ZIMBABWE Energy Regulatory Authority (ZERA) which regulates the electricity, fuel and Liquefied Petroleum Gas sector has a flood of issues that needs attention. David Madzikanda (DM), was appointed Zera chairman last December. Business Reporter, Fidelity Mhlanga(FM) speaks to Madzikanda to get insights about his vision:
FM:. When you assumed your position last December, what can you say were the sticky issues that needed urgent attention?
DM: My team is dedicated to serving the nation unreservedly and we take the appointment as a great honour. Well, the energy sector is a critical enabler of the economy and that makes it very delicate, necessitating strategic and well-thought-out interventions.
When we came in, the sector was saddled with diverse issues, chief among them being the procurement licensees, availability of local currency denominated fuel, below standard services at fuel sites, inadequate power supply and low power tariffs.
The Board has made significant headway on some of the issues while others still need to be resolved.
FM :What is your medium-to-long-term vision at Zera?
DM:The energy regulator needs to be strengthened and capacitated urgently both from a financial, human resources, technical and tools of trade perspective in order to have sound and effective regulatory impact and presence in the industry.
The long-term vision is to see the manifestation of incentive regulation resulting in improved services and products across the energy spectrum. Vision 2030 is anchored on uninterrupted supply of energy and accelerated access to modern energy by all and Zera is very much behind that aspiration and will do everything to ensure its fruition.
FM: You also came in at a time when there was a raging battle on fuel procurement licenses between Zera and small fuel players. Tell us the steps you have taken to break this impasse.
DM: When the Board assumed duty on January 20, 2021, one of its promises to the principal was the issue of engagement of all the players in the energy sector as part of enhancing transparency and accountability.
The Board managed to engage the OMCs and retailers in their groups and some as individuals as well as small operators as part of efforts to understand their issues and engage them and begin to bounce ideas with them so that they could also understand our vision and where we were going and how we intended to achieve our vision.
We are happy that some issues were addressed in the process of engagement and consultations and the indigenous companies are being urged to form companies so that they operate at the same levels as the major players.
FM: Indigenous players under Direct Fuel Importers and Indigenous Petroleum Association of Zimbabwe have been contesting conditions set by Zera. How have you reached a consensus with them when you set out to revise and to renew procurement licences?
DM: The energy sector is governed by the laws of the land and Zera is mandated to come up with standards, procedures and conditions which promote fairness, transparency and a competitive operating field for all.
The conditions for licensing are being addressed and hopefully these will be fair in that oil players will pay procurement fees according to their volumes of procurement.
Furthermore, the conditions of oil procurement will not be very stringent to bar entry particularly to smaller players.
FM: How many fuel importing players had been licensed by the end of deadline of April 30, 2021? Of these how many are local small players?
DM: The Authority managed to issue 34 procurement licenses to indigenous companies but others are still submitting their applications.
FM: There is concern that Zimbabwe’s fuel is the most expensive in the region. Can you give a detailed explanation on why this is happening?
DM: Fuel cost has to be understood within the country’s unique context. Zimbabwe is a net importer of refined fuel as well as being landlocked. Other countries do have ports and refineries; hence they import crude oil which resultantly reduces their final prices significantly and, in some cases, they do not have huge transport costs such as landlocked countries such as Zimbabwe.
The world over, governments rely on taxes from fuel to fund development programmes.
It must be appreciated that Zimbabwe is an emerging economy with big dreams and such aspirations require funding and fuel is one of the many products where the government gets levies from and in our environment, fuel is mainly being traded in foreign currency and this is one avenue that the government is raising foreign currency for other uses.
The thresholds of taxes vary from country to country and that also has an ultimate impact on the final pump prices in different countries. Those countries with little taxes therefore tend to have low fuel pump prices.
FM: Can you provide a detailed cost structure of fuel price per litre that include the taxes and charges involved?
DM: Just like other countries, the cost of a litre of fuel includes FOB, taxes and levies, administrative costs, blending costs for ethanol, distribution costs and margins which oil companies and retailers apply but are guided by the cap issued by the Authority on the 5th of each month.
FM: Concern has been raised as to why ethanol which is locally produced is charged at US$1, 10 per litre. What is the explanation for this?
DM: There are a number of factors that are taken into consideration when setting the price of ethanol and these include the cost of sugar cane, installed plant, and demand, among others.
FM: When the Greenfuel project came into being it was announced that this would cut the import bill. But consumers want to know what is the rationale of buying ethanol at US$1,10 when it’s actually cheaper to import unleaded fuel?
