Report No. 43855-ZW
Zimbabwe Infrastructure Dialogue in Roads, Railways, Water, Energy, and Telecommunication Sub-Sectors
Public Disclosure Authorized
June, 2008
Africa Transport Sector (AFTTR)
Public Disclosure Authorized Public Disclosure Authorized
Document of the World Bank
Public Disclosure Authorized Currency Equivalents (Exchange Rate Effective April 30, 2007)
Current Unit – ZW$ US$ 1 = ZW$30,000 (Government official rate) US$ 1 = ZW$255,771,415.87 (Interbank market exchange rate)
FISCAL YEAR January 1 – December 31
ACRONYMS AND ABBREVIATIONS
ABOM Agreement Between Operating Members AfDB African Development Bank BAZ Broadcasting Authority of Zimbabwe BBR Bulawayo to Beitbridge Railway BCC Bulawayo City Council BMED Bulawayo Municipality Electricity Department BOT Build Operate Transfer BoP Balance of Payments BVIP Blair Ventilated Improved Pit Latrine CAPC Central African Power Pool CC Catchment Council CIE Córas Iompair Éireann (an Irish Consulting firm) CM Catchment Manager COMESA Common Market for Eastern and Southern Africa COP Catchment Outline Plan COSITU ITU model for the Calculation of Costs, Tariffs and Rates for Telephone Services CPI Consumer Price Index DANIDA Danish International Development Agency DDF District Development Fund DIS Department of Infrastructure Services DoR Department of Roads DoWR Department of Water Resources DRC Democratic Republic of the Congo DWR Department of Water Resources EIA Environmental Impact Assessment ESAP Economic Structural Adjustment Programme ESC Electricity Supply Commission ESW Economic and Sector Work Forex Foreign currency GDP Gross Domestic Product GIS Geographic Information System
i GMED Gweru Municipality Electricity Department GoZ Government of Zimbabwe GSM Global System for Mobile Communications GTKM Gross Tone Kilometre GWh Gigawatt hour HAP Higher Authority for Power HCB Hidroelectrica de Cahora Bassa HCC Harare City Council HDM Highway Design Model HIV/AIDS Human Immunodeficiency Virus/ Acquired Immunodeficiency Syndrome HMED Harare Municipality Electricity Department IAP Internet Access Provider IBRD International Bank for Reconstruction and Development ICT Information and Communication Technology IDA International Development Association IGMoU Inter-Governmental Memorandum Of Understanding ILO International Labour Organization IMF International Monetary Fund IPP Independent Power Producer IPT Independent Power Transmitter IRWS&SP Integrated Rural Water Supply and Sanitation Program ISN Interim Strategy Note ISO Independent System Operator ISP Internet Service Provider ITU International Telecommunications Union IUMoU Inter-Utility Memorandum Of Understanding IWRM Integrated Water Resources Management IWSD Institute of Water and Sanitation Development kV Kilovolt KW Kilowatt LICUS Low-income country under stress MDC Movement for Democratic Change MDG(s) Millennium Development Goal(s) MOED Ministry of Economic Development MH&CW Ministry of Health and Child Welfare MIPT Ministry of Information, Post and Telecommunications MIS Management Information System MMED Mutare Municipality Electricity Department MMR&E Ministry of Mineral Resources and Energy MoF Ministry of Finance MoLGPW&UD Ministry of Local Government, Public Works and Urban Development MoTC Ministry of Transport and Communication MoWRID Ministry of Water Resources and Infrastructure Development
ii MPSLSW Ministry of the Public Service, Labour and Social Welfare MTPA Million Ton per Annum MVA Megavolt Amperes MW Megawatt MWRIS Ministry of Water Resources and Infrastructure Services NAC National Action Council NCU National Co-ordination Unit NECF National Economic Consultative Forum NECF National Economic Consultative Forum NEDPP National Economic Development Priority Plan NGO Non Governmental Organization NMPRWS&S National Master Plan for Rural Water Supply and Sanitation NORAD Norwegian Agency for Development Cooperation NRZ National Railways of Zimbabwe NSC National Steering Committee (on water) NTKM Net Ton Kilometre OPRC Output Performance based Road Contracts PC Powertel Communications PoP Point of Presence POTRAZ Postal and Telecommunications Regulatory Authority of Zimbabwe PPP Public Private Partnership PSIP Public Service Investment Program PSO Public Service Obligations PSP Private Sector Participation PTC Post and Telecommunications Corporation RBZ Reserve Bank of Zimbabwe RCDF Rural Capital Development Fund RDC Rural District Council RDCCBP Rural District Council Capacity Building Program RE Rural Electrification REA Rural Electrification Agency REF Rural Electrification Fund RF Road Fund RMI Road Maintenance Initiative RMRP Road Maintenance and Reform Project RPC Rusitu Power Company RSA Republic of South Africa RSRDP Road Sector Reform and Development Program RTRN Regional Trunk Road Network SADC Southern African Development Community SATCC Southern Africa Transport and Communications Commission SCC Sub-Catchments Council SHA State Highway Authority
