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Eric Bloch Column

Zesa’s war against economic survival

ZIMBABWE’S economy has been very severely bruised, battered and beaten over the past seven years. The economic assailants have been many, including government’s destruction of agriculture, rampant inflation primarily driven by excessive spending by the state, pronounced scarcities of foreign currency, and numerous other enemies of economic wellbeing. However, in the last six months, the foremost assailant, clearly bent upon total economic destruction, has been the Zimbabwe Electricity Supply Authority (Zesa).

So vigorous are Zesa’s endea-vours, to bring mining, manufact-uring, horticulture and other economic sectors to their knees, that notwithstanding that a portion of this column was devoted to recounting some of Zesa’s misdeeds only a few weeks ago, it is necessary to do so yet again, and in greater detail.

That necessity is detailed partially by the very parlous situation to which Zesa has reduced its major customers, and in addition by Zesa’s continuing arrogance whereby it  fails to extend even the common courtesy of a response to correspondence. In like manner, it contemptuously disregards representations by economic representative bodies such as the Chamber of Mines, Confederation of Zimbabwe Industries, Zimbabwe National Chamber of Commerce and others, ignores appeals from entities such as the Reserve Bank of Zimbabwe, and accords the same treatment to government, despite its supposed accountability to the state.

The harsh fact appears to be that Zesa is so determined to concert the magnitude of its fiscal and operational mismanagement over recent years that it is resolutely set upon extorting unsustainably great sums from all major consumers of electricity to fund the vast debts accumulated from what can only be assumed to be managerial incompetence or profligacy (or a combination of both!).

The fact that in so doing it is destroying the very customer base that would be its future support is apparently irrelevant. So too is the fact that its actions are forcing the cessation of operations and closure of many enterprises, with consequential massive creation of unemployment, product shortages, and economic collapse. And Zesa cannot possibly be oblivious to the catastrophe which it is causing, for there have been repeated attempts by many to make Zesa aware thereof. But there are none so deaf as those who will not hear, and Zesa is very evidently determined not to hear.

That this is so is evidenced by its continuing actions of withdrawal of services to consumers whose circumstances are identical to others who have obtained High Court injunctions against Zesa disconnecting them. That this is so is further evidenced from its disregard for representatives so high as from the President’s Office.

I am indebted to Ian Saunders, president of the Chamber of Mines, for some comprehensive research which demonstrates the magnitude of Zesa’s escalations of charges, totally disparate from charges elsewhere in the region, the consequences thereof, and its unwillingness to interact constructively with its consumers.

In a letter written by him, widely distributed to members of the chamber, to government and others, he drew attention to information received from the Reserve Bank that Zesa had advised the Foreign Currency Auctions’ advisory board that its tariffs were regionally benchmarked, and that any producer in distress “could come and talk to Zesa and they would receive a sympathetic hearing”.

Saunders’ letter then proceeds to record how false those representations had been. His very informative letter states that “We understand that Zesa has repeatedly insisted that the power tariffs that they charge are the same as our regional partners. They also contend if they did not charge such tariff levels, they would be non-viable and unable to continue to supply the country with power. Over five neighbouring countries with which we should be benchmarked, as they are demographically similar in terms of geography, infrastructure, manpower skill etc are probably South Africa, Namibia, Mozambique, Zambia and Botswana.” He continues by recording the electricity tariffs for these countries, based upon a peak-demand of 2 500 kva and a load factor of 80%. In February 2000 the tariffs (in US cents/kw hour) were 2,2 in South Africa, 2,5 in Namibia, 3,3 in Mozambique, 1,9 in Zambia, and 3,5 in Botswana, yielding a regional average of 2,7. Zimbabwe then compared favourably with that average, with a tariff of 2,3, and with the third lowest tariff in the region, well below the average, Zesa attained a pre-tax profit of Z$723 million.

However, by April 2003 the situation had changed markedly, insofar as Zesa was concerned. With four of the five regional tariffs having declined, and the regional average having fallen sharply, Zesa’s tariff virtually doubled. At April 2003 the comparable tariffs were 1,7 in South Africa, 1,8 in Namibia, 2,1 in Mozambique, 2,2 in Zambia and 2,6 in Botswana. The regional average was 2,1. In contrast, as of February 2004, Zesa’s comparable tariff was 4,5, or more than twice the regional average. It is incontrovertible, therefore, that there is no substance to Zesa’s contentions that its tariffs are regionally benchmarked. Nothing could be further from the truth!

Saunders comments: “Zesa is not setting its current tariff ratings based on the average regional charges for a similar consumption in a particular industry. This unreasonably high tariff that Zesa is now charging is having a material and damaging effect on the short, medium and long-term viability of our industry in particular, and all consumers of power in Zimbabwe in general.”

He continues by querying: “If Zesa was able to make a profit in the year 2000, based on an average tariff rating of USc3,21/kwh… why now does it require USc4,5/kwh? He suggests that as Zesa has substantially restructured over the last four years, in preparation for privatisation, it should be more cost-effective than in 2000, and therefore “should be able to make more profit at the same tariff rating, or should be able to reduce the tariff ratings to make the same profit.”

He further states that: “We believe that the cost of imported power, as of April last year was… (a weighted cost average) of USc2,6/kwh — some 42% lower than the USc4,5/kwh Zesa is claiming they require to maintain viability. In Zesa’s discussions with the (mining) industry, they indicated that we could not use South African tariffs to determine where Zimbabwe should be as… the SA electrical system is also relatively well developed and maintained, resulting in lower cost of supply.”

Such a justification for higher Zimbabwean tariffs is blatantly fallacious for, on the one hand, the Zimbabwean tariffs are not only markedly higher than South Africa’s, but are also very considerably higher than those of all other countries in the region. And, on the other hand, using such an argument or justification is an outright admission that the Zimbabwean electricity supply system is not well developed and maintained. Whose fault is that? It can only be the fault of Zesa, but it is the economy which is being forced to bear the brunt of Zesa’s impliedly admitted inefficiencies!

At the end of his letter, Saunders highlights the impacts of Zesa’s horrendous charges upon the mining industry (and the same is applicable to most other economic sectors). He says: “The continued survival and indeed growth of the industry require the continued access to relatively low cost power. The cost should at the very most be equal to what our regional neighbours are paying. Not the current, almost double rates we are being hampered with. If we do not have this, the industry will not be able to contribute fully to the economic recovery we are all currently working towards. If our power costs are not rationalised soon our industry will continue to falter, whilst our neighbours will see investment and growth within their industry.”

Zesa needs to be held accountable for the destruction it is inflicting upon much of the economy. It needs to be held accountable for a near-doubling of tariffs, in US dollar terms (which substantially compensate for inflation), whilst ceasing to generate profits previously achieved, lowering its service, and dispensing with any sense whatsoever of “customer care”. It needs to be held accountable for its disdainful dismissal of all representations, for it’s jeopardising the wellbeing and health of thousands of the population, and for its indisputable abuse of its monopoly.

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