Engineer Gloria Magombo

Engineer Gloria Magombo

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THE Zimbabwe Energy Regulatory Authority (Zera) has ruled out an electricity tariff hike in the short to medium term and has instead urged the Zimbabwe Electricity Supply Authority (Zesa) to boost its debt recovery processes in order to improve cash flows.

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Earlier this year, Zesa tried to push through a 6 percent tariff hike in order to help amortise salary arrears amounting to US$117 million.

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The debt accrued from a gazetted 2012 collective bargaining agreement which management ignored.

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Similarly, most of the independent power producers (IPPs) were also banking on an upward review of tariffs.

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Rio Zim Limited, which was granted an IPP licence for the Sengwa Thermal Power project that has been in limbo for close to 13 years, indicated in a recent interview with The Sunday Mail Business that its proposed project was partly affected by the “lack of customers who are ready, willing and able to pay for power supplies at a reasonable cost”.

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However, Zera chief executive Engineer Gloria Magombo recently put a damper on the proposals.

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“Currently, there are no plans to increase tariffs. However, if ever it has to be done, it will be based on merit.

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“The power utility will always require tariff hikes to recover its cost and it is the regulator’s role to ensure that the existing tariff is enough for the utility to recoup its cost and the tariff methodology provides for that.

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“However, the power utility is urged to improve its revenue collection while the consumers are also urged to play their part by timeously paying for energy consumed in order to ensure operation and maintenance cost of the infrastructure.

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“The debt recovery by the utility will improve its cash flows and creditworthiness, which is critical to guarantee new projects payments,” said Eng Magombo.

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Experts consider the local power tariff of 9 cents per kilowatt hour as markedly lower than the average regional tariff of 15 cents per kilowatt hour.

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It was thought that a marginal increase in tariffs would have helped Zesa to speedily refurbish existing power-generation infrastructure and improve power supply.

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At the beginning of the month, the Zimbabwe Power Company (ZPC) said it was generating 981 megawatts (MW).

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The country has an installed capacity of about 2 000 MW against an estimated peak demand of 2 245MW.

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The low power-generation levels were attributed to a number of challenges at power stations, mainly Hwange Thermal Power Station.

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Hwange generated 244 MW while Kariba produced 661 MW and the balance came from small power stations – Harare (30MW), Munyati (28MW) and Bulawayo (18MW).

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Meanwhile, Eng Magombo said the current power charges have no effect on IPPs in view of the time it takes for projects to move from concept to commercial level.

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A study commissioned by the World Bank in 2014 and conducted by the Economic Consulting Associates claims that a power project takes a minimum of two to four years at concept or prefeasibility stage.

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And, depending on the size of the project, an additional two to four years is required for feasibility study stage, which includes tendering for engineering, procurement and construction (EPC) contractors, negotiation of power purchase and implementation agreements.

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Financial close and fulfilment of conditions precedent requires another two to three years, while construction of power projects ranges from three to five years, depending on the project size.

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Eng Magombo said Zera is alive to the stages and challenges and continues to monitor the IPPs’ progress, and is engaging various authorities to eliminate some of the hindrances.

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“What is critical for most of Power Purchase Agreements (PPAs) to be signed is the credibility of the off-taker or buyer of the power. ZETDC is currently working on improving their creditworthiness by embarking on pre-payment and smart metering to improve their operations and reduce debt levels.

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“However, IPPs are also allowed by law to sell their power to large users at a tariff which will allow them to recoup their investment. In the event that the off-taker is the power utility, the IPPs tariff will be diluted and the net impact on end-user tariff will be minimum depending on the size of the project.

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“Tariffs are determined using the rate of return (RoR) or cost plus methodology which is in the Zera tariff code,” added Eng Magombo.

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The tariff code sets out information requirements and procedures for calculation of the appropriate tariff level for consideration by Zera in accordance with the Electricity Act (13:19) Section 54.

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Zera has so far issued 23 power-generation licences – 21 are IPPs and three are State-owned power projects under ZPC.

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Of the 23, only eight are now generating a combined 93,4MW, of which 12,7MW is being fed into the national grid, while 78,5MW is for own consumption.