Just as retail shops have started displaying signs asking for foreign currency payments for certain items the Zimbabwe Electricity Supply Authority has been given the green light to receive payments from exporters and partial exporters in United States dollars or other foreign currencies that are legal tender. This follows hot on the heels of legislation introduced just a week ago that entrenched the multicurrency system into law, something we looked at positively at the time. Electricity supply is a critical matter in the country and the latter months of winter are usually characterised by heavy load shedding due to reduced supply capacity at the rain-dependent Kariba hydroelectric plant. The nation has resorted to importing electricity in the past from neighbours Mozambique and South Africa.

SI 131 of 2022

Statutory Instrument number 131 of 2022 (yesterday was day 193 of the year) gave ZESA permission to bill exporters and partial exporters in US dollars or other foreign currency for electricity used. The instrument allows ZESA to receive up to 35% of the sum billed in foreign currency and the remainder in Zimbabwean dollars at the interbank (willing buyer willing seller) rate. The statutory is very clear that other foreign currencies can be used at the prevailing cross rate of the date of payment while the Zimbabwean dollar portion must apply the interbank rate of the day. Finally, the instrument allows clients to pay up to 100% of their bills in foreign currency if they reach an agreement with ZESA.

Why?

There are a few factors to consider when looking at the goals of the latest SI. Firstly, electricity imports and maintenance spares require foreign currency and so it makes sense for ZESA to receive at least some of their money in foreign currency. Secondly, businesses are on a post-paid model and that means they have 3 months to settle their dues. Whether you look at it from a parallel market or interbank market perspective 3 months is a lot of time for the value of the sum owed to devalue in US dollar terms. The move somewhat protects the value of ZESA’s accounts receivable. Thirdly targeting exporters and partial exporters places no additional foreign currency pressure on consumers. In fact, with our recent rules which liquidate a further 25% of unutilised exporter foreign currency proceeds after 120 days, this puts exporters in a use-it-or-lose-it (at the interbank rate) proposition. The SI also removes (at least partially) ZESA from the list of entities that require foreign currency from the government.

Winners and losers

As with policies in a troubled nation you can always identify clear winners and losers. ZESA will be counted as the winners of this policy for all the reasons outlined. They have struggled with maintenance and repair of infrastructure owing to foreign currency shortages and the depreciating value of accounts receivable (debtors). Exporters and partial exporters will likely count themself as losers here. The net effect is not so clear-cut. While we will all agree that our electricity supplier needs more foreign currency the supplier hasn’t covered itself in glory in the past when it comes to how well it manages its resources. This is the part we will have to wait and see.