News Analysis

THE Zimbabwe Electricity Supply Authority (Zesa)’s plan to hike power charges is likely to cause more company closures and stoke up inflation, which will hit the country’s urban poor the hardest.

Zesa plans to hike energy tariffs by between 200% and 600% from Jul

y 1. According to a preliminary schedule circulating in the power utility, large companies and other commercial users of electricity will have their power tariffs increased by 600%. Commercial users according to the Zesa definition include manufacturers, mines, hotels and other industrial works.

Tariffs for domestic users will be increased by between 230% and 400% on a sliding scale. The proposal document also says that domestic users currently paying between $15 000-$20 000 per month will have their charges hiked by as much as 400%.

Power used by the agricultural sector will be increased by 200% as part of government’s special dispensation for the sector in the hope of increasing production.

If the proposals sail through cabinet in their current form it means the general public, who are classified under domestic users, will be paying an average of 300% more for their electricity. Companies will be paying 600% while the agricultural sector will pay 200% more.

The official justification for the increase is that Zimbabwe is charging far less than what other countries in the region are charging. The plan, according to sources at Zesa, is to eventually charge in line with regional power prices. The other explanation is that Zesa needs to operate commercially hence the need to charge viable tariffs.

But analysts say this could lead to a total collapse of key sectors of the economy. They say the power hike will cause the economy to shrink further as more companies close down. A manufacturing report released by the Confederation of Zimbabwe Industries last year says that more than 1 000 companies have closed shop over the past five years owing to escalating costs and a hostile trading and operating environment. Energy costs constituted a large chunk of the broader
problems that sank most of the companies.

Experts warn that a 600% increase in power costs will certainly wipe out the remaining few companies. It will drown the remnants of the once viable manufacturing sector that are already on the brink of collapse. Mining, the only sector that achieved positive growth last year, will also come under siege from increased overheads.

Troubled mining companies such as Falgold have said that the old tariffs were already suffocating them. The new charges will lead to their closure. “The result is the closure of manufacturing and mining companies in the country because that would be a huge increase on their costs,” said economist Eric Bloch. “If they don’t close down then they would obviously cut down production and lay off workers.”

Bloch said the tariffs if introduced in the proposed form would be the death knell on the industrial sector. “There are going to be massive retrenchments because a number of companies will close. Energy is one of the highest
contributors to overheads,” Bloch said.

Estimates show that energy contributes about 30% of the costs especially in manufacturing sector. It is the biggest cost for the tourism sector at the moment, which is already reeling from a slump in tourist arrivals. Hotels are currently battling to pay their electricity bills.

But the biggest impact, analysts say, would be the ripple effects of the hike on the public whose disposable incomes have already been eroded by inflation. They say the new increase in electricity prices would stoke inflation and throw into disarray the Reserve Bank’s plans to reduce inflation. Bloch said an increase of that magnitude would send inflation hurtling to about 400% by year-end compared to 50-80% that Reserve Bank governor Gideon Gono had targeted by December.

Perhaps the devastating effect would be seen in the prices of basic commodities that would shoot up in reaction to the new tariffs. When energy costs rise manufacturers pass on the crippling costs to customers. The result is a sudden surge in prices of basic commodities, further impoverishing the common man.

President of the Zimbabwe Banks and Allied Workers’ Union George Kawenda said power charges would squeeze the common man who is already struggling to make ends meet. “It means increased levels of poverty especially in the urban areas. It means the people will have very little money at their disposal to use for other things,” Kawenda said.

“These increases are made without consideration for fundamentals. There is no consideration of how much people are earning now,” he said. “It would be difficult for companies to review salaries that match that increase,” he added.

Other analysts said Zesa is making consumers pay for its inefficiencies. They said Zesa had over the years accumulated borrowed holes in its books because of undercapitalisation. “The customers are now being overcharged to cover the financing costs of this debt. Zesa must be efficiently run,” said an economist with a local bank.

“The customers are paying Zesa’s debts,” he said.

Zimbabwe has enough power generators that Zesa is failing to utilise. The country has since independence increased its dependence on imported power because it cannot maintain its own power resources. The power generators around the country are a shambles.

Zesa has not been able to acquire spare parts needed to keep the generators running. Harare, Munyati and Bulawayo power stations have the potential to produce 20% of the country’s electricity needs but they are almost idle.

Generators at the Hwange Thermal Power plant and Kariba Hydro power station are perennially down owing to a shortage of spare parts.

This has forced Zesa to turn to South Africa’s Eskom and Mozambique’s Hydro Cahorra Bassa for supplementary power. The dependence on external suppliers has increased drastically over the years and Zimbabwe now imports 33% of its power. This is despite the fact that with proper management Zesa could produce enough energy for the whole country.

The hike also highlights the serious defects in the RBZ’s policy to splash money on parastatals ostensibly to improve their operations. Zesa was one of the first parastatals to feed from the RBZ trough with a $50 billion grant under the Productive Sector Facility. The loan has however failed to improve Zesa’s service provision.

In fact, Zesa this week introduced power rationing as part of efforts to “save power”. The load-shedding is likely to continue for as long as the foreign currency crisis persists. This, monetary experts say, shows that it is a fallacy for Gono to believe that he can improve parastatals by dishing out billions.