eBusiness Weekly
Background
ZETDC made communication to the effect that the new electricity tariff will be US12.21c/kWh for all exporters, while all foreign currency earners will be required to pay their electricity bills in US Dollars at an average tariff of US10.63c/kWh.
The above changes were backdated to 1 October 2022 for Maximum Demand (MD) customers and 14 October 2022 for the rest of the consumers. Since then, selected businesses that are non-exporters have been receiving bills that are in 100 percent foreign currency regardless of foreign currency sales, export levels and other considerations.
The new tariffs were largely expected to usher in improved power supply and speedy fault resolution. However, the power supply situation in the country remains erratic to a level where some consumers are experiencing an average of 10-12 power cuts daily while others go for days without power and before faults are resolved. As of 10 March 2023, power supply on the grid was at 666 MW, against national demand of at least 1,600MW. Thus, daily power deficit averages 1,000 MW. ZESA has pointed that it is currently not capacitated to provide adequate power due to power supply gaps, viability concerns and antiquated equipment that frequently breaks down.
The above situation has significantly affected business cash flows, threated business viability and competitiveness of the local products at a time imports are gaining foothold in the local market due to dollarisation. Similarly:
The cost of production has shot through the roof with most producers running on diesel powered generator sets which require significant forex outlay.
Capacity utilisation in the sector has dropped as most businesses cannot operate on usual number of shifts due to power cuts, this means that productivity no longer matches fixed costs of running plant and machinery. Significant time is lost when there is no power during daytime. This also takes into consideration the fact that generators cannot be run continuously without rest.
Producers are struggling to meet supply deadlines for the local and export markets, which poses a threat to well-developed export markets and foreign currency earnings.
Frequency of faults has also increased, and fault resolution is taking longer than expected thereby affecting opening hours and affecting productivity.
Concerns on forex tariffs and 100 percent USD Billing
The business sector has several concerns with regards to foreign currency billing and arbitrary conversion of tariffs from the local currency to foreign currency.
- Non-adherence to agreed price review procedure: Business notes with concern the absence of stakeholder consultations in the setting up of US Dollar tariffs. This role should be sumed fully by ZERA (not ZETDC) to ensure that the cost build up to the tariffs is known by consumers, this also allows consumers give their input to tariff structure and subsequent price adjustments. The last consultations by ZERA yielded a tariff of US$0.96/KWh. This means that the tariff setting, and adjustments should be very transparent and fair to all users.
- Impact of tariff to business viability: Factoring in REA levies, MD and Reactive Energy charges makes USD tariffs unsustainable to industrial and heavy users who use electricity as a key production factor. The increase in US Dollar tariffs is too high considering that US Dollar inflation is less than 10 percent annually. Business members propose tariff increases which match USD inflation movements locally.
The US$0.1221/kWh is way above the SADC regional average of US$0.117kWh according to SAPP (2022). This prices out Zimbabwean exports, especially value added exports and discourages value addition locally before exporting. This is out of sync with the impetus to improve capacity utilization in line with the AfCFTA agenda.
- Discrepancies in Billing: The communicated tariffs above seem misaligned to the effective tariffs charged as calculated from consumer bills. Several industrial consumers are reporting higher effective tariffs, not in sync with the communicated ones. A case in point is for consumers being billed US$0.06/KWh for off peak (10pm-5am), US$0.10/KWh standard time (12pm-5pm) and US$018/KWh peak (5am-12pm & 5pm-10pm), hence an effective tariff of US$0.134/KWh. Additionally, the computation of the MD charge of US$5,71 per unit Kilowatt which most industrial users incur adds to the cost of production. Most business operate between 8am and 5pm which means that they mainly draw off the peak tariff which is higher.
Businesses with branches across various ZETDC Regions have also noted with concern the variances in tariffs and billing modalities with other branches enjoying Zimbabwean Dollar tariffs while others can pay a negotiated invoice and others getting 100 percent US dollar bills.
- Case for Dual Currency Bills: Most businesses have a sales mix of Zimbabwean Dollar and US Dollar with other subsectors consumer goods and retail very biased towards the local currency. It is key that ZETDC Bills be matched to local vs forex sales rations as the Zimbabwean Dollar is legal tender and refusing to accept it from customers is illegal under SI 127 and other regulations. Similarly, the Auction rate should be used as the reference point in terms of conversion to local currency in bill payment as is the case on product pricing.
- Consideration of Forex Retention levels: Settlement of electricity bills in foreign currency should consider forex retention levels for exporters (exporter retains 85 percent) and local deposits (account holder retains 85 percent). Thus, electricity bills should be settled off the retained earnings. Currently, consumers must find supplementary foreign currency to settle bills in foreign currency. The current level of retained forex is acting as indirect taxes on businesses due to the misalignment between the formal and the widely quoted market exchange rates used to source supplies.
- Limited tariff waivers: To create a level playing field and fairness, consumers should be treated the same on effective tariffs, billing and payment modalities, unless if a special dispensation is warranted for national cause.
- Guarantees to improved power supply: There are fears that a high US Dollar tariff will not result in improved power generation or importation of more power to plug the supply deficit.
- Prolonged faults: The number of faults and duration to resolve the faults have tremendously deteriorated despite prepayment in foreign currency.
- Power cut schedules: Businesses have found it hard to structure production shifts, open doors, procure alternative energy on time and plan on raw materials stocking due to the intermittent nature of the power cuts. ZETDC should do more to communicate schedules for the power cuts on time to allow for planning and allocation of resources.