iii SI Statutory Instrument SIDA Swedish International Development Agency SMS Short Message Service SSA Sub-Saharan Africa SSATP Sub-Saharan Africa Transport Policy Program STEM Short Term Energy Market Telecom Telecommunication TKM Ton Kilometre TOR Terms of Reference TSCZ Traffic Safety Council of Zimbabwe UC Urban Council UNICEF United Nations International Children’s Emergency Fund US$ United States dollar USAID United States Agency for International Development USF Universal Service Fund VID Vehicle Inspection Department VIP Ventilated Improved Pit VoIP Voice over Internet Protocol WATSAN Water and Sanitation WRMS Water Resources Management Strategy WSP Water and Sanitation Program WSS Water Supply and Sanitation Z$ Zimbabwe dollar ZCIC Zimbabwe Construction Industry Council ZE Zesa Enterprises ZEDC Zimbabwe Electricity Distribution Company ZERC Zimbabwe Electricity Regulatory Commission ZESA Zimbabwe Electricity Supply Authority ZESB Zimbabwe Electricity Supply Board ZETCO Zimbabwe Electricity Transmission Company ZETDC Zimbabwe Electricity Transmission and Distribution Company ZH Zesa Holdings ZIAN Zimbabwe Infrastructure Assessment Note ZID Zimbabwe Infrastructure Dialogue ZINARA Zimbabwe National Road Administration ZINWA Zimbabwe National Water Authority ZPC Zimbabwe Power Company ZRP Zimbabwe Republic Police
Vice President: Obiageli Katryn Ezekwesili Country Director: Michael Baxter Sector Manager: C. Sanjivi Rajasingham Task Team Leader: Kavita Sethi
iv Contact Details
Name Designation Telephone Email
Kavita Sethi Team Leader +202 458 7558 [email protected]
Davies Makasa Transport Specialist + 260 1 252811 [email protected]
Subhash Seth Senior Highways Engineer +202 458 7391 [email protected] Consultant
Robert Geddes Lead Infrastructure +263 4 708624 [email protected] Consultant +263 11 608312
Ramson Mbetu Water Consultant +263 4 861741 [email protected] +263 91 234293
v TABLE OF CONTENTS
Acknowledgements...... ix Executive Summary...... x A. Economic Review ...... x B. Roads Sector ...... x C. Rail Sector...... xii D. Water Sector...... xiii E. Telecommunications Sector...... xv F. Energy Sector...... xvii Background...... xx Section 1: Economic Review...... 1 Section 2: Roads Sector ...... 3 A. Background ...... 3 B. Action Plan to Implement ZIAN Recommendations ...... 4 B.1 Methodology used for developing action plan ...... 4 B.2 Immediate Action Plan...... 4 B.3 Long Term Action Plan...... 7 B.4 Monitoring the action plan ...... 11 C. Public Private Partnerships ...... 11 C.1 Government policy...... 11 C.2 Benefits from PPP in the Road Sector...... 12 C.3 Key issues in PPP...... 12 C.4 Potential projects in PPP ...... 12 C.5 Next Steps in promoting PPP ...... 13 D. Regional Integration...... 13 D.1 Importance of regional integration ...... 13 D.2 Projects Supporting Regional Integration...... 14 D.3 Next steps in promoting regional integration ...... 17 Section 3: Rail Sector ...... 18 A. Background ...... 18 B. Action Plan to Implement ZIAN Recommendations ...... 19 B.1 Methodology used for developing action plan ...... 19 B.2 Immediate Action Plan...... 19 B.3 Long Term Action Plan...... 22 B.4 Action Plan, Budget and Monitoring...... 25 C. Private Sector Participation...... 26 C.1 PSP Experiences in Sub-Sahara Africa Railways ...... 26 C.2 Key Railway PSP Recommendations...... 27 C.3 Bulawayo Beitbridge Railway...... 29 C.4 Zimbabwe Government Policy on PSP ...... 29 C.5 Benefits from PSP in Railway Sector...... 29 C.6 Key Issues in PSP in Zimbabwe...... 30 C.7 Potential Projects for PSP...... 30 C.8 Next Steps...... 31 D. Regional Integration...... 31 Section 4: Water and Sanitation Sector ...... 33 A. Background ...... 33 B. Action Plan to Implement ZIAN Recommendations ...... 34 B.1 Methodology used for developing action plan ...... 34 B.2 Critical Areas, Recommendations and Constraints ...... 34
