By Evans Dakwa and Takudziridzwa Nyama
It is a matter of public knowledge that Zimbabwe has been grappling with an acute power shortage that has left most domestic consumers experiencing long hours of loadshedding, with the worst-case scenarios lasting up to 24 hours.
While different people have proposed various solutions to the problem, including investments in solar and direct importation by companies that are the major users, Namibian-based economist Mahwani Kangausaru reckons the key stumbling block to finding a lasting solution to the country’s power problems lies in the suboptimal tariffs being charged by the power utility, ZESA.
His recommendation is premised on the notion that investments in power generation will always be hamstrung as the tariff band is not appetizing to investors. He believes it is high time the Zimbabwean government and the people have to choose between cheap and unavailable electricity or a market-determined price for reliable electricity.
“It’s high time we realize it’s more expensive not having electricity than buying it at a market-determined rate. ZESA is currently selling electricity to consumers at a loss. The power utility is buying electricity from Hwange Electricity Supply Company (HESCO), the company which owns Hwange units 7 and 8, at 10.7 cents. Adding distribution costs, it becomes 12 cents, yet they sell the same electricity for 8 cents to domestic users,” said Kangausaru.
The above situation, as explained by the economist, underlines the fundamental challenges the country is facing in increasing its power generation capacity. By nature, power projects are capital-intensive, meaning ZESA or the government alone can never be able to do it without investors coming on board or borrowing.
Herein lies the problem: no investor will sink money into a loss-making venture, and when it comes to borrowing, very few, if any, entities are willing to give ZESA a loan.
This is because the power utility has a reputation of being a bad debtor, largely due to the unavailability of foreign currency, which has led to ZESA failing to honor its loan obligations.
The primary solution to the challenge of power generation, according to the Namibian-based Zimbabwean economist, is to allow ZESA to charge economic rates for its power.
His solution is buttressed by historical events that show subsidies in electricity do not work.
A couple of years back, ZESA Executive Chairman, Sydney Gata proposed to industry that they buy electricity directly from the regional power pool, which was available for import, to alleviate the power challenges the industry was complaining about. However, his proposal was flatly rejected by the industrialists.
They were complaining about electricity shortages, and the ZESA boss proffered a solution, but why did they refuse it? The answer is simple: they wanted to continue enjoying the subsidised electricity tariffs they were getting from ZESA. If, at all, the power utility had been selling its electricity at a profit, the industry would no doubt have agreed to the direct importation proposal.
What they wanted was for ZESA, which we know is struggling with foreign currency issues, to import electricity on their behalf and sell it to them at a loss. This reinforces Kangausaru’s notion that the biggest albatross around the neck of power generation in Zimbabwe is the discounted tariffs consumers currently enjoy, which do not encourage either direct importation or investments in the sector.
With the Government of Zimbabwe preaching the gospel of leaving no one or no place behind, Kangausaru further proposes the implementation of targeted subsidies that will ensure the poor people of Zimbabwe have access to energy, while the rich, who can afford to pay, buy electricity at market-determined commercial rates.
“If we increase our tariffs, the government can then easily target its subsidies, such that in high-density suburbs, they can easily provide cheaper energy. For example, for the first 100 units, you pay this amount of money, just for them to do the basics, like lighting and cooking a single meal per day. After that, they pay the market rate. It becomes easier to target the subsidy than where we are today, where we are giving subsidies to people who can afford,” he added.
ZESA has licensed a number of Independent Power Producers (IPPs), but very few have materialized, and the suboptimal tariff band in the market can easily be identified as one of the contributing factors to the slow pace at which the projects have commenced.