Zimbabwe: A Thorough Examination of ZETDC Tariff Increase Request is Vital

THE application for a 20 percent increase in power tariffs, to an average of US12c for a kilowatt hour, by the Zimbabwe Electricity Transmission and Distribution Company (ZETDC) may well be justified considering the rising cost of power from generating companies.

The application, to the Zimbabwe Energy Regulating Authority, quotes a lot of reasons for the desired increase, but basically the cost of energy is rising as the percentage of Zimbabwe’s electricity coming from the cheaper Kariba hydro power continues to fall.

Thermal stations have significantly higher operating costs than hydro stations, since they have to buy their fuel while hydro stations get theirs for free.

In addition, there are the large capital costs from the recent additions to the grid: the extension for Kariba South that can supply power at times of peak demand, and the two new 300MW units at Hwange Thermal.

These capital costs have to be paid off over time, and usually a power company will include a capital component in the cost of each megawatt of power they supply, or if they are selling energy in each megawatt hour they supply.

Zimbabwe is also renovating the six older units at Hwange, which largely means rebuilding them and that, while expensive, is cheaper than throwing them away and building a new power station from scratch, since at the very least the civil engineering works can be retained and probably a reasonable amount of the mechanical and electrical works.

Electricity became very cheap in Zimbabwe once the Kariba dam wall was paid off along with the initial installation costs of the original six generation units and the associated transformers and other equipment.

The actual generating costs were very low, but there was a need for a maintenance component, so that equipment could be serviced and when necessary replaced.

It is, for example, highly unlikely that any equipment installed in the early 1960s when the power station opened has not been replaced at least once, and some of it probably several times.

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Now there is ongoing necessary maintenance on the dam wall itself, for the floodgates and the plunge pool, and Zimbabwe has to pay half, and that half has to come out of our tariffs.

Even though the floodgates have not been used for more than two decades, they cannot be ignored. A sequence of cyclones could refill the dam and in any case even a tiny risk has to be eliminated.

But the main driver of the price rises in electricity over time has been the need to build Hwange Thermal and now to renovate the older part and pay for the newly commissioned extension.

Climate change has seen the average flows of the Zambezi River fall. Even last season, when there was reasonable rainfall over Zimbabwe and much of southern Africa, the south-western third of Angola, where most Kariba water comes from, did not have a good season, and that has seen reduced rations of Kariba water for the two power companies in Zimbabwe and Zambia.

The coming season is unlikely to produce any dramatic improvement in Angolan rainfall, so the best we can hope for is a continuation of the present rations for the two stations.

This does not mean the extensions to the stations, they can now both generate a little over 1 000 megawatts when going flat out, were not needed.

But they do not add to the energy being generated, only to when it is generated, allowing both to use a lot of their water rations at periods of peak demand and then cut right back the rest of the time.

But Zera does not have to rubber stamp the ZETDC application, and presumably it also has to look at what charges are coming from the Zimbabwe Power Company, the owners and operators of Kariba South and Hwange Thermal, or at least involved in the joint ventures used to finance the extensions to both stations.

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While ZPC and its partners have only one customer, ZETDC, they are obliged to have the wholesale charges cleared by Zera since the generating costs of local power are obviously the major input into ZETDC’s final tariffs.

The recent formation of the Mutapa Investment Trust, the sovereign wealth fund, has put ZPC and ZETDC under different owners.

ZPC is owned by Mutapa, while ZETDC remains with Zesa Holdings, in fact forming almost all of ZESA, but the greater split between the two frees ZETDC to buy power from other sources.

But we are still left with what amounts to a double tier of management for ZETDC, the Zesa tier and the actual ZETDC tier and that needs to be justified.

So Zera needs to examine the cost structure of the whole system and then work out how efficient both the generating end and the distribution end are working.

Consumers need to pay a proper tariff, but cannot be expected to subsidise inefficiency or sloppiness. ZETDC recognises some of the inefficiency costs when it states it wants all households and smaller commercial users on prepaid energy meters, and smart metering of the largest industrial and mining consumers, so no one ever owes ZETDC any money.

Ideally this would slash the ZETDC administration component in the cost structure and Zera needs to monitor that component for both ZETDC and ZPC.

Expanding power stations and an expanding grid might both require ZPC and ZETDC to hire more engineers and technicians for operations and maintenance, but the automation of so much on the revenue collection side makes having three office blocks in central Harare full of administrative staff ever harder to justify.