vi C. Private Sector Participation...... 42 C.1 The Government Policy...... 42 C.2 Public Private Partnership in the Water Sector ...... 42 D. Regional Integration...... 43 D.1 Why Regional Integration is Important and Current Initiatives...... 43 D.2 Potential Projects in Regional Integration...... 44 D.3 Next Steps in Promoting Regional Integration...... 45 Section 5: Telecommunications Sector...... 46 A. Historical Background ...... 46 B. Sector Policies...... 47 B.1 SADC Protocol on Transport, Telecommunications and Meteorology...... 47 B.2 Sector Reform Policy, 1996 ...... 47 B.3 Postal and Telecommunications Act, Chapter 12:05 of 2000 ...... 48 B.4 Ministry of Transport and Communications ...... 48 B.5 National ICT Policy Framework ...... 48 C. Institutional Reforms...... 49 C.1 Regulatory Authority...... 49 C.2 Sector Liberalization ...... 50 D. Condition of Infrastructure...... 51 D.1 Telecommunications Network Statistics ...... 51 D.2 International and Regional Infrastructure...... 51 D.3 VoIP Telephony ...... 52 D.4 Fixed Line Network...... 52 D.5 Mobile Operators...... 53 D.6 Internet Services...... 54 D.7 Enforcement of License Conditions ...... 54 E. Financing...... 55 E.1 POTRAZ ...... 55 E.2 Tariffs ...... 55 E.3 Universal Services Fund...... 57 F. Management Capacity...... 58 F.1 POTRAZ ...... 58 F.2 Network Operators ...... 58 G. Critical Areas ...... 59 Section 6: Energy Sector...... 61 A. Introduction...... 61 A.1 Historical Background...... 61 A.2 Current challenges...... 63 B. Sector Policies...... 64 B.1 SADC Energy Protocol ...... 64 B.2 Southern African Power Pool (SAPP)...... 65 B.3 Power Sector Policies and Legal Framework...... 65 B.4 Electricity Act No. 6 of 1985 ...... 66 B.5 Rural Electrification Fund Act of 2002...... 66 B.6 Electricity Act No. 4 of 2002 and Electricity Amendment Act No. 3 of 2003 ...... 67 B.7 Tariff policy...... 68 C. Institutional Structure...... 68 C.1 Intended Structure under the Electricity Act of 2002...... 68 C.2 Ministry of Energy and Power Development...... 70 C.3 Zimbabwe Electricity Regulatory Commission ...... 70 C.4 ZESA Holdings ...... 71
vii C.5 Independent Power Producers ...... 71 D. Condition of Infrastructure...... 72 D.1 Generation Infrastructure...... 72 D.2 Imports...... 73 D.3 Transmission Infrastructure...... 74 D.4 Distribution Infrastructure...... 75 D.5 Metering ...... 76 D.6 Telecommunication infrastructure...... 77 E. Customer Base and Tariffs...... 77 E.1 Number of Customers ...... 77 E.2 Power and Energy Demand...... 77 E.3 Quality of Service...... 78 E.4 Tariffs and financial status ...... 78 F. Management Capacity...... 79 F.1 ZERC...... 79 F.2 ZESA Holdings ...... 79 G. Critical Areas ...... 80 Annex 1: ROADS - POLICY OPTION PAPERS ...... 82 A. Policy Option Papers to Address Critical Areas ...... 82 A.1 Financing Road Maintenance...... 82 A.2 Strengthening Institutional Capacity in the Road Sector...... 86 Annex 2: RAILWAYS – POLICY OPTION PAPERS...... 92 A.1 “Reducing Railways’ Fiscal Deficit” ...... 92 A.2 Railway Safety and Environmental Regulation...... 94 Annex 3: WATER – POLICY OPTION PAPERS...... 95 A.1 Critical policy review of the ZINWA take over of water and sanitation/sewerage functions from cities and municipalities...... 95 A.2 Policy on Peri-Urban Water and Sanitation Infrastructure Provision through Public Private Partnership Policy ...... 96 Annex 4: Members of the Task Force...... 99 Annex 5: ZESA Tariffs Effective 1 February 2007...... 101 Annex 6: Terms of Reference: Zimbabwe Infrastructure Dialogue (ZID) ...... 103
viii Acknowledgements The “Zimbabwe Infrastructure Dialogue” (ZID) was undertaken in collaboration with the government of Zimbabwe (GoZ). The process was overseen by the Ministry of Finance (MoF), who delegated responsibility for day-to-day management of the study to the Ministry of Transport and Communication (MoTC). The MoTC established a Task Force of representatives of key government agencies from the three sectors chosen for the study. The Task Force was chaired by Mr. N Mudzinganyama, the Acting Director of Policy, Planning, and Coordination of the MoTC, who was very ably supported by his colleagues Mr. G. Sibanda and Mr. J. Madya.
