High tariffs hinder investment in energy

CALLS for a review of electricity tariffs are growing louder, with energy players saying the current regime is impeding the development of the sector.

By TATIRA ZWINOIRA

Since the inauguration of President Emmerson Mnangagwa in November last year, government has been calling for new investment into the country with the tagline “Zimbabwe is open for business”.

Yet, as it stands, energy charges remain higher than the regional averages, leaving the sector and country unattractive to investors, as energy is one of the key pillars they look at before investing.

The Zimbabwe Electricity Transmission and Distribution Company (ZETDC) tariffs are an average of $0,13/KWh for on-peak usage, $0,07/KWh for standard usage and $0,04/KWh for off-peak usage for industries.

On the prepaid meters, the average is $0,10/kWh.

But the Zimbabwe Energy Regulatory Authority (Zera) said the difference arises, as the ZETDC is having to source out power at different costs.
“Please note that ZETDC blends power from various sources with different costs varying from $0,02 to $0,14. The tariff to the consumer is a blend of these weighted costs. It is, therefore, misleading to suggest that if ZETDC takes on new power from a supplier at $0,14, then its tariff to the consumer would be above $0,14,” Zera chief executive officer Gloria Magombo said in emailed responses.

In its January newsletter, Zimbabwe Energy Council (ZEC) chairman Amiel Matindike said the issue of electricity tariffs was affecting investment into the energy sector, such that of the $3 billion received in private sector investment, Zimbabwe hardly benefitted from that amount.

“The issue of tariffs has been outstanding for a long time. It is slowly becoming a threat to economic recovery. As long as it is not pragmatically and decisively managed, it will cause some distortions in business planning. Already, there is some discord in the sector over tariff reviews. Gold miners are demanding a $0,07/kWh, chrome miners, $0,04/kWh and the Confederation of Zimbabwe Industries’ $0,07/kWh. The sector last had a tariff review in 2011,” Matindike said.

“The tariff component has a strong bearing on private sector investment in the power sector. Generously and loosely speaking, no serious investor would invest in a sector where the power is procured at $0,14/kWh and sold at $0,98/kWh to the end user. To exacerbate the situation, there is no subsidy to cover for the shortfall, since the government is financially hamstrung. There is need to review the tariff framework for the development of the sector.”

He said of the $3 billion received in the 2016-2017 period by the Sadc region in private sector investment in energy, Zimbabwe did not have any form of traceable private sector investment in the sector.

“It has been surprising that even the Chinese investors, whom we thought were our all-weather friends, have been wary to invest in the country.

We are confident that with the new economic order, a new lease of life will be breathed into the sector,” Matindike added.

“I call upon our members to take advantage of various business meetings to participate in crafting new strategies and plans to resuscitate the funding opportunities.”

But Magombo disagreed with the assessment.

“Zera is receiving numerous investment inquiries from financiers and developers, who are willing to invest in the new dispensation and to partner with credible local investors,” she said.

The energy sector was allocated $291,55 million in the 2017 budget towards electricity generation and transmission infrastructure.

Investment in the energy sector is required, as Zimbabwe has promised to undertake a number of reforms to lure foreign direct investment.

A number of companies have reported an increase in capacity utilisation and the expected return of Ziscosteel will increase demand for electricity.

BMI Research recently predicted that energy demand would more than double by the end of the year to 2 540 megawatts (MW).

“Hydropower will be the main source of domestic electricity output in Zimbabwe over our forecast period to 2026, which will be cemented by the commissioning of the Kariba South Hydropower expansion project in 2018. Thermal power will be hampered by technical faults and coal feedstock issues, while new projects stall because of a lack of funding,” BMI Research said. “Zimbabwe will remain reliant on electricity imports from neighbouring South Africa to ensure power supply stability.”

As of yesterday, the Zimbabwe Power Company was generating

1 162MW of electricity.

This is the reason why the country imports electricity from outside the country, with 300MW coming from South Africa’s Eskom and 50MW from Hydro Cahora Bassa of Mozambique.

Power utility Zesa Holdings has stated that it is able to reduce electricity imports to 250MW if the 100MW Dema diesel-fired power plant becomes operational.

Since then, Zesa has been trying to rely more on domestic generation sources.

Currently, Zimbabwe’s average access level to modern energy is 40% and the country continues to pursue various strategies to increase the access levels through rural electrification and new connections every year.

Energy is one of the major cost drivers for industry after fuel.

“No serious investor would want to invest where there are no clear and competitive rules to participate in a tender. The new dispensation has brought in a new economic order. This requires us to be active participants in the economy,” Matindike said.

Next week, Zera and Zec are expected to log heads over tariffs at the Electricity Outlook 2018 breakfast meeting set for Thursday.

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1 Comment

  1. This article does not make sense for an energy producer higher tariffs means it is attractive to setup a power plant. The reason why we had no investors was obviously the poor economic conditions, ZESA’s poor credit rating and of course the bad politics!

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