ZESA choked by US$1bn debt
POWER utility ZESA Holdings, which extended its losses by about 900 percent during the year to December 2014, is now carrying a debt burden of nearly US$1 billion, with at least US$200 million in interest having accrued since 2009.
The situation at the parastatal portends disaster for the country, which is grappling with critical electricity shortages that have prompted country-wide load shedding of as much as 20 hours daily.
ZESA’s indebtedness implies that the company has no capacity to exploit its balance sheet for further borrowing to support planned electricity generation projects across the country.
It also requires money to rehabilitate its old infrastructure.
But the utility’s creditworthiness has inevitably been hammered by the huge debt, which means it cannot access offshore and even domestic markets for cash.
ZESA’s latest financial results show that the group’s debt escalated to US$942,1 million during the year to December 31, 2014, from US$774,7 million the previous year.
The group’s power distribution arm, the Zimbabwe Electricity Transmission Distribution Company (ZETDC) recorded a loss of US$118,3 million from a profit of US$22,3 million in the prior year.
The subsidiary was not servicing its short-term loans amounting to US$373,8 million, which were due and payable.
The loss-making position and negative working capital was due to non-performing debtors, which resulted in provision for credit losses of US$567,6 million.
Powertel, another arm of ZESA, made a profit of US$2,2 million, representing about two percent growth over prior year results.
This was due to the growth of sales coupled with cost rationalisation measures that resulted in a marginal increase in administrative expenditure.
ZESA Enterprises, another group unit, reported an operating loss of US$6 million because of the slashing of transformer prices by 50 percent due to stiff competition from cheap imports.
ZESA’s power generation subsidiary, the Zimbabwe Power Company, has also not been servicing its short-term debt amounting to US$339,4 million due to low power generation and now performing related party receivables from ZETDC.
The State-owned company has been struggling to service the principal debt plus interest pile, a situation which has weighed heavily on the operations of the integrated power generation and distribution company.
The financial results, released two weeks ago, revealed an easily observable sign of an emerging crisis in that about US$761,2 million is now due to creditors and therefore in arrears.
Only US$180,9 million of the debt is not yet due.
The report which was signed off by the board of directors headed by former Cabinet minister, Hebert Murerwa, showed the principal debt was at US$703,8 million, with local debt amounting to US$228,1 million while total foreign debt amounted to US$475,7 million.
Last week, Energy and Power Development Minister, Samuel Undenge hinted that tariff increases were inevitable, highlighting the desperation within government to save ZESA.
But critics warned that without government assuming ZESA’s debt, a tariff hike was unlikely to save the power utility.
There were indications government could allow a tariff increase for the first time since the last tariff revision of 2012 to enable ZESA to finance critical commitments.
ZESA has been proposing a tariff increase but had failed to get regulatory approval due to concerns a tariff hike would undermine efforts to revive the country’s struggling economy while also exposing an impoverished population contending with high unemployment.
Moreover, a number of companies, including major mining ventures, have been calling for a reduction in tariffs to cushion themselves from an inclement international commodities market, where prices have tumbled even as costs remained stubbornly high.
But ZESA officials said without an upward tariff adjustment, ZESA would sink deeper into debt and technical insolvency.
The parastatal has been unable to service its debts and invest in new capital projects in the wake of frequent breakdowns of its aging electricity plants.
Currently, the tariff is pegged on average at US$0,0986 per kilowatt hour, which is insufficient to support power projects currently underway.
In 2013, consultants, Norconsult, came up with a cost of US$0,14 per kilowatt hour but issues of efficiency at the country’s thermal power stations affected the actual cost of electricity.
Apart from the US$70,8 million ex-Central Africa Power Corporation (CAPCO) debt, which the power utility fully settled during the review period after Zambia threatened to pull out of a deal to jointly construct the Batoka Hydro Power Station on the Zambezi River, ZESA and its subsidiaries have failed to service their collective debt.
The debt situation could have been worse had government not assumed the interest component of the ex-CAPCO debt amounting to US$115 million as reported elsewhere in this week’s issue.
CAPCO was a company co-owned by Zimbabwe and Zambia during the Federation of Rhodesia and Nyasaland. The company was, however, disbanded in 1987 and was succeeded by Zambezi River Authority.
The interest was accrued from a US$70,8 million debt to Zambia, which included shared costs of the construction of the Kariba Dam and associated infrastructure during the tenure of CAPCO.
Among those still owed by ZESA locally include the Reserve Bank of Zimbabwe, which is owed about US$100,4 million after the central bank imported electricity on behalf of the power utility between 2006 and 2008, government (US$50,8 million), BancABC (US$17,1 million), the Infrastructure Development Bank of Zimbabwe (US$23,3 million), Sakunda Energy, ZB Bank and a Chinese firm called Afrochine.
Of the loans extended to ZESA by some foreign institutions , the European Bank is owed about US$45 million, Finish Export Credit Limited (US$24,2 million), International Bank of Reconstruction and Development (US$136,4 million), Lloyds Bank plc (US$12,3 million) and ZTE Huawei (US$7,7 million).
The Financial Gazette understands the loans were secured by a government guarantee.
The power utility’s operating costs also increased from US$967,3 million in prior year to US$1,072 billion in 2014, while revenue from electricity sales decreased from US$876 million in prior year in 2013 to US$872,9 million in the period under review.
Other revenue streams accounted for US$159 million in 2013 from US$68,2 million in the period under review.
ZESA’s current assets stood at US$598,5 million while its current liabilities totalled US$1,2 billion, resulting in a funding deficit of US$635,2 million.
This implies that the company may not be able to meet is current liabilities as they fall due.
According to the group’s external auditors BDO Chartered Accountants, the existence of a material uncertainty may cast doubt about the company’s ability to continue as a going concern.
ZESA reported that electricity debtors amounted to US$961 million during the period under review but as recently reported by the Financial Gazette, the power utility’s electricity debtor’s book has ballooned to over US$1 billion as firms and individuals continue to default on payments, a move which poses a risk to power supply security.
This means ZESA’s ability to adequately maintain its infrastructure has been affected, thereby worsening the system’s ability to deliver.
ZESA also failed to achieve the target of 30 000 new electricity customer connections during the year. The number of new connections increased from 19 070 recorded in 2013 to 22 369 in 2014, representing a 17,3 percent increase.
This was, however, below the annual target due to the shortage of connection materials especially meters.
However, the active customer base increased by 4,6 percent from 639 744 to 669 246 during the period under review.
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