The Sunday Mail
The Confederation of Zimbabwe Industries (CZI) wants the Zimbabwe Electricity Supply Authority to lower electricity tariffs to US6c per kilowatt hour and be at par with those prevailing in the region in an effort to make local goods more competitive.
This is despite Zesa’s latest proposal to hike power tariffs to US12, 8c/kWh from US9, 8c/kWh to enable the power utility to generate additional revenue of about US$200 million per year.
Industry has also called on Zesa not to have different tariffs for different sectors.
Zesa granted a US6,7 cents/kWh tariff to chrome producers and charges tariffs of around US9,83 cents/kWh to other consumers.
Industry believes that a lower tariff would make the local industry viable and competitive as electricity is one of the highest cost drivers in the local industry.
CZI president Sifelani Jabangwe told The Sunday Mail Business that reduction of power tariffs would make local goods competitive in other markets.
“If the country could reduce its electricity tariff for industry to the level of Zambia — around 6c/kWh — it will go a long way in improving its competitiveness as electricity is one of the key cost drivers of the manufacturing industry.
“We all need $0, 06/kWh because our products are struggling. RBZ has given us massive incentives but we can’t enjoy the incentives because our costs are so high.
“Ethiopia has managed to give their industry three cents per kilowatt hour, that’s why their leather is globally competitive.
“They are exporting all over the world, fastest growing leather sector and other sectors with them. Power is central and key and US12,8 cents/kWh will affect the industry,” said Mr Jabangwe.
Zesa is pushing for an increase in tariffs to guarantee power supply.
Last year, the Zimbabwe Energy Regulatory Authority (Zera) turned down an application by the Zimbabwe Electricity Transmission and Distribution Company seeking to hike energy tariffs by 49 percent.
Economist Dr Gift Mugano said Zimbabwe’s lack of competitiveness can be explained from two angles, that is, micro-economics and macro-economics.
He said, “With respect to the macroeconomics perspective, low productivity and the general business environment is weighing down our competitiveness and from the microeconomics perspective, we are undermined by high cost drivers like power, finance charges, water, taxes and levies.
“The average cost of producing electricity per unit (kWh) from the hydro and thermal power stations is high compared to other regional countries due to ageing equipment and inefficiencies in power distribution.
“The current cost of production is at 14,62c/kWh against US 9,86c/kWh, this affects sustainability of uninterrupted power supply.
“On this case I support CZI’s call for the reduction of electricity charges to US6c/kWh. This will actually halve the contribution of electricity to cost of production, thereby raising competitiveness.”
Besides electricity, cost of water remains costly in the production of many goods in industry.
On average, water costs US$80 per 1000 litres for industrial users; imagine how much it costs for companies like Delta, which needs 320 million litres (hectolitres) every year.
Comparatively, Zambia charges its industrial consumers a fixed charge of US$2,00 per 1000 litres of water.
However, another economist, Professor Ashok Chakravarti views the cost of utilities as insignificant, compared to their availability.
He highlighted that although the cost of utilities are high, prices are within the range of regional prices.
“In my view our electricity costs are not that much as they are within the range of Mozambique and South Africa so we can’t entirely blame electricity costs on the high costs of production in the country.
“What I believe in is that the country suffers very much on load-shedding and interrupted electricity supply.
“It costs a great deal of money for a company to restart the blast furnace or heavy industrial machinery time and again, so if we deal with an uninterrupted electricity supply, we will go a long way in reducing the cost of production in our manufacturing sector,” said Prof Chakravati.
Zesa has often blamed low tariffs as one of the reasons behind erratic electricity supplies.
In 2016, electricity sales stood at 7,318 GWh, 2 percent below the 7,474 GWh recorded in 2015 due to depressed capacity utilisation and demand side management impact of prepaid meters.
Zimbabwe currently generates about 1 000 megawatts against a peak demand of about 1 400 megawatts and the country complements local generation with imports mainly from South Africa’s power utility Eskom and Mozambique’s Hydro-electric Cahora Bassa.
Zesa is said to be finalising its budgets as it looks at the additional three cents to help itself break-even.
To increase the tariffs, Zesa will need to seek approvals from the regulator, Zera.
Instead, the regulation authority highlighted the need for Zesa to improve efficiency levels, as well as implement cost-cutting measures.
Zera has also challenged the power utility to come up with effective revenue and debt collection initiatives before making presentations for a tariff increase.
The regulator has already engaged a consultant to look into Zesa’s huge cost structure, amid indications that recommendations might be made to re-bundle the group to the original structure.