The ZID was carried out under the general guidance of Mr. Michael Baxter, the World Bank’s Country Director, and Mr. Nginya Mungai Lenneiye, the Acting Country Manger for Zimbabwe. We wish to thank the Water and Sanitation Program (WSP), Africa Region, for providing financial support for the Water and Sanitation Sector and Mr. C. Sanjivi Rajasingham, Sector Manager, Transport, Mr. Piers Cross, Manager, WSP, and Mr. S. Vijay Iyer, Sector Manager Energy for their support. Executive Summary Economic Review 1. In the 1990s, Zimbabwe’s economic growth began to slow following a balance of payments crisis and repeated droughts. By the late 1990s Zimbabwe’s economy was in serious trouble driven by economic mis-management, political violence, and the wider impact of the land reform program on food production. During 2007 GDP contracted by more than 6 percent, making the cumulative output decline over 35 percent since 1999. The unrelenting economic deterioration is doing long-term damage to the foundations of the Zimbabwean economy – private sector investment is virtually zero, infrastructure has deteriorated, and skilled professionals have left the country.
2. With inflation accelerating, the Government introduced, in 2007, blanket price controls and ordered businesses to cut prices by half. Despite the strict price controls inflation continues to rise as the root cause of high inflation – monetization of the large public sector financing needs, remains unaddressed. A large part of the high public sector deficit is due to quasi-fiscal spending by the central bank on mainly concessional credits and subsidized foreign exchange for priority sectors, unrealized exchange rate losses, and losses incurred by the central bank’s open market operations to mop up liquidities.
Roads Sector 3. Zimbabwe has a classified road network of about 88,300 kilometers (km), of which about 15,000 km is paved. The national paved road network has largely remained in fair or good condition but significant deterioration is occurring on urban and unpaved rural roads. About 24 percent of the entire road network was estimated to be in good condition in 2005.
4. The Southern African Development Community Protocol on Transport, Communications and Meteorology (1996) commits Member States to the reform of road sector institutions. The Zimbabwe Road Sector Reform and Development Process resulted in the creation of the Zimbabwe National Road Administration (ZINARA) and the Road Fund in 2001. Since the creation of ZINARA, slow progress has been made with further institutional reforms, including the transformation of the Department of Roads (DoR) into a semi-autonomous State Highway Authority (SHA). Commercialization of road sector activities is constrained by uncertain funding, hyper-inflation and foreign exchange shortages. Road Fund revenues currently provide less than 10 percent of network maintenance requirements. Meanwhile social and environmental issues are not mainstreamed in road sector activities and road accident rates are high due to inadequate coordination between government and private sector agencies.
5. An action plan for the road sector was developed by a ZID Working Group reporting to the ZID Task Force under the Ministry of Transport and Communications (MoTC), for implementation by the MoTC. The plan developed by the working group included short, medium and long term actions. The activities included in the present report have been re-grouped into those that could be completed in the near future and those that will take a longer time to prepare and implement. The proposed long-term actions cannot realistically be undertaken without
x stability in the local economy. The timeframe for the latter could be reduced once the political climate in the country has changed.
6. Immediate Action Plan • Finalize the National Transport Policy document for submission to Cabinet; • Adopt the Road Safety Review Report (2005) with a mandate to proceed with preparation of a Strategic Plan for road safety; • Review possible measures to increase revenues accruing to the Road Fund; and • Promote community participation on a pilot basis, in rural road maintenance through self-help initiatives and food-for-work, supported by non-government organizations.
7. Long Term Action Plan • Prepare enabling legislation for the transformation of the Department of Roads into a semi-independent State Highway Authority; • Prepare a National Road Network Development Plan; • Install a road network management system ; and • Rebuild technical capacity in road sector institutions through appointment of qualified staff to vacant positions, and revival of intensive training programs to strengthen sector capacity.
Private Sector Participation 8. The government published the Public Private Partnerships (PPP) Policy and Guidelines in 2004 to promote economic growth through collaboration with the private sector in the provision of infrastructure. The legal instruments required to support policy implementation are still in draft form. PPPs are a mechanism to mobilize potential private sector funding and expertise in the roads sector. Some forms of private participation such as performance based maintenance contracts (PBMC) could be piloted immediately. Other forms of PPP are less likely to attract private interest in the current inflationary environment with low and declining traffic. However, steps may be taken to prepare the ground for private participation in the roads sector, as and when the economy stabilizes. The following next steps are suggested for promotion of PPPs in the roads sector. • Enact proposed PPP legislation; • Ensure clear allocation of responsibility between the MoTC and the proposed State Highway Authority for the promotion and regulation of PPPs; and • Pilot the PBMC approach for road maintenance.
