatives to realign the structure to our strategy. We have closed most of our banking halls and reassigned most of those people elsewhere. Those who are retiring or dying are not being replaced.
We are also trying to automate our payroll system so that we don’t rely on manual. The cost of communication and fuel, we are also closely looking at them. We are in the process of putting up a vehicle tracking system to manage our fleet and our fuel.
On efficiencies
Many people speak about efficiencies, even the regulator. But what are efficiencies when you have old power stations? For me it is like a catchword now.
Since 2011 when we didn’t get a tariff because the regulator was saying improve efficiencies.
Nobody has identified the inefficiencies for us. You can’t expect a thermal power station like Hwange, which was designed before Independence and building was completed in the early ‘80s, to be efficient.
So I think people should look at the real factors rather than try to hide on some of these clichés.
But as ZETDC, we have tried to change our business model.
Our depots are now profits centres.
We closed our banking halls and 92 percent of our transactions are done through third parties.
Plans to collect US$1 billion owed
We need to complete the pre-paid metering project, implement smart metering for light power users, intensify disconnections on defaulting customers. Since we started the survival strategies, we have disconnected over 35 00 points and we also have the recovery rate to 50 percent from those on the pre-paid metering platform.
We have also come up with payment plans and they are for six months.
Litigation has also started but it is the last resort.
We want good relations with our clients but when we fail to understand each other, we use litigation.
So far, US$572 million has been handed over to our lawyers and US$162 million summons have already been issued and 35 000 have been disconnected over a debt of US$140 million.
Since we started about a month ago, we have recovered US$28 million. We will continue doing it without fear or favour. If we pay up we avoid load shedding. In 2015, we shed 1 813GWh of energy resulting in a loss of US$5,2 billion to industry. So load shedding is not an option for us.
To you it must not be an option too.
It’s better to have power at the correct price and pay than to have load shedding. In conclusion ladies and gentleman, it has been clearly demonstrated that ZETDC is in a precarious position arising from sub-economic tariff.
There is need for all stakeholders to support the utility to be able to continue fulfilling its mandate.
I have said that load shedding is not our core mandate. Diesel generation for private companies costs 40c per kWh compared to the correct tariff of 14,69c per kWh.
Engineer Julian Chinembiri is the managing director of the Zimbabwe Electricity Transmission and Distribution Company. He made this presentation at the recent World Energy Council Debate in Harare. Transcription by Africa Moyo.
