HomeNewsZesa debt nears a whopping $1bn

Zesa debt nears a whopping $1bn

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The World Bank is awaiting government approval to release a financial report on Zimbabwe’s public sector and parastatals, which shows that Zesa Holdings’ gross debt hit $879 million in 2009, on an accrual basis, about 18% of the country’s nominal gross domestic product.

Net of current assets, the debt was almost $420 million.

By December 2009, current liabilities to creditors including accruals had increased to $448,4 million, while current loans amounted to $388, 5 million.

In the report, entitled Financial and Regulatory Challenges in Infrastructure Parastatals and Sectors completed in August, the World Bank said Zesa’s financial position was still critical in spite of posting an operating profit of $6,3 million and “reasonable” EBITDA of $447 million, about 18% of electricity sales during the year.

EBTDA refers to earnings before interest taxes, depreciation and amortisation and is the most important general measure of profitability.

For the full year to December 2009, Zesa Holdings reported that total revenue reached $471 million.

Electricity sales contributed $447 million, followed by other income, connection fees and interest income.

Payroll costs gobbled about 20% of revenue receipted.

The expenditure exceeded what the utility committed to electricity generation, transmission and distribution as well as imports, its core business.

During the year, Zesa Enterprises, one of the national power utility’s six subsidiaries, reported a loss of $5,1 million.

“The financial problems of Zesa are more related to the low (revenue) collection ratio, a somewhat high payroll as a percentage of revenues, and high debt,” the report said.

The World Bank also said consumers owe Zesa millions in unpaid bills.

Residential customers accounted for 34% of customers in arrears, public agencies 17% and private businesses about half the total stock.

“(The) low collection rates obey to the inability to cut services to customers in arrears and problems with the billing system.

Collections were only 8% in March 2009, hovered between 40 and 50% from June to September, and rose to about 70% in October, only to decline again in January 2010.”

The multilateral lender said the low collection rates were initially a result of value escalation after the country’s changeover to multiple currencies, and billing errors that sparked customer resistance.

The Competition and Tariff Commission also made the same observation during its investigations into Zesa’s billing system.

According to the World Bank, an efficient electricity company should collect at least 95% of billed revenue and must have the capacity to cut off defaulters.

Based on current numbers, the intergovernmental financial institution also simulated that Zesa could improve revenue collection by 10-20% in the short term.

“Every 10% increase in the collection ratio means
$47 million in additional revenue,” the Bank said quoting one of its reports for the year.

The report also noted unreported transmission and distribution losses seen at a level above comparable international figures, despite some improvements in the last 10 years.

“Although Zesa did not report its figure, a rough calculation indicates that they are close to 16%”, against an average loss ratio of 11% in sub-Saharan Africa.

The transmission and distribution losses are often blamed on an aging grid, which is also significantly weighing on regional electricity trade.

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