HomeCommentComment: It’s time that power sector is opened up

Comment: It’s time that power sector is opened up

THAT power supply is at the centre that holds the success of our economic turnaround is not contestable.

As such it is a generally accepted truth: that without adequate power supplies the economy will not grow.

But so little has happened over the years to address this problem. Even in the two-year old unity government, government has not made enough steps to address the energy situation.

Instead of addressing key issues such as energy and its availability, politicking got into the way of far more important issues such as energy. If power supply improves, capacity utilisation is spurred.  But two years after a unity government, Zesa continues to stutter and stagger threatening to drag the economy down with it.

The centrality of power supply in economic recovery is as clear as day. Every industry consumes electricity and the failure by Zesa to meet demand has been one of the biggest let-downs over the years. This is despite a warning there would be a power deficit in the region.

It is time the sector is opened up to other investors to aid the struggling power supplier. In response to the situation, tobacco farmers, miners, retailers and manufacturers, started using generators.

 

While it serves its purpose, the switch to generators has unfortunately increased operating costs thus eating into profits. The use of generators in industries and mines means the cost of doing business in Zimbabwe continues to rise, especially in the last few weeks when oil prices went up for various reasons.

Tetrad, a leading financial institution, in a report last week gave some scary statistics where they said Zesa was producing 1 200 megawatts out of a national aggregate demand of 2 200 megawatts to cover industrial and domestic use.

 

Zesa, which last saw a significant recapitalisation more than two decades ago, has two options to deal with deficit: importing or load-shedding. Both are devils industry, business, miners and even consumers do not want to grapple with.

Unfortunately Zesa was left with no choice but to adopt the two choices simultaneously and the result, as we have argued above, has been that our products are less competitive on the international market as it cost more to heat barns using generators than electric power.

Either way, the consumer, be it a farmer, manufacturer, retailer or miner, loses out under the current setup and this makes a case for opening up the market. As Tetrad rightly pointed out in their report, the downside for liberalisation of the energy sector is that it pushes up cost of utilities and potential investors regard the current power tariffs regime as low.

Investment into power supply requires huge capital outlay and results may be very slow in coming and this explains why state enterprises have monopolies in this sector. However, given the failure by Zesa to meet internal demand, the only way left is to open up the sector. Seven potential investors are said to be eyeing the sector. This should help the economy’s turnaround.

 

These investors, who have pooled resources, have a potential to produce 2 500 megawatts. Simple mathematics shows that given the current demand, the country would have a surplus of around 1 500 megawatts.

It is important to note that the investors have pooled resources not for social welfare purposes but to make profits and they are only prepared to put in the funds when they are sure that they will reap something in return.

While there are persuasive arguments against the entry of private players in this sector, the track record of power suppliers in the developing world have not assisted this line of thinking but instead prepared the consumers to pay dearly for available electricity than low tariffs for something that is often available.

 

For power users, the high cost could be a necessary evil as maintenance of the status quo would see the economy trapped in a web that it may not free itself from. Consumers are likely to make a quick adjustment to any price variations as most have already been relying on diesel and petrol as backup. It is government which should quickly clear the way for the new players in the power sector as the first step towards sustainable economic recovery.

Until then, the country will be subjected to false starts, which have seen capacity utilisation stagnating below 50% two years after the establishment of a unity government.

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