The Sunday Mail
ZESA requires up to US$8 billion to replace and repair its generation and distribution network that has become a liability to its operations.
This comes as the national power utility – a perennial loss making entity – is among six State Enterprises and Parastatals (SEPs) that are technically insolvent.
As at December 2012, Zesa had a net liability position of US$479 million.
Government has 107 SEPs and almost 90 of them are perennial loss makers while others are refusing to publish their audited results.
Zesa has been making huge losses, including US$132,2 million in 2012 and US$217 million in 2016.
For the year ended December 2017, the loss is projected to have shot to US$393 million. The abject performance by Zesa has raised questions on the ability of management to steer the ship to safety, given the failure to stabilise on the back of financial support from Government to settle its debts, particularly for power imports.
But former Zesa CEO and now deputy board chairman Engineer Ben Rafemoyo, told The Sunday Mail Business last week the parastatal’s bad performance is largely due to almost obsolete generation and distribution equipment and a low tariff which is not in tandem with the existing cost of generation and power imports.
Zesa is retailing electricity at USc9,86 per kilowatt hour at a time it is importing up to 350MW of power per month at USc14 per kWh from Eskom of South and Hidroelectrica de Cahora Bassa (HCB) of Mozambique.
Imports augment local generation which is averaging 1200MW per day, against a national demand of 1400MW.
Said Eng Rafemoyo: “I think the major issue affecting Zesa’s profitability is tariffs. The tariffs were last reviewed in 2011 and since then, they have not been operating at the same cost per unit.
“At the same time, the cost of power imports have also gone up by three to four times since the last tariff review. Employment costs also continue to rise. This is weighing down Zesa.
“There is, therefore, need for new capital to rehabilitate or replace the equipment altogether to improve efficiencies in operations. The capital requirement is quite significant; I can put it at between US$4 billion and US$8 billion.
“I am just thumb sacking after looking at the network. It has to be used to fund the generation plant and distribution network. Most of the network needs rehabilitation or replacement.”
Tariff conundrum
The tariff issue has become contentious in the country, with manufactures and miners – particularly gold – wanting a downward review of the existing USc12,80 tariff.
Industry and miners want a lower tariff so as to ramp up production but Zesa argues that it will be bled to death by any reduction.
In fact, it is re-activating its pursuit for a 49 percent tariff hike, which it believes will help it break-even.
Zesa had a 49 percent tariff hike application thrown away by the Zimbabwe Energy Regulatory Authority (Zera), which said any increases would defeat the pursuit of ease of doing business reforms.
Zera advised Zesa to improve its collections and efficiencies, particularly in the distribution process.
Eng Rafemoyo said once the results of a study done by international accounting consultancy firm, Deloitte, to establish a range of issues that impact on Zesa’s operations including employee salaries and benefits, and efficiencies is publicised, action must be taken to return the power utility to profitability.
Sources within Zesa and the Zimbabwe Energy Regulatory Authority (Zera) told The Sunday Mail Business last week that the report is now with the Ministry of Mines which will forward it to Cabinet once it has gone through it.
Eng Rafemoyo said: “When the challenges being faced by Zesa have been identified, it may be easy to compare the general costs with other regional countries, for instance Zambia.
“However, it is difficult to compare Zambia with Zimbabwe because while we have a mix of hydro and thermal, Zambia mainly generates from hydro, which is cheaper.
“So when the study has been published, it will determine whether or not a new tariff is required.”
Power leakages during the distribution process are also responsible for Zesa’s woes.
Although it is not clear how much Zesa is losing due to leakages, the acceptable threshold is 5 percent. The Zambia Electricity Supply Corporation (Zesco) records technical losses of 14 percent through electricity theft.
The infrastructure question
Experts say Zesa’s equipment needs rehabilitation, and in some cases, replacement. Eng Rafemoyo said the US$8 billion capital injection can come in phases, starting with priority areas to ensure stability in generation.
Currently, the country’s power generation plants – principally thermal stations – are recording fluctuations in electricity generation due to aged equipment.
Small thermal power stations are the hardest hit, with Munyati and Bulawayo not generating anything on Friday last week while Harare was only producing 15MW.
In the past, Zesa would get money from the World Bank to refurbish power generation plants but since 1999, it is understood that no funding has come through.
This has seen equipment deteriorating with Zesa becoming reactive to breakdowns, instead of being proactive before that occurs.
Ordinarily, engineers give the bulk of electricity generating equipment up to 25 years to run fairly efficiently, and any attempts to run the machine beyond the manufacture life results in repairs being costly.
Not a Zesa phenomenon
Losses are not peculiar to Zesa.
Eskom is also unpopular among South Africans for posting huge losses largely due to illegal connections, declining sales volumes, rising debtor payment challenges and the lavish lifestyles of management.
As a result, Eskom’s was projected to post a loss of R3,55 billion (US$294,8 million) by financial year-end (March 2018).
Eskom is said to be weighed down by significant unbilled electricity theft and non-payment by consumers, including municipal distributors.
International debt mainly owed by Zambia, Mozambique and Zimbabwe has reportedly increased from R440 million (US$37 million) for the first quarter ending June 30, 2017 to R456 million (US$38,5 million) by September 30, 2017.
Zesa is also facing challenges in collecting money from power consumers, amid indications it is owed US$1,1 billion.
But Zesa also owes local and international suppliers close to US$1 billion, according to the company’s 2016 annual report.
