eBusiness Weekly
Golden Sibanda
Finance and Economic Development Minister Mthuli Ncube has ruled out possible tariff hike by State power utility Zesa amid concerns that doing so would trigger another round of steep prices increases and exert more pressure on already high inflation.
Zimbabwe’s annual inflation, at 5,39 percent in September 2018, vaulted to 20,89 only a month later after the Reserve Bank of Zimbabwe directed banks to separate US dollar and local currency accounts, but maintaining parity exchange rate.
This was because the market interpreted the directive to mean the Government had dumped its 1 to 1 exchange rate policy between the greenback as an anchor currency and local forms of payment namely bond notes and electronic dollars.
In the period September 2018 to April 2019 price of goods and services have increased exponentially due to inflationary pressures from pass through effects of black market currency premiums.
The inflation rate hit 75,86 percent mark in April, 2019, as retailers priced their products in line with foreign exchange rates on the parallel market; a pricing model Government has deplored as bad economics.
However, Zesa has recently been pushing for a power tariff adjustment arguing this was critical to increase revenue and sustain growing costs of operations, deliver efficient and reliable supply of power. The power utility said it wanted a 30 percent tariff increase to be able to repair the transmission and distribution network as well as purchase inputs such as coal and diesel whose prices have gone up.
The state controlled power utility has not had power tariff adjustment since 2012, when the country was still fully dollarised yet the operating costs have increased.
The unit of account has also changed to a local currency called RTGS dollar, whose exchange rate is 5 to 1 against the greenback on the official interbank foreign exchange market.
Minister justifies current rates
Minister Ncube told the Parliamentary Portfolio Committee on budget and finance this week that a power tariff hike by Zesa was not a possibility, as it would exert pressure on already volatile prices.
“The question about (electricity) tariffs that we are charging 2,5 US cents per kilowatt hour; are we not digging a hole?
“But I think any sort of ill-advised sharp increase in Zesa tariff rates, combined with the power outages that we are already facing would be most unwelcome; certainly will trigger another round of price increases and inflation.
“That is our feeling at the moment so while we are aware that at the current exchange rate, in real dollar terms, the kilowatt hour rate has gone down to US 2,5 cents, an unwise sudden increase in the rates to peg them to regional levels will unleash another round of inflation,” Minister Ncube said.
The Treasury chief said there was need to move cautiously on every decision that could have potential inflationary pressures on the already unstable prices.
Government to squeeze inefficiencies out of ZESA
However, Minister Ncube said part of the reason the Government had directed Zesa to come up with a strategy to rebundle the group’s operations was to give it efficiencies that would enable the utility to sustain costs at current tariffs. “If you look at what we did with Zesa, we asked Zesa to come up with a strategy to make sure that the rebundling exercise Cabinet has approved begins to bear fruit, we need to squeeze out the efficiencies so that we know that these efficiencies also translate to manageable rates,” the minister said.
The Treasury chief also said there was a possibility that the demands for a power tariff hike may be the result of “simple inefficiencies” with the utility’s system of operation. Minister Ncube said Zesa needed to be innovative in order to operate efficiently, for instance through investing in conveyer belts to transport coal from mines to its other major power station in Hwange, instead of using trucks that require lots of fuel.
The country is already facing serious power shortages due to depressed power generation at Kariba South as water levels dwindle in the lake while Hwange is always battling breakdowns.