Regional Integration 9. The corridor development concept has been adopted by the Southern African Development Community (SADC) member states to promote regional economic integration. Infrastructure development along these corridors supports economic development, in particular the implementation of “Anchor Projects” in the mining, agriculture and manufacturing sectors. Zimbabwe is currently participating in the Trans-Limpopo Spatial Development Initiative (SDI), the Beira Development Corridor and the Zambezi Valley Spatial Development Initiative. The government is seeking donor support for feasibility studies, GIS mapping, stakeholder workshops, and an investor conference linked to the SDI process.
10. Zimbabwe is also committed to a range of road sector activities promoted by SADC to enhance regional integration. These include harmonization of road signs and drivers’ licenses, provision of one-stop border posts, axle load control, and upgrading of trunk roads to comply
xi with SADC standards. The rate of progress on all of these initiatives is constrained by a shortage of funds and inadequate management capacity in road authorities, and slow progress with implementing PPPs in the road sector.
Rail Sector 11. The National Railways of Zimbabwe (NRZ) rail network has a single track route length of 2,590 km. The total locomotive fleet size in 2006 was 213. NRZ has more than 10,500 wagons, of which about half are sidelined. Over the past five years NRZ’s technical, operational, and financial performance has been adversely affected by the instabilities in the Zimbabwean economy. There is a critical shortage of foreign currency required for the procurement of essential items such as fuel and spare parts. The declining economy and provision of uncompensated public service obligations have led to poor fiscal performance. As a quasi-government organization, NRZ cannot always respond to market dynamics. This has culminated in loss of network capacity leading to reduced traffic, reduced revenues, and reduced availability of funds for infrastructure maintenance and renewal. The dilapidated state of infrastructure has resulted in some major accidents and derailments.
12. The following actions are proposed to address key issues impacting performance of the railway sector; these were developed by the railway working group reporting to the ZID Task Force in the MoTC. Most of them are proposed for implementation by NRZ.
Immediate Action Plan • Finalize the National Transport Policy document for submission to Cabinet, including policies to address creation of a level playing field for the railways; • Introduce well defined Public Service Obligation (PSO) contracts for unprofitable lines and services; • Update cost and accounting systems to enable disaggregation of costs, and identify loss making operations and lines; • Encourage the use of third party distributors such as freight forwarders. This would enable NRZ to maximize its traffic volume through a relatively small number of direct customers, thus reducing operating costs in the short to medium term; and • Work with neighboring railways to resolve capacity issues.
Long Term Action Plan • Amend Railway Legislation to allow adoption of various forms of private sector participation in the railways sector; • Establish a railway inspectorate unit in MoTC to monitor compliance with railway safety and environmental statutory instruments; • Revisit private sector participation (PSP) options developed by CIE in 1998 and agree on a road map to implement a preferred PSP model; • Continue restructuring of NRZ’s non-core assets for leasing or liquidation; • Design and implement a plan for human resources development in the technical departments of NRZ, and develop management information systems to enable informed decision making by railway management; • Establish a concession management unit to monitor compliance of concessions in the railway sector; and
xii • Attempt to recapitalize railway infrastructure to improve network capacity, efficiency, and competitiveness.
Private Sector Participation 13. In the 1990s, the government invited private investors to bid for infrastructure concessions but the process did not go very far. The only concession to be signed was the Bulawayo Beitbridge Railway concession in 1997. This 385 km railway runs from Beitbridge, on the border with South Africa, to Heany Junction near Bulawayo. Stakeholder consultations in the early 2000s led to the conclusion that private sector participation in NRZ was the only option available for provision of efficient and competitive railway transport in Zimbabwe in the long run. Strategic options for PSP should therefore be re-examined, as also the condition of the rail infrastructure and equipment, commercial viability, legal and institutional framework, environmental and safety considerations, and the impact on the local economy. This would enable the government to commence the PSP process and identify the economic and environmental benefits.
Water Sector 14. Access to water and sanitation services in Zimbabwe has been steadily declining since 1999. Water production in urban areas is now estimated to be 30 percent below requirements and the quality of water has deteriorated. Sewerage treatment works are no longer able to cope, leading to increased incidents of water-related diseases. Meanwhile, rural water supply coverage has remained relatively constant due to continued investment in rural water points by NGOs though access to sanitation in rural areas was estimated to be only 25 percent in 2004. The National Action Committee on rural water supply and sanitation, which was dysfunctional at the time of the ZIAN study, has been resuscitated with government funding.
