Maravi

Zesco loses K173bn due to uneconomic tariffs

Zesco loses K173bn due to uneconomic tariffs
By Kabanda Chulu
Thursday May 15, 2008 [04:00]

ZESCO Limited has made a huge exchange loss of K173 billion during the 2007 financial year due to the adverse effects of the kwacha depreciation and the uneconomic tariffs that are not cost reflective. And during 2007, remuneration paid to the directors amounted to K836 million as compared to K1.2 billion in 2006 and the total remuneration paid to employees in 2007 amounted to K430 billion as compared to K437 billion in 2006.

Zesco attributed the huge exchange losses to the power rehabilitation project that had taken out 450 mega watts (28 per cent electricity generation capacity) hence resulting in loss of sales.

Other factors which affected Zesco’s overall performance were the rise in the prices of inputs such as fuel, transformers, conductors, poles and cables.

According to the 2007 annual report and financial statements, Zesco recorded an exchange loss of K173 billion, which was a complete reversal of the exchange gains recorded during the previous year of K180 billion that arose from an unusual appreciation of the kwacha against the United States dollar.

In 2005 up to mid 2006, the kwacha appreciated against the US dollar to cost K3, 200 but by March 2007, the kwacha was pegged at K4, 300 against the US dollar.

“The financial year 2007 was particularly challenging as the company experienced adverse effects of the depreciating kwacha which led to a huge exchange loss of K173 billion,” it stated.

“And delayed disbursements by the Rural Electrification Authority (REA) in funding their rural electrifications projects also posed a financial challenge because Zesco, as contractor, had to utilise its own resources.”

The report stated that the PRP experienced cost over-runs arising from change of scope from rehabilitation only to include up-rating (increase capacity) of machines.

“All these costs were to the account of Zesco since the financiers had fixed budgets for their components and the PRP (Power Rehabilitation Project) also took out 28 per cent (450 mega watts) of electricity generation hence resulting in loss of sales,” it stated.

The report stated that Zesco had hedged (protected) its foreign currency loan obligations by securitising US dollar receivables from mining customers.

“Out of its monthly receivables from the mines of US $ 8 million, US $ 2 million is securitised, Zesco therefore, has mitigated the risk of default on its hard currency denominated loans even where there are fluctuations in the Zambian kwacha against other currencies,” it stated.

Labels: ZESCO

posted by MrK @ 3:36 AM