Power utility ZESA Holdings posted a US$100 million loss in the six months to June and attributed the poor performance to sub-economic tariffs.

ZESA chief executive Engineer Josh Chifamba said this in defence of the recent tariff hike that has been described as unjustified and illegal. He said the power tariff hike was justified, as cost reflective rates made it possible for the State-owned power producer to ensure supply reliability.

Industry now pays US9, 45c a kilowatt-hour from US7,53c per unit of electricity and domestic users US4, 5c per unit since the 31 percent tariff hike. Power accounts for about 5 percent of firms’ operating costs.

He said during dollarisation consumers paid grossly sub-economic tariffs that resulted in serious erosion of the balance sheet into negative equity.

“One way of looking at losses is that they are a mirror image of backlog in maintenance, degradation of infrastructure and unsafe infrastructure. That is how you must interpret losses, it’s not just financial,” he said.

The ZESA boss said the utility’s financial losses typified and exemplified a lot of maintenance work that is not being done on the infrastructure. He said there had been need to review the last tariff, approved in 2009, as it had only been a “thumb suck tariff” not meant to address ZESA’s costs.

The ZESA CEO said “it was just a thumb suck tariff, something just to proceed by” while the economy was given time to recover.

Eng Chifamba said the decision to increase tariffs to ensure reasonable cost recovery was motivated by a number of compelling economic issues.

“Coal, a significant component in the cost structure of ZPC, takes about 45 percent compared to the entire cost structure has moved from US$17 a tonne in 2009 to US$30 now and that’s a phenomenal increase.

‘The price of diesel has moved from US90c (2009) to about US$1,32 now. All those costs are pass through costs external to us. We cannot do anything about them . . . we simply take them and pass to customers,” he said.

ZESA’s cost structure has reportedly increased tremendously since 2009, but even with the new electricity tariff ZESA will not recoup all incurred expenses.

ZESA said it has no option but to review tariffs, as the cost of failing to provide would be frightening to consider taking the risk.

For example, mining companies lose US$4 a kilowatt-hour not supplied and use of diesel generator results in US45c per kilowatt-hour consumed.

A huge cost burden has resulted in infrastructure collapse of networks closer to consumers resulting in infrastructure-related supply interruptions.

It is against this background that Government has decided to gradually ensure that the power utility charges cost reflective tariffs to cover expenses.

This comes as Government scouts for a partner to inject fresh capital into the debt-burdened parastatal. ZESA is one of 10 loss-making parastatals that were identified for privatisation, commercialisation or restructure.

ZESA requires US$3 billion to raise power generation by an additional 900 megawatts at both Hwange Thermal and Kariba South power stations.

New investment would help reduce power deficits. Zimbabwe is only able to produce 1 400MW against national demand for power of 2 200MW.

Thus far 40 investors have expressed interest in snapping a stake in the power utility and the winner would provide part of the funding required by ZESA.

(Source)