15. Zimbabwe’s water supply and sanitation policy framework has not been modified in response to current economic challenges. Some of the basic assumptions underlying the controlling legislation and the Water Resources Management Strategy (WRMS) no longer hold. The WRMS did not envisage the continued existence of the Department of Water Resources as a supreme policy body. Furthermore, the land reform program has resulted in new structures and water users. The government recently directed the Zimbabwe National Water Authority (ZINWA) to take over responsibility for water supply and sanitation from urban local authorities, even though ZINWA lacks the capacity or legal mandate. Inadequate capacity in the Ministry of Water Resources and Infrastructure Development is a major constraint to implementing policy reforms. Stakeholders in the sector lack a shared vision, making coordination difficult.
16. The National Steering Committee (NSC) on water was requested to form a working group for the task force on the Zimbabwe Infrastructure Dialogue (ZID). The principal task of the working group was to develop action plans for the water and sanitation sector; these are presented below.
Immediate Action Plan • Prepare a Policy Framework Adjustment Note to engage stakeholders on the need for a shared vision and strategy;
xiii • Hold a broad stakeholder Strategic Planning Workshop to agree on shared vision and strategy for the sector; and • Establish a sub-committee to manage the information needs of the water sector, the sub-committee would launching a Sector Management Information Fund and prepare terms of reference (TOR) for development of a Management Information System (MIS) and seek funding for the consultancy.
Long term action Plan
• Review the Water Act and synchronize it with allied Acts; • Restructure the Department of Water Resources to strengthen its oversight and policy roles; • Develop a Sector Capacity Development Strategic Plan including the public and private sectors; • Prepare accountability and transparency systems and guidelines for the water and sanitation sectors, within the overall government anti-corruption framework; • Improve management systems in the sub-sectors for improved efficiency, effectiveness and accountability; • Establish an independent Water Tariff Commission to oversee the pricing of water with view to generating sufficient resources for sustainable supply and service provision, yet remaining affordable to consumers; • Prepare and implement a program to strengthen community based management (CBM) systems in the rural areas, including an effective monitoring and evaluation system, to be done by the National Action Committee; • Establish a transparent policy and regulatory framework for PPP in the water and sanitation sectors, based on local and international experience; and • Resuscitate the idea of a dedicated independent Water and Sanitation Tariff Regulation Commission.
Private Sector Participation 17. There are emerging possibilities for private sector participation in a number of areas within the water sector despite the challenging environment; these include dam construction, waste water recovery, treatment and recycling, and water and sanitation infrastructure for new peri-urban areas.
Regional Integration 18. Water is a scarce natural resource in the SADC region and a key developmental resource. More than 70 percent of the region’s water resources are in shared river basins. SADC is implementing the Shared Watercourses Support Project for the Ruvuma River (Mozambique, Tanzania), Buzi River (Zimbabwe, Mozambique) and Save River (Zimbabwe, Mozambique) Basins. This project provides a framework for integrated planning and management of shared water resources. GoZ has established a number of regional water course commissions, in association with its neighbors. These include the Zambezi Water Course Commission, Limpopo Water Course Commission, and Mozambique-Zimbabwe Water Courses Commission.
xiv Telecommunications Sector Sector Policies 19. The SADC Protocol on Transport, Communications and Meteorology (1996) calls for a “harmonized regional telecommunications policy”. In response to the signing of this Protocol, the Zimbabwe government announced a Sector Reform Policy. The new policy supported universal access to affordable telecommunications and postal services, with improvements to service availability and quality, and development of new services through de-monopolization and privatization. The Postal and Telecommunications Bill of 2000 saw the establishment of a sector regulator, the Postal and Telecommunications Regulatory Authority of Zimbabwe (POTRAZ), and ended the monopoly on the state-owned Post and Telecommunications Corporation (PTC). In December 2005, the government published the National Information and Communication Technology (ICT) Policy Framework to provide strategic direction for the development of the ICT sector in the context of rapid technological development.
Institutional Reforms 20. The primary function of POTRAZ is to ensure a level playing field in the posts and telecommunications sector. Its functions include licensing of operators and ensuring that the services meet acceptable quality standards. POTRAZ is funded through revenue from licensing and a levy on the gross turnover of the operators. The licensees are required to contribute to a Universal Service Fund (USF) which is intended to support the expansion of communication services to under-serviced areas. POTRAZ is governed by a Board comprising private sector, civil society and government representatives.
