Confederation of Zimbabwe Industries President Busisa Moyo

By Nyasha Chingono

Legal experts have warned that a tariff review by the country’s power utility, ZESA Holdings, would be illegal in the absence of a decision on the current tariff level by the country’s Supreme Court.
They indicated that ZESA, an integrated power generation and distribution company, should wait for a court resolution on the dispute currently before the court before seeking a tariff review by the Zimbabwe Energy Regulatory Authority (ZERA).
The Administrative Court ruled against a tariff increase by the Zimbabwe Electricity Transmission and Distribution Company, a subsidiary of ZESA, in September 2011, after the Confederation of Zimbabwe Industries (CZI) challenged its legality. The court ordered the sector’s regulator, the Zimbabwe Energy Regulatory Authority (ZERA), to come up with a new tariff within three months.
The tariff increase had been approved by ZERA, which charged that the judgment reversing the tariff decision had “not only the potential to plunge the country into darkness” but could, if implemented, “reverse the gains recorded and all efforts being made by government to improve electricity supply”.
ZESA has maintained the tariff regime after appealing to the Supreme Court, saying that the judgment would open the floodgates of lawsuits from consumers who had paid bills based on the new tariff.
The power company argued that it would also become bankrupt, considering costs of power generation, power imports and power leakages.
A ruling on the appeal has not yet been made.
Yet ZESA is seeking a new electricity tariff review, which has triggered panic in critical sectors of the economy, with growing fears this could worsen the operating environment by increasing the cost of production.
Lawyer, Charles Warara, said it would be illegal for ZESA and ZERA to ignore a court process they had initiated by challenging the Administrative Court’s decision at the Supreme Court.
“It may mean that ZESA will have to restart the legal process, with new arguments for reviewing the tariff,” Warara said.
“If ZESA is pursuing a new challenge, it should have reasons, but normally the initial case should be exhausted first,” he added.
CZI insists that there are no legitimate reasons for a tariff review and argues that any hike in the price of electricity would undermine efforts to turnaround the economy.
ZESA, a wholly-owned government company, should be at the forefront of supporting initiatives to make industries more competitive by ensuring cheaper productive processes, argues CZI.
Electricity costs constitute between three to six percent of manufactures’ total production costs.
CZI said a tariff review would militate against a Reserve Bank of Zimbabwe (RBZ) drive to improve exports.
“A tariff hike is undesirable when business is trying to be competitive and the RBZ is incentivising exporters to make exports viable,” CZI president, Busisa Moyo, told theFinancial Gazette’s Companies & Markets (C&M).
Moyo said a tariff hike would hurt economic policies meant to ensure an improvement in the ease of doing business.
“Any increase in costs is a step backwards,” said Moyo.
Permanent secretary in the Ministry of Energy and Power Development, Partson Mbiriri, declined to comment on the possibility of a tariff increase, saying the matter was still under discussion.
“There are internal discussions regarding the submission that he made,” Mbiriri said, referring to Minister of Energy and Power Development, Samuel Undenge’s statement that there was need for a review of the electricity tariff.

Ministry of Energy and Power Development, Partson Mbiriri

ZESA last year pressed government to approve a tariff increase of about 49 percent, but its plea was ignored, with the State unwilling to experiment with an already crippled economy where costs of production are eroding company profits.
Had ZESA’s proposal been approved, the power tariff would have risen from US$0,0983 per KwH to US$0,146 per KwH.
But recent remarks by Undenge that there was need to consider the request have resulted in uncertainty in key sectors like manufacturing and mining.
A legal expert said Undenge should not base the tariff review on dwindling revenue for ZESA.
“The minister should take cognisance of the widespread effects of such a review. There are also legal implications on ZESA which risks being dragged to court again on charges of contravening a court order which is still standing six years on,” said the lawyer.
ZESA last reviewed the electricity tariff in 2011 when it went up from US$0,0753 cents per kilowatt-hour (KWH) to US$0,0986 per KWH, which it now alleges is insufficient to support power projects.
According to CZI, industry consumes between 500 and 600 megawatts (MW) per month.
Moyo said power tariffs should be consistent with national policies, creating a good perception to attract foreign direct investment (FDI).
“It’s not about being fair, but consistent actions with regard to both public sector and private sector programmes to re-industrialise, be competitive and to attract FDI,” Moyo said.
The Zimbabwe Miners Federation (ZMF), the smaller miners’ chamber, weighed in saying the mining industry was already pushing for a downward review of power tariffs.
“ZESA’s move will definitely stress the mining industry because we are pushing for the tariffs to be reviewed downwards,” said ZMF spokesperson, Dosman Mangisi.
“It is not an issue of international prices, but the miners need to recover from the previous losses considering that the local prices were once at US$40 for a long time. Now that prices are higher, they still have huge electricity bills to be settled, wage arrears and other financial obligations. They need time to heal,” said Mangisi.
Zimbabwe’s chrome sector has also been pushing for lower tariffs, arguing that the miners needed to recover from years of massive losses when Zimbabwe had banned raw chrome exports, although ZESA seems unfazed.
Speaking recently on the proposal by chrome miners calling for a lower tariff, Minister of Finance and Economic Development, Patrick Chinamasa, said the miners had no basis for demanding a low tariff since chrome prices have firmed this year.
ZESA is importing about 300 MW of electricity from Eskom of South Africa and 100 MW from Hydro Cahora Bassa of Mozambique to cover for the deficit in local electricity generation.

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