Zesa Holdings an unnecessary burden

I HAVE been following with great interest the events taking place in the electricity sector.


Readers may have noticed the recent acrimonious adverts that came out

from the Zimbabwe Electricity Regulatory Commission (Zerc) and from Zesa Holdings (Zesa).


The regulator, quite rightly, thinks that the industry is not efficient enough, that Zesa is not needed and that electricity supply is at risk due to lack of maintenance of the electricity assets.


Zesa on the other hand, thinks quite wrongly that the issue of its existence is not for the regulator to adjudicate upon – that it is a shareholder issue and that without it’s (Zesa’s) existence, electricity reform cannot be implemented.


In other words, the Zesa values itself so much, such that it thinks without it the electricity supply industry will simply not function and our lights will go off. My foot!


Zerc have been smart enough to see through the lie.


What we are seeing unfold here is not unusual. Regulators and the businesses they regulate are known all over the world to be strange bedfellows.


Both Zerc and Zesa are creatures of the same statute, with the former being tasked to oversee the efficient operation of the industry by attaining an efficient industry structure, unbundling, licensing, approving tariffs, etc, and the latter being tasked with holding shares on behalf of the government of Zimbabwe.


Zerc therefore has the mandate to question the functions of, and the need for the existence of, Zesa.


In accordance with the same Act, Zesa would be replaced not by Zesa, but by successor companies – the Zimbabwe Power Company (ZPC), the Zimbabwe Electricity Transmission Company (ZETC) and the Zimbabwe Electricity Distribution Company (ZEDC).


Once these companies are in place, it is the responsibility of Zerc to issue the three with licences allowing them to operate.


This means that since Zesa is not licensed, it cannot assume the role it is playing at the moment without causing concern for the regulator and indeed other market players such as customers.


The original idea was that Zesa would be a transient body (to exist for no more than three years) to oversee residual matters that had been foreseen post-unbundling, like unallocated debt, personnel matters and pension issues among others.


The unfortunate situation obtaining now was partly made possibly by the fact that the regulator who was supposed to oversee the unbundling of the old Zesa was appointed after the old power utility had unbundled itself.


It is bad enough to have an executive chairman at the helm of Zesa, who is accountable to himself and operating without a board, without allowing the same person to oversee its unbundling within a regulatory vacuum as this only made the situation worse.


The result has been so perverse that the industry has ended up with Zesa becoming a reincarnation of its old self and imposing a more considerable cost on the customer, hence the lamentation by the regulator that Zesa is growing faster than the successor companies.


The regulator must intervene and exercise its mandate, contrary to assertions by Zesa alleging impropriety on the part of the regulator to do so.

Failure to do so would constitute a serious breach of that mandate.


Not surprisingly, none of us in the successor companies see the need for Zesa. They are so confused, intrusive, self-serving, non-value adding and therefore an unnecessary burden not only on us but also on the customers who ultimately have to pay for their existence.


We all think the model that was implemented in the telecommunications sector that saw the unbundling of the Posts and Telecommunications Corporation (PTC) without creating a holding entity, should be applicable to the electricity industry.


The regulator is right that industry assets are not being properly maintained.

The evidence is there for all to see, especially on the distribution system, where transformers are leaking, poles rotting, etc and at Hwange where numerous shutdowns have caused massive load shedding.


The reasons for this state of affairs are various and range from the low sub-economic tariffs that we are charging to the allocation to non-core activities by Zesa of the little resources available.


We expect that the regulator is going to grant us cost-reflective tariffs recommended in the study that was done by Sadelec and accepted by government.


We also expect Zerc to intervene by ensuring Zesa behaves strictly like a shareholder representative without control of the day-to-day industry’s finances.


In this regard, the only money Zesa should get from us is dividend income at the end of the year, if and when that is declared, as opposed to the current situation where these non-core expenses are imprudently treated as part of our operating expenses.


Zesa is so misdirected and such is their propensity to spend that, left uncontrolled, it will no doubt want to invest electricity money into such areas as a new airline to the detriment of the electricity supply industry. It will be highly irresponsible for the regulator to allow an unlicensed entity, running with no semblance whatsoever of corporate governance, to have control of the vast financial resources in the electricity supply industry. That kind of harlotry, where someone wields so much power with no accountability should not be allowed to take place. It poses a very real and serious risk not only to reform, but to the country’s entire economy.


Government should also apply its mind on whether it wants its shares in the successor companies held in this expensive way.


In other companies where governments has an equity interest, the shareholding vehicle is through appointing members who sit on the boards of the companies and this is very effective and far cheaper.


The current holding structure is unjustifiably more costly and amounts to an unnecessary levy on electricity customers that should be excluded from the tariffs.


If customers can carry this levy then it is best to use the money more productively by disbanding Zesa and convert the levy to rural electrification or even more importantly, to repayment of sectorial arrears.


Customers should lend support to the regulator in its efforts to correct the current structural deformation in the industry. Indeed Zerc should move with haste to implement horizontal unbundling as well and dispel the lies about alleged economies of scale from consolidating generation and consolidating distribution.


Customers should also oppose the position by the regulator prohibiting them to source their own electricity. There was no wide consultation by Zerc in arriving at this position.


This facility that customers are being denied is the benefit that they should derive from reform.


Initially, the facility can be extended to high electricity users with the rest enjoying the same when more generation capacity is built and the market developed to accommodate increased and meaningful competition.


In its submission to Vice-President Joice Mujuru, the regulator is on record saying if Sable Chemicals is allowed to source their own electricity, that would be harmful to Zesa.


Which of the three successor companies is the regulator referring to as Zesa here and which one, specifically, will suffer from this dispensation?

It would seem Zerc still have their mind fixation on the defunct Zesa even after they have licenced three successor companies.


Surely, Zerc should be the last institution to create confusion or have muddled thinking on this matter. – Own Correspondent.