- Electricity demand surges as winter approaches
- Price uncertainties stemming from an erratic policy strategy
- Companies forced to adopt a wait-and-see approach to price changes
Harare- With the changing of the seasons and Zimbabwe entering into its coldest period of the year (June and July) an economist would expect the demand for electricity to increase. With this, one would expect pressure on ZESA to prop up electricity tariffs. However, the computation of electricity tariffs in Zimbabwe is not so straightforward. Few economic principles directly apply in the Zimbabwean context as we intend to discuss in this article.
Key to note is that the utility provider has expressed before that electricity tariffs in Zimbabwe do not always reflect the economic conditions of the period. In April 2022, ZESA’s executive chairperson announced that the power cuts prevalent within the period were owed to non-cost reflective tariffs. This goes against the simple economic principle of cost-plus pricing; it is sufficient to say that any commodity's price must be greater than the costs incurred to produce it. However, in the announcement, ZESA executive Sydney Gata is quoted saying. “How long can you stay in business when you produce at a cost nearly twice the price you are selling at?”-showing that the company was operating with costs outweighing prices. Tariffs were eventually adjusted a month later by 77%.
In our current case, however, the point is that even though the electricity demand may face upward pressure, it is not certain that ZESA will increase the tariffs. Perhaps the nature of the commodity may classify it as a public good, meaning social factors as opposed to purely economic factors must be considered in the price decision. And given that this winter falls within an election period, economic considerations may be trumped by social factors. If the power utility was willing to subsidize electricity costs then and allow the public to spend considerably less than the amount the company was spending to produce and import electricity, it stands to reason that they may be willing to subsidize the cost of electricity this winter.
This mismatch between price adjustments and economic factors, such as the increase in costs that were announced in April 2022, are symptoms of an unpredictable company reflective of an overall erratic environment. Similarly, to the lack of scheduled power cuts, Zimbabwean companies are being asked to run in the dark. This is exacerbated by government tendencies to speedily shift policies before companies can make sense of them and efficiently implement them into their operations.
Equity Axis News