There are confirmed rumours that ZESA the country’s sole power utility is seeking another tariff increase. This time they are looking for a 100% tariff hike which means they essentially want us to pay twice what we are per right now per unit. Currently, the power utility is charging an average of around 6 US cents per unit on a complicated stepped tariff system.
The authorities at ZESA however feel that is not enough. They reckon that for ZESA to provide a steady supply of electricity (try not to laugh at that) the company needs to charge a tariff of around US 12 cents per unit( kWh). This means that ZESA is essentially operating at a loss until the government approves the utility’s request to increase prices.
The current tariff level averaging of 6.3 US cents per unit is subeconomic. ZESA requires a cost reflective tariff equivalent of 12.36 US cents per unit to efficiently provide service
The black market rate is killing ZESA
ZESA has pointed out that despite the required tariff of 12 cents thanks to the fluctuating rate at some point people have been paying ZESA an effective 3 US cents per unit despite their 12 cents requirement. There is a time lag between when the rate changes and when ZESA’s application to have the tariff reviewed is approved. This time lag is bigger thanks to the government’s own stubbornness.
You see, ZESA is only allowed to use the so-called official rate when setting its tariffs. The official rate barely ever moves because the government’s hand stage-manages the whole thing to give the appearance of a floating rate under their Dutch Auction system. While the auction keeps the rate low and gives the impression that things are well that mirage dissipates every time the black market rate- the rate which everyone else uses moves.
Currently, the black market rate is about twice the official rate. This means that few people are willing to pay for ZESA using foreign currency. Those who have foreign currency would rather exchange their dollars on the black market at a much better rate and pay using ZWL/RTGS. So when ZESA says people are paying 6 cents per unit they are in fact paying 3 cents at black market rates.
The result is that ZESA has to rely on the auction for much needed foreign currency. The auction has struggled to settle its backlog with participants only receiving their dues much later. In addition, employees often get paid salaries based cost of living in Zimbabwe which means that their salaries sometimes rise faster than ZESA’s revenue collection abilities.
It’s a cycle that will continue until the Zimbabwean dollar is a truly floating unit or falls away from public favour.