The Sunday Mail
Tinashe Farawo
Since the height of economic hardships in 2007-2008 when power crisis was heralded into the country, it became clear that the country’s electricity tariffs were not sustainable.
Average cost of electricity in South Africa since 2007 has risen by at least 290 percent while in Zimbabwe the power tariff rose once since the dollarisation of the economy in February 2009.
Now, the Zimbabwe Electricity Supply Authority (Zesa) has applied for an increase of electricity tariffs and it is taking ages for the authorities to effect the increase.
There is no doubt that the envisaged power tariff increase will weigh heavily on the cost of production which is already on the spot light with most companies complaining over manufacturing costs in the country.
It is an indisputable fact that electricity is the life blood of any modern economy and high costs of power will result in high costs of inputs which in some cases will reduce profit margins.
This often leads to high prices for consumers.
Most producers are worried about power supply but it is important for the manufacturing sector, mining and all productive sectors to support the power tariff hike.
Over the last five years, the power tariff was only increased once while our regional counterparts have been increasing power tariffs annually.
Last year alone, South Africa’s Eskom increased tariffs by 12,69 percent and this year another increase has already been effected.
Notwithstanding the fact that South Africa boasts of a viable energy mix from solar, wind, thermal, you name it.
It is important for the authorities to increase the power tariff as a matter of urgency so that Zesa can recoup its revenue shortfall and continue to improve electricity supply in the country.
It is of paramount importance to note that our northern neighbour, Zambia, is also grappling with the same challenges and is in the process or reviewing its power tariffs upwards owing to reduced power generation at Kariba.
As if that is not enough, Zesco wants the power tariff in Zambia to double from 0,31 kwacha to 0,88 kwacha; which will translate to about 0,17c per kWh.
The Zambians have also been arguing that their current tariffs were not cost reflective and the increase will attract investors in the energy industry.
The good news is that Government has already indicated that the power tariff increase was imminent so that the country can be able to pay power imports and finance power generation projects.
Energy and Power Development minister, Dr Samuel Undenge indicated that consultations in line with the Electricity Act are complete. Dr Undenge also said that the increase is going to be moderate.
With the current power tariff of 0,9 cents kilowatt per hour, the power utility will remain unable to pay for power imports or to finance its power generating projects.
Sooner or later, it will drown into debt.
With $1 billion stuck in electricity consumers, how do we expect the power utility to survive?
The average power tariff in the region is at 13 cents per kilowatt hour. This is where we are getting some of our electricity and it is crucial to effect the tariff increase as soon as possible so as to cushion the power utility.
The imminent power tariff increase is a business decision that must be supported because energy economics demands that.
The country’s power crisis was worsened by the continued drop of water levels in Kariba Dam as the effects of low rainfall continue to bite.
Kariba Dam has been the country’s workhorse in terms of electricity supply and has been the cheapest source of power over the years.
At its peak, Kariba Dam generated 750 megawatts but to date the hydro facility can only generate 285 mega watts owing to reduced water allocation for power generation.
This has resulted in the country importing 300 megawatts from South Africa and 50 megawatts from Mozambique. These power imports need to be paid for and the only way to do is to increase the power tariff.
The power increase will ensure that the power stations that were built in the 1940s are refurbished while power imports are paid for.
Although industry is resisting the power tariff increase arguing that it will push the costs of production, consumers need to consider the cost of unsupplied electricity where they need to use generators among other sources of energy.
“In fact, it is more expensive to use a generator to run business than to increase the power tariff. The electricity tariff of running generators is more than 30 cents per kilowatt hour, and if the power tariff is pushed to 14 cents per kilowatt hour, it will still make business viable because the envisaged diesel generators will be running at around 18 cents per kilowatt hour,” said Dr Undenge.
The minister has made it clear that Government is conscious of the difficulties that the country is going through and therefore the increase will be minimal. “There is no doubt that the current power tariff which is obtaining in the country is not cost reflective. As Minister of Energy (and Power Development), I am going to ensure that the increase is going to be reasonable,” he said.
Refurbishment of the small thermal stations is expected to start during the first quarter of this year while emergency diesel plants are expected to kick-off in the next few weeks. The only way to recoup the costs is by increasing the tariffs.
If conservation measures are put in place, the increase will not be felt.
With various projects of power generation at various stages of completion, the country expects to be electricity self sufficient in five years, therefore consumers need to support this move.
Energy analysts assert that the country’s electricity tariffs are nearly 6c cheaper than what is obtaining in the region.
According to a 2013 Norconsult consultancy, 14c per kWh would be feasible considering the cost of generating electricity.
In 2013, the International Monetary Fund energy report which was titled “Energy Subsidy Reform in Sub-Saharan Africa, Experiences and lessons” claimed that the cost of supplying electricity in sub-Saharan Africa is the highest among the developing countries apart from South Africa.
According to the report, an average cost of electricity is about 15c per kWh and its cost is even higher in countries that depend on thermal generation which is pegged at 21c per kWh.
Considering that the country will now be heavily relying on thermal, it is an undisputable fact that electricity tariffs need to be reviewed upwards.
The IMF report argues that electricity loss during distribution and transmission is around 25 percent, well above the international standards of around 10 percent.
The country’s power utility is reportedly losing close to 50 percent of electricity during distribution and transmission, while more than 1 500 distribution transmitters are lost due to vandalism.
Five thousand power utility has secured $150 million from African Export-Import Bank to improve the power utility’s network.
If the current tariffs are increased, more investors will be attracted to the energy sector.
Maybe some of the Independent Power Producers have been failing to take off over the years due to unattractive power tariffs.
Like what Dr Undenge once said, the honey moon is over and people must pay because Zesa is not Father Christmas.