21. The government established the first mobile operator, NetOne, in 1996. The mobile market was opened to full competition in 1997 after the government’s monopoly was challenged in the courts by Econet Wireless. A third mobile operator, Telecel Zimbabwe, entered the market in 1998. The privatization of NetOne and the fixed line operator, TelOne, was approved by the government in 2001. Attempts to attract investors have, however, been unsuccessful. The economic climate in Zimbabwe has not been conducive for such major investments. TelOne is burdened with large foreign currency debts.
Condition of Infrastructure 22. TelOne has about 332,000 fixed lines in service giving a fixed line teledensity of 2.7 percent. Teledensity rates have improved in the past ten years, but TelOne has been unable to meet consumer demand. Problems include poor reliability and long waiting lists for fixed lines. Frequent power cuts disrupt the operation of telephone exchanges. TelOne is operating equipment which has outlived its useful life.
23. There are about 1.1 million mobile subscribers, giving a mobile penetration rate of 9 percent. The unconstrained demand for mobile telephone lines in Zimbabwe is estimated to be about 2 million. The biggest constraints to expansion of the networks and service levels are shortage of foreign currency and a low tariff regime. Call completion rates between mobile networks are estimated to be less than 10 percent. At peak times it is virtually impossible to make a call from one mobile network to another. POTRAZ is empowered to issue fines to telecoms operators or to withdraw their licenses if they don’t achieve agreed service levels, but POTRAZ must prove that the limitations are not beyond the operators’ control. Further, the level of the
xv fines that can be imposed by POTRAZ is low and does not act as a significant deterrent to violating agreed service levels.
24. International communications are achieved through two Intelsat satellite earth stations and two international digital gateway exchanges. Legal restrictions require private operators to route at least out-going calls through the government-owned gateways. Difficulties in making payments to foreign suppliers have resulted in periodic disruptions to international connections. Zimbabwe is a key player in the development of an integrated regional telecoms network, but is unable to fulfill this role due to failure to invest in a secure national backbone.
25. There are currently four licensed data communications providers and three licensed Internet Access Providers (IAP) in Zimbabwe. The national internet backbone was upgraded to 2Mb/s in 1998 and expanded to 11Mb/s by 2003. In 2006 it was estimated that there were about 1.2 million internet users in the country.
Financing 26. POTRAZ and the telecom operators use the COSITU model to set tariff levels. Tariff proposals by the operators are often subject to downward adjustment by POTRAZ. The tariffs are then rapidly undermined by inflation until the next adjustment is permitted. Telephone calls in Zimbabwe are amongst the cheapest in the world. The low call cost encourages users to make longer duration calls. As a result Zimbabwe has become a net-payer of foreign currency to foreign operators as local subscribers take advantage of the cheap rates. Meanwhile the mobile operators complain that the rates set by POTRAZ for international traffic terminating in Zimbabwe are skewed in favor of TelOne, therefore discouraging international callers from dialing mobile numbers. The telecommunications sector is seen as a “quick fix” source of foreign currency by the government. Meanwhile the operators believe they are losing significant revenue through telecoms crimes, in particular refilling of international traffic. Theft of telephone cables is an ongoing problem, with penalties for offenders too low to act as a significant deterrent.
27. The Universal Service Fund (USF) is under the control of the POTRAZ Board. The purpose of the fund is to support the expansion of services to underserved areas. To date the USF has failed to have any meaningful impact due to delays in registering the trust fund and the administrative parameters by which the fund should operate.
Management Capacity 28. The effectiveness of PORTAZ is limited by human resource constraints. POTRAZ has difficulty retaining staff due to government control over its salary scales and competition from other sectors. Specialist skills needed for effective regulation are scarce in Zimbabwe. TelOne continues to act as a training ground for the sector, yet the costs of training cannot be fully absorbed by the company. Faults on the network are induced by manpower shortages. Loss of experienced staff in TelOne has reduced their ability to negotiate fair interconnection arrangements.
Immediate Action Plan • POTRAZ to confirm that international connectivity is fully liberalized; • POTRAZ to review licensing to facilitate access in rural areas and consider the licensing of community or municipal based micro-telecommunications operators interconnected to major operators; and
xvi • Remove the Interception of Communications Act (2007) from the statute book to restore confidence.
Long term Action Plan • GoZ to initiate a thorough audit of the assets and liabilities of TelOne to inform a restructuring of the corporation and re-consideration of a future privatization strategy • Strengthen the independence and capacity of POTRAZ to encourage investment in the sector; • Consider participation of Zimbabwe in the Regional Communications Infrastructure project (RCIP) of the World bank or similar initiative to enhance international connectivity of all services to and from Zimbabwe; • POTRAZ to review Clause 3.23 public data network service licenses with the aim of amending the clause to allow such licensees to offer VoIP; • GoZ to ensure appointment of the Board of POTRAZ in accordance with the law; and • POTRAZ to enter into a “twinning” arrangement for exchange of staff and transfer of skills.
