Background to the study
The electricity sector is a crucial component of modern society, and its efficient management
is essential for economic growth and development (World Bank, 2020). The energy sector,
particularly in developing economies, faces multifaceted challenges ranging from
infrastructure deficiencies to economic pressures and regulatory complexities. In Zimbabwe,
these challenges are pronounced, with electricity playing a pivotal role in national
development and economic stability. The Zimbabwean energy sector operates under the
stewardship of ZESA Holdings, with ZETDC as its distribution arm charged with ensuring
reliable electricity supply nationwide whillist ZERA is the regulatory body responsible for
approving electricity tariffs and ensuring that they are fair, reasonable and reflect the cost of
service production.
Financial viability of the power sector has long been considered a prerequisite for ensuring
universal access to affordable, reliable, and sustainable electricity and the transition towards
clean energy (The World Bank and IEA, 2016).
Tariff structures serve as pivotal instruments within this context, influencing consumer
behavior, operational strategies, and the financial viability of utilities. Making electricity
services financially viable and recovering the cost of service have long been core objectives
of power sector reform in developing countries (The World Bank, 2018). Public utilities’
limited ability to finance expansion of capacity to meet growing demand was a main
argument for power sector reform in the developing world in the early 2000s and raising
tariffs to cost recovery levels has therefore been a necessary condition for power sector
reform (ESMAP, 2017). Studies by the IEA (2015) underscore the importance of tariff
structures in optimizing revenue while ensuring cost recovery, particularly in environments
characterized by economic volatility and infrastructural challenges. According to ZERA’s
2024 tariff review, ZETDC’s cost of production is approximately US$0.18 per unit (kWh),
while the average tariff is US$0.12 per units (kWh), resulting in a revenue shortfall of
US$0.06 per unit (kWh). This revenue shortfall translates to a significant financial gap for
ZETDC, making it challenging to maintain and invest in the electricity grid.
The decision to explore ZETDC's tariff strategies stems from the need to address specific
gaps in understanding how these structures operate within Zimbabwe's unique socio-
economic setting. This study seeks to expose the tariff effectiveness on revenue generation
and cost recovery, thereby contributing to broader insights on the pricing strategies and
energy policy formulation and implementation in developing economies.
Statement of the problem
Existing pricing policy calls for setting tariffs on a cost-plus basis. In practice, tariffs are
revised once a year to cover operating costs and some capital expenditures. As noted earlier,
the average end-user tariff for ZETDC is estimated at US$0.12 per kWh, while the economic
cost of service provision was estimated at US$0.18 per kWh. The price of electricity in
Zimbabwe is also low in comparison to tariffs set by a number of other countries in the
region. However, as the subsequent analysis of the financial performance of the power
utilities indicates, the provision of subsidies for almost all users in Zimbabwe has serious
consequences for the financial position of the utilities, given that the government does not
compensate the utilities for these heavily subsidized prices. Studies by Shkaratan and Briceno
Garmendia (2019) have highlighted that the implementation of cost reflective tariffs by
power utilities increases revenue generation and recover related costs. Against this
background, the study sought to understand the impact of tariff structures on revenue
generation and cost recovery of ZETDC.
