The government, through its departments and local authorities owed ZESA about $600m. Back in June the government said it would issue Treasury Bills to clear that debt. That did not come to be.
The government has however been slowly paying up what it owes and the ZESA CEO revealed that of the $600m debt about $155m has been paid so far.
That means the government still owes $445m. All in all ZESA was owed over $1 billion by both the government and commercial and domestic users.
The power company has been struggling with revenue collection. The rollout of prepaid meters helped with collection from commercial and domestic users, where they get to recover part of their debt with every purchase the users make.
The $1 billion debt dates back years. Apart from the government, farmers also owe a substantial amount. At one point in 2013 some of the farmers’ debt was written off and ZESA says farmers have only recently started honouring their obligations as they expected another write off.
ZESA’s problems transcend beyond revenue collection. The power company has outdated equipment prone to downtimes and has an inefficient power distribution system.
The fact that Zimbabwe Energy Regulation Authority (ZERA) turned down ZESA’s application to increase tariffs until they first implement cost cutting measures and improve efficiency levels says a lot. We have all heard about the huge wage bill at the power company and we have also heard rumours that some of the revenue collected is abused.
All this means that even if they improve on revenue collection, their fortunes are not likely to improve. The problem with that $1 billion debt is that it dates back years and if collected it is unlikely that they will be owed $1 billion again anytime soon.
There is no getting around it, ZESA needs to manage its costs. So excessive are its costs that they are actually making losses. For them to break even they would need to either increase tariffs by 3 cents or cut costs significantly. Seeing as they already charge more than the average in the region they should make cost cutting a priority.
At the current rate ZESA will not be able to maintain its outdated equipment, let alone replace it.
ZESA imports electricity from South Africa and owes its suppliers. While ZESA does not discuss its debt position in public, it was said in September that they owed about $55m. If they are cut off, that coupled with their outdated equipment could lead to the return of power cuts.
So while we are glad that ZESA is recovering some of what they are owed we also know that that’s not going to count for much unless and until the power company controls its excessive costs.