ZNCC Regional President
ZNCC Regional Committee Members
Distinguished Guests
Ladies and Gentlemen
It is my pleasure to welcome you all to this important workshop. This workshop comes at a critical time in the economic turnaround of our economy. I am not here to answer all the questions about the pricing structure in Parastatals but to discuss, share ideas and learn together as we go.
By their existence, State Enterprises and Parastatals represent veritable avenues for government expenditure on the citizenry in diverse ways. Through State Enterprises and Parastatals, the government provides the following to its citizens:
Infrastructure, Water, Electricity, Roads, Transport, Basic education, Primary health, Scientific research and Market regulation to ensure a level playing field.
The above public goods provide the preconditions for competitiveness and economic development. The social returns of producing these public goods and services exceed the private returns hence the public enterprises have to provide them or else the private sector stays away.
As the Minister of State Enterprises and Parastatals, my Ministry deals with cross cutting issues in State Enterprises and Parastatals which include issues of corporate governance, legislative review and other policy issues. In terms of the day to day operations these entities report to their Line Ministries.
Ladies and gentlemen, let me quickly point out that State Enterprises and Parastatals (SEPs) are the engine that drives national economic growth, and have an important role in macroeconomic stabilization. Some of these SEPs are economic enablers in that they provide utilities such as electricity, water, communication and transport. Efficient and reliable supply as well as affordability of these will ensure an increase in capacity utilisation across all sectors of the economy.
Efficiency in delivery can only be aided by a well defined tariff structure that will enable SEPs to recover the costs incurred in production and at the same time coming up with a viable price to be charged for these goods and services. Utilities such as electricity, water, communication and transport constitute a significant proportion of the production costs for the productive sectors. Thus a well defined tariff structure is called for and this should be one that bears end-to-end cost of providing that good/ service plus an element of profit.
To this effect Government through my Ministry in collaboration with SEPs and Line Ministries is reviewing the tariff structure regimes in respect of goods and services provided by public entities. At some point in time the general framework will require contributions from stakeholders like yourselves.
The need for a Tariff Structure is crucial as it complements the government’s effort in the restructuring of SEPs for economic revival. The establishment of a realistic tariff will go a long way in enabling SEPs to realize gains in their operations and attract investors into the market and the SEPs themselves. A competitive tariff will create a conducive environment for investment and for the achievement of the profit objectives for firms.
In the business environment they operate, SEPs incur a lot of costs including input costs. Many SEPs are unable to recover their costs of production due to tariffs that are not reflective of the costs incurred in providing a service o a public good. This defeats the break even (plus surplus) objective of the commercially oriented SEPs, depletes the shareholder value and also deters the entrance of potential investors.
The Government of Zimbabwe is very concerned with the pricing structures and is aware that more needs to be done at Parastatals like Air Zimbabwe, Tel-One, ZINWA and Zimbabwe Electricity Supply Authority (ZESA) in terms of service delivery, skills retention and cost rationalisation with reference to regional average tariffs.
In Zimbabwe the tariff structure has been said to be higher in most instances compared to the global trends, but if we take the electricity sector we find that the regional tariff in electricity has been pegged at 12.6 cents/ unit and our ZESA is charging 7.5 cents/ unit which is even lower than the regional tariff. With this we cannot possibly say that ZESA is charging exorbitant prices, maybe the problem is that people have low disposable incomes.
Ladies and gentlemen, it is a well known fact that the last ten years or so have been the most difficult for all sectors of the economy and public entities were not spared, if anything, they were the most affected. The challenges were related to:
• Hyperinflation
• Deteriorating infrastructure due to lack of resources for maintenance and acquisition of new equipment and technologies.
• Huge debt overhang,
• Low capacity utilisation, among others
According to studies carried out by the Breton Woods Institution-World Bank, the adoption of the multicurrency regime by the Government of Zimbabwe (GoZ) created problems for Parastatals even though it stopped hyperinflation. The Parastatals’ working capital became scarce since they did not have foreign savings of their own and they needed to adapt their billing systems to the new currency. For entities like ZESA, ZINWA, Telone, NRZ, etc the billing systems for various reasons, became obsolete leading to the institutions resorting to estimates. They only had low revenue collections that were used to pay for payrolls and part of operational costs the remainder being used for maintenance and purchase of new equipment.
Let me assure you that the Government is working closely with Line Ministries and the utilities to come up with more reliable billing systems if not the state of the art billing systems.
Whether a price is exorbitant or not depends on several factors including resource availability. For example ZESA has a nominal capacity of producing 1 960 MW against a nominal demand of 1 500MW, but only 1 100 MW are being produced at the moment and the peak demand can go up to 2 200 MW. This means that ZESA cannot meet its national demand due to low capacity utilisation and the limit of the import capacity from the region.
The other problem can be that of the recurring debt since the adoption of the multicurrency regime. The Parastatals had a problem of converting outstanding arrears to the multi-currency system. It would be a good thing for business to verify their bills against arrear components and seek audience with say, ZESA authorities as the situation may be different from organization to organization.
In the economic environment we find that SEPs have competitors especially in the telecommunications industry where for example Telone and Netone have to compete with private providers Telecel and Econet. This means that they are price takers and have to charge prices that are prevailing in the industry if they are to survive such that the issue of high pricing is ruled out. The existence of competition in these entities rules out high prices.
We all have to agree that input costs are the major variable in determining the price of a good or service. Efforts should be directed towards lowering these costs without compromising the quality of the ultimate outputs.
In conclusion I would like to say, Government, through State Enterprises and Parastatals joint projects, should intervene, removing constraints to growth that would allow the economy to evolve and the necessary structural changes to take effect. The Government is indeed very much aware that more work needs to be done to ensure progress in our endeavours to revamp the economy. I firmly believe that we have the capacity to achieve more effective reforms in the economy and refocus Zimbabwe towards sustainable growth.
As I always like to like to quote my favourite verse;
“Finally brethren, whatsoever things are true. Whatsoever things are honest, whatsoever things are just, whatsoever things are pure, whatsoever things are lovely, whatsoever things are of good report, if there by any virtue; and if there be any praise, think on such things and work for such things”.
……(Philippians chapter 4 vs 8)
On that note, it is my pleasure to declare this important and timely meeting duly opened and I wish you all very fruitful deliberations.
Thank you.
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