Zesa under fire for excessive tariffs

An anti-monopoly investigation by the CTC unearthed excessive pricing of electricity by Zesa which the commission feels has a direct adverse effect on the operations of businesses in the country and on consumers’ disposable incomes.

The CTC launched an investigation into allegations of abuse of monopoly in the production and distribution of electricity by Zesa and its subsidiaries Zimbabwe Power Company and the Zimbabwe Electricity Transmission and Distribution Company ZETDC. Although it charges are exorbitant, Zesa’s services are unreliable.

Among some of its findings, the commission unearthed that the pricing formula used to calculate the price of electricity did not inculcate discipline of efficiency, and the cost of sales comprised both power costs from local power stations and imports.

The investigation also observed that the figure representing the imported power component in the calculations was much higher than the actual costs because it was based on budgets and estimates were consistently used even when actual contract supply prices had been concluded.

“Operational costs have a very high fixed proportion with salaries as a high component,” the report reads. “A more detailed study would show the activities which caused these costs and the value they bring. The impact of business culture on cost levels is also not known as this tends to lead to high costs where transparency is weak.”

“It was evident during the investigation that assets are operational below capacity, the calculation includes all fixed assets yet there was some under utilisation of the assets.”

The commission says from its findings, only 47% of established capacity was being utilised by Zesa.

“The use of low load factor in calculating the unit cost of power has the effect of increasing the unit price charge. This is not in line with best practice,” the report says.

Apart from this, the commission also noted Zesa was not able to account for the quantity of power lost during transmission and distribution.

The report says an analysis of transmission and distribution losses showed material losses ranging from 20% to 24% of power supplied.

“The normal acceptable loss should be 10%. This was explained as being attributable to old transformers and power thefts that are not registered in meters,” the report says.

“An analysis of cash received by the generating companies and how it was applied is quite revealing. For the 18-month period which was covered by the investigation, it was observed that most of the cash received was spent on Hwange operations even though there was no performance. It would seem the organisation was allocating cash to cover fixed costs, mainly human resources related costs even though electricity generation was not taking place at a reasonable level.”

The report recommends that tariff levels be determined on the basis of what the market can realistically pay for. It also says the tariffs industry and commerce pay should also be affordable to enable economic recovery.

“It is recommended that pricing of services should be decided on a policy basis and not left to the companies and organisations on their own,” it indicates.
“The fact that the organisation can send bills every month which are known to be higher than incomes of their consumers, and may not necessarily be recoverable, should raise concern. It is notable that external auditors of some of these organisations have reasonably forced the organisations to provide for bad debts as it is not prudent to account for some of the debts as assets carrying value.”

The commission says there is need for an independent study to restructure service providers in order to impose transformational pressure on them to rid them of poor practices. Its report notes that while Zesa recovered full costs, there was no matching service.

“Bearing in mind that the fixed costs of these organisations are very high in comparison with variable costs, it is logical that fixed costs should have been trimmed in line with the level of service that was provided and the level of economic performance,” it said.

The commission also observes that the capacity of utility providers was designed to support a certain level of economic activity. For instance, Zimbabwe’s GPD of US$9 billion in 1999 has not been achieved since dollarisation with last year’s GDP estimated at US$8 billion.

“Wealth created was therefore not able to support infrastructure supported by a GDP of US$9 billion. The utilities are high fixed cost/ low variable costs organisations. During the period, fixed costs, mainly human resources, were not rationalised to be at the level of services provided, yet their tariff structures carried a full load,” it says.

The CTC has also launched an investigation into allegations that TelOne, the state-owned fixed line operator, was also abusing its monopoly while the cities of Harare and Bulawayo were abusing their positions in the water utilities services and administration of rates and levies system.

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