DM:Yes, the country is indeed reducing the fuel import bill by displacing 10% to 20% of fuel import cost per litre with ethanol. Ethanol blending reduces the amount of foreign currency that the country has to externalise.
The benefits of blending to the economy are many . They include the economic trickle down to small-scale growers of sugarcane who are contracted as out-growers as well as the economic injection at such centres as Checheche, Chiredzi, Mwenezi and Triangle among other sugarcane growing growth centres.
By displacing up to 20% of unblended fuel with ethanol, the country is also contributing to a cleaner environment.
However, it must be understood that ethanol is a renewable energy of the future as opposed to other fuels that get depleted.
FM:Turning to power generation, Zesa is pushing for a tariff increase at a time when consumers disposable income has dwindled. Can you explain why a new tariff is needed?
DM: Major achievements are being made in stabilising the economy, as we have seen a steady currency over the past few months and inflation is now on a downward trend. It is true that these measures require sacrifices on our part but at the same time the electricity supply situation has to be addressed if the economy is to continue to perform and capacity utilisation to increase.
An efficient and competent power utility is a critical cog in the economic development matrix of the country as without electricity, there cannot be any meaningful economic development.
New IPPs or generation costs say at Hwange are upwards of 8c/unit. This has not factored in transmission and distribution costs.
The average cost of electricity is about 7,5 c/unit. Therefore, someone has to subsidise (either by not paying creditors, loans, etc.). There is no such thing as a free lunch and the country has to be creditworthy and pay its dues, which I am glad is happening now.
The alternative of not having an adequate tariff is an unreliable supply prone to power cuts and disruption of industrial production, resorting to use of firewood, use of generators, or own installed solar systems, etc, which is unthinkable and unsustainable.
The only other body that can subsidise has to be the government. But still this has to be paid by someone eventually, etc and that is the taxpayer.
At the moment, the power utility is incapacitated and such a state is not ideal for a country that is aspiring to make economic quantum leaps. A reliable electricity supply requires funding to strengthen its capacity and its operations.
Of course, the tariff reviews will follow due process which include consultations with key consumers as well as policymakers.
A win-win situation is possible once the consumers appreciate the importance of an uninterrupted power supply to the cost of doing business and ultimately to the country’s GDP.
FM: What is the state of power generation in Zimbabwe?
DM: Currently, the country has an installed power generation capacity of about 2308 MW, but some of it is from very old power stations that have become expensive to run and unreliable and therefore local generation is low at about 1200 MW.
Kariba power station is our cheaper source of power but this is ideally a peaking plant and runs according to the water allocated to it by the Zambezi River Authority. Running this plant continuously will just run dry the dam level.
The average demand is 1400MW against an internal average power generation of 1200MW thereby leaving a shortfall of between 200 to 300MW which is met through imports.
These imports are also not cheap and have to be paid for in US dollars.
We might as well support our own IPPs that require tariffs at similar levels of imported power and payments in US dollars as well.
FM: Is the country still importing power from South Africa’s Eskom and Mozambique’s EDM. If so, how much is being imported?
DM: Power imports are a standing arrangement for all countries in the Southern African Power Pool region and Zimbabwe is no exception.
Currently, Zimbabwe imports 200-300MW depending on local demand and availability of power on the regional power market.
FM: Does Zesa still have outstanding financial obligations with these regional power suppliers?
DM: Zesa is managing well its financial obligations with regional power supplies as exporting companies such as mines are now being required to pay for their electricity bills partly in foreign currency which is then ring-fenced for payments of imports to ensure continued support from the region.
FM: Is there a guarantee of power availability during the winter season?
DM: Yes, the country should be assured of adequate power supply during the winter season.
The current water levels at the hydro power plants are encouraging thus assuring an extended and stable period of power generation. Should there be any increase in demand, the country will close the gap through imports from the region and from these old power plants.
FM: What is the state of the LPG subsector ?
DM: The sub-sector is maturing fast thus necessitating regulations of both infrastructure and price of products. The sub-sector has one of the highly flammable products which is widely used at domestic and industrial level.
As such, the Authority is rolling out awareness campaigns on safe use of LPG especially as winter is setting in. LPG is widely used for cooking, heating and lighting.
FM: Give us a detailed structure of registered Independent Power Producers in the country.
DM:The table below gives a summary of the state of IPPs:
FM: How many Independent Power Producers are feeding power to the grid?
DM: There are 19 IPPs which are operational and have a generation output of 134MW. Five are under construction with a potential to generate 80MW while 69 IPPs are at various stages of project preparation.