Home » Court » Zesa Must Audit Cost Structure

Zesa is in a mess, partly of its own making and partly from the need to upgrade existing power stations and build new ones.

And it wants us to pay more so that it can climb out of its financial woes.

Tariff increases were certain at some stage, as new generation capacity installed with borrowed money started coming on stream, but that particular hike would be made more palatable since consumers would suffer a lot less load-shedding and would get something a lot closer to a normal supply for their extra money.

Generation costs are an average from all power stations, but Zesa needs to build a lot of new capacity quite quickly, meaning that the low-cost existing Kariba South and medium-cost existing Hwange Thermal, and the capital costs of these stations have already been paid, would be mixed with some pricier energy from the extensions to these stations and new stations needed urgently, and those costs would include the need to service and repay capital costs.

But now we are likely to be hit with an earlier increase and one that will not result in any better supplies. Zesa has to implement pay rises awarded by arbitration almost three years ago that will add US$5,6 million a month to its costs, with back pay now due that will require a large sum, US$117 million, just to get to the position where it starts paying the extra salaries.

To some extent we sympathise with Zesa. Because it is a monopoly, and because it provides an essential service, its tariffs are fixed by a regulator, not by the utility itself. Figures supplied by Zesa have to be examined in some detail by the regulator.

Too low a tariff means that Zesa cannot buy the coal its largest station requires, it cannot maintain its power stations or the grid it uses to deliver power, and it cannot import when regional surpluses are available. But too high a tariff means that we, the consumers, could be paying for inefficient management, padded bills, surplus staff and the like. Somehow the regulator has to fix a tariff that allows an efficient utility to pay its bills, but without any waste.

The pay award will make the task even more difficult. Even without the back-pay, Zesa’s monthly costs have risen and unless the utility and regulator can find a way of cutting other costs, or even reducing staff numbers, the income from the tariff has to cover those extra salary costs.

Since Zesa sells everything it can generate it cannot even boost business to get more income. It has no more electricity to sell.

The application for a tariff rise should have been made three years ago when the arbitrator made the initial award. At that time the pre-paid meters were being introduced and in the general re-alignment of tariffs the regulator could have taken into account the new salary bill. But that did not happen.

Zesa has indicated that it needs to boost tariffs by 6 percent to meet its bills. Well perhaps that will be necessary. But before any approval is given we hope that the regulator and the parent Ministry of Energy and Power Development will insist on having a long hard look at Zesa’s operations, to see if there is any fat to cut. There must not be any automatic approval.

But that said it must be recognised that Zesa did not seek the higher salary bill. In fact it has fought to the bitter end not to pay it. Now it has to pay, and there is all that back-pay without any extra income, plus the continuing extra monthly cost.

We cannot see how a tariff rise can be avoided, but we also want to see a careful examination of Zesa’s operations to ensure that what costs can be cut are cut before the correct figure of the increase is approved.

Source : The Herald