Energy Sector Sector Policies 29. The government of Zimbabwe is a signatory to the SADC Energy Protocol (2002). The Protocol provides a framework for regional cooperation in the development and operation of energy infrastructure. Zimbabwe is also a signatory to the Inter-Governmental Memorandum of Understanding (IGMOU) that established the Southern Africa Power Pool (SAPP) in 1995. The IGMOU was revised in 2006 to accommodated new institutions and activities in SAPP, namely regulatory agencies, Independent Power Producers (IPPs) and Independent Power Transmitters (IPTs). In 2000 the GoZ prepared a draft Electricity White Paper to guide the planned sector reform process.
Institutional Restructuring 30. The Ministry of Energy and Power Development is responsible for providing policy direction to the power sector. The Zimbabwe Electricity Supply Authority (ZESA) is responsible for acquiring, generating, transmitting, distributing and supplying electricity. In anticipation of impending restructuring, ZESA established divisions known as the Zimbabwe Power Company (ZPC), the Zimbabwe Electricity Transmission Company (ZETCO), the Zimbabwe Electricity Distribution Company (ZEDC), and Zesa Enterprises, which undertakes non-core functions. A separate Rural Electrification Agency was established to manage the rural electrification process.
31. The Electricity Act of 2002 provided for the establishment of the Zimbabwe Electricity Regulatory Commission (ZERC), and the establishment of ZESA successor companies which would take over the functions of generation, transmission, distribution and supply. A state-owned company (ZESA Holdings) was to hold the shares of the State in the successor companies. However, the Electricity Amendment Act of 2003 introduced a 100 percent state-owned, holding company for all the successor companies, and decreed that the transmission and distribution companies would remain State owned. Only ZPC and Zesa Enterprises (ZE) would be subject to private sector participation. Attempts to attract investors have, however, been unsuccessful due to the current economic climate and the absence of a truly unbundled structure. Meanwhile
xvii ZETCO and ZEDC have been merged into the Zimbabwe Electricity Transmission and Distribution Company (ZETDC).
Tariffs and financial status 32. Electricity tariffs are approved ZERC; the Commission has adopted a rate of return pricing approach with monthly adjustments linked to official inflation figures. This strategy does not accurately reflect the decline in value of the local currency, leading to price distortions that have severely undermined the financial viability of ZESA. Tariff increases have been resisted by the government due to the short-term impact on consumers and the economy.
33. The financial performance of ZESA has deteriorated significantly since 2002. By 2005, the net loss was 36.4 trillion Zimbabwe dollars compared to revenue of Z$2.7 trillion. ZESA is still treated as a going concern as it is 100 percent government owned. Revenue collection has deteriorated to a situation where four months revenue was outstanding by the end of 2005. This has resulted in a serious cash flow crisis exacerbated by the low tariff regime.
Condition of Infrastructure 34. There has been no major investment in power generation infrastructure in Zimbabwe since 1986. The actual average maximum sent out capacity of the power stations of just under 1,600 megawatts (MW) falls far short of the minimum 2,300 MW capacity necessary to meet demand and reserve requirements. Between 1996 and 2006 the country depended on imports for 35 percent of its energy requirements and 23 percent of its power requirements, but foreign currency shortages and lack of firm power contracts have forced ZESA to resort to load shedding. The maintenance of transmission substations and lines is satisfactory, but the overloading in the network is creating bottlenecks for regional power trading. A significant number of transformers are old and overloaded. There have been extensive investments in distribution infrastructure in the rural areas in the past ten years and significant reinforcement to the urban distribution networks was undertaken during the 1990s. Currently about 80 percent of the urban population and 35 percent of the rural population have access to the distribution network.
35. In recent years maintenance has been restricted to less than 10 percent of planned. The urban network is overloaded by about 20 percent to 30 percent leading to an increase in the number and frequency of network breakdowns. Non-technical losses have increased due to criminal activity and vandalism of distribution equipment. Meanwhile the ZESA customer base has increased by about 40 percent in the past ten years. There has been a decline in consumption in the agricultural, mining and industrial sectors but an increase in domestic demand. There has been a steady deterioration in quality of service performance and the rate of connecting new customers has declined by more than 50 percent. The waiting list for connections has increased four-fold. It now takes ZESA 10 times longer to arrive at faults and most faults now take more than 24 hours to repair.
Management Capacity 36. The effectiveness of ZERC has declined sharply due to the shortage of skilled regulatory professionals within the Commission and in Zimbabwe.
Immediate Action Plan • Allow ZERC autonomy to approve cost-reflective tariffs as provided for in the Electricity Act.
xviii
Long term Action Plan • Address legal, