eBusiness Weekly
Kudzanai Sharara Taking Stock
Zimbabwe is currently experiencing crippling power shortages. As of yesterday, most parts of the country, including industrial areas, were going without power for upward of 18 hours.
This comes as “live water” levels at Kariba Dam, the country’s anchor power producer, have receded to 24 percent, resulting in significantly reduced power production of just 358MW. The other electricity producer, Hwange Thermal Power Station, currently producing 462MW, struggles with its aged machines, which fail everyday leaving the country at the mercy of power imports, a big ask, given the legacy debts that need to be serviced first.
The significantly limited power supplies has hit industry and consumers hard. Telecoms companies, for example, now have to power base stations for more than 18 hours a day using generators. Industry players say the amount of diesel being used to power base stations, has quadrupled to more than 2 million litres per month while the cost of that diesel has also increased by a multiple of 7 since January this year.
The cost of energy, with diesel as the source of power, can easily get to more than $17 million just for mobile operators.
Overall, imports for diesel have reportedly gone up by 20 percent to around 3,6 million litres daily, as economic players turn to fuel as a source of power. Using ZESA, even at a correctly priced tariff, would have been cheaper.
But the current situation, where diesel is largely used, has a huge cost bearing on the operations of mobile network operators (MNOs) whose revenues are anything but growing. In the first quarter to April, the sector witnessed a 4 percent decline in mobile voice traffic from 1,467 billion to 1,404 billion minutes; as well as a significant decline in mobile telephone revenue of 13 percent to $249,9 million from $287 million comparably. Part of this revenue decline, can be attributed to increased downtime in network provision (some players now operating at an uptime of approximately 80 percent against 90 percent stipulated by the regulator, Potraz), amid persistent load-shedding.
Apart from the cost of diesel, the frequency of servicing generators has also significantly increased and to get the spares, MNOs have to pay a leg and an arm to get the foreign currency using revenues generated from a shoe string tariff. Then there is another matter of distributing all that diesel across country. As of March this year, the total number of base stations in the country was 8 884. Although not all of them have an option to use generators, even just half, will come at a huge cost. The companies might even decide not to power loss making base stations and this has downstream effects. Then we have downtime costs such as loss of revenue and profit. Extrapolating from Econet’s $106,4 million profit after tax for the year to February 2019, the company probably loses an average $12,146 in profit for every hour spent without network. Shareholders will lose out as investment metrics such as ROI, ROE or ROA will obviously suffer. The company is also one of the country’s biggest direct and indirect tax contributor and when it sneezes Zimra will feel the impact.
We won’t even talk about the value that is lost when network is down because of power outages. The total value of mobile and internet based transactions stood at $6,36 billion in April 2019. This is roughly $17 million worth of transactions lost per day and just below a million dollars lost per hour on average. It’s an opportunity costs that the struggling economy can do without.
Using generators as an alternative to electricity is across industries and the impact is equally the same, it’s not ideal, it’s not sustainable. Talking to industry players, local manufacturers are reportedly using 1 000 litres of diesel per hour and at current prices, that’s $7,470 per hour.
The electricity bill, which admittedly is heavily subsidised, is nowhere near the cost of diesel. Given the chronic state of electricity supply, heavy users of energy are probably running energy bills of millions of dollars per month, roughly 7 times more than they would use under ZESA.
That cost cannot be easily passed on to the consumer and production could be stopped. Losses have already been reported at some entities with the most notable one being the tile making plant in Norton, where $1,3 million was reportedly lost after a power outage damaged tiles that were already in the process of manufacturing. This is in addition to 18 000 litres of diesel per day to power their plant at a cost of about $126 000. How many companies have lost products due to similar challenges?
This haemorrhaging of industry will do enormous damage to the country’s already struggling economy. The crippling energy shortages both electricity and fuel must be urgently addressed otherwise it could bring the economy to its knees. As things stand, Zimbabwe is headed for significant negative GDP growth.
The cost at household level
In addition to going through dark and cold nights, households have had to contend with damaged appliances while the quality of perishables deteriorates and have to be thrown away. Add to that, turning to cooking gas, an expensive and imported alternative, putting pressure on the limited and expensive foreign currency. Still with households, some have turned to charcoal and firewood as a source of power.
Extraction of wood clearly affects the forest and the environment. Some of these impacts result in increased irregular rainfall patterns while biodiversity is lost. In the long term, communities could experience flooding and drought, which adversely affects the most important sector in the country’s economy, that of agriculture.
Finding solutions
Given these observations, what measures can Government take to stem the debilitating shortage of power?
First, a cost effective tariff has to be in place to allow ZESA to service its legacy debts and pay for new imports. There is also need for Government, through ZESA to restrict power from those who have debts or at least come up with a payment plan, like what those on prepaid metres are doing where a portion of your electricity purchase goes to debt repayment.
Second, the country’s legal system must make non-payment of bills expensive and unattractive for defaulters by going after their properties if they fail to settle their bills. Defaulters must just be prosecuted.
Third, improve on the ease of doing business for those who want to set up power producing plants in the country. Already there are 60 players who are licenced to produce power in the country but have not done so. The reason why must be interrogated. The low tariff which we highlighted above can be one reason. Then there is red tape among other regulatory bureaucracy. These should be fixed.
Fourth, incentives must be given to those who would want to produce their own power off grid through solar.
Fifth, anything that leads to the cost of capital, for example VAT on imports, must be looked at with the aim of reducing. Some have suggested tax holidays for companies that are into electricity generation and supply and those that are self-sufficient away from the grid such as Padenga.
Finally, it would be worthwhile for Government to put competent people to run some of these parastatals such as ZESA.
