So in Zimbabwe, we like to complain about the price of just about everything. Usually, it is because the price of everything goes up on a regular basis while everyone’s salary hardly ever goes up at the same rate. The trouble with ZESA however is a little different. The price of electricity is often too cheap and out of sync with other inflation figures resulting in the power utility failing to buy equipment, and import electricity to cover the demand shortfall and generally intensive load shedding. We are in such a situation again as a month’s worth of electricity for a household (200 units/kWH) is now going for around $1265.11 ZWL according to our ZESA calculator. Now accounting for the current rate that is less than US$4 of electricity!
That is way below the cost of electricity. According to ZESA, the cost of electricity ought to be US0.09 to US$0.12 per unit in order for the power utility to be able to cover costs and make a decent profit. Currently, we are paying about US$0.015 per unit. To say that this is below cost is an understatement. That is less than 20% of what we ought to be paying so the question is if there no such thing as free lunch then who is paying for this? Well, us of course or rather our entire economy. Without getting the money it needs ZESA is no longer able to afford to import electricity, then can barely afford to do so when we pay a commercial tariff and now with us basically getting electricity for nothing there has no choice but to implement intensive load-shedding. If you notice nowadays power is going out at peak periods.
The arrogance of command economics
The Zimbabwe government is as arrogant as they come when it comes to assuming that it knows best what is good for the economy. Slowly over the years, they have assumed a command economy posture taking the country further and further away from its mixed economy make up where the government confines itself mostly to the public sector. The trouble with a command economy is that it’s unusually hard to run and you need to be watchful looking for any signs of trouble and issue immediate corrective measures before things take go from bad to worse.
At the heart of ZESA’s woes is the Zimbabwean currency’s demise. You see the government keeps insisting that the public is undervaluing the Zimbabwean dollar. They wheel out the “official rate” in the form of the auction-rate as evidence. The official rate hardly ever changes and going by it the current ZESA tariff is around 8 US cents per unit which is respectable even though it’s still below the viable tariff. The trouble with this is that everything else is priced based on market rates or at the very least willing buyer willing seller rates. Eventually, the government is forced to adjust the rate as their delusions are exposed and during these times there is quite the price whiplash as the price of electricity sometimes goes up tenfold in line with the prevailing market rate of the day before it lags behind again as the government finds the latest delusional figure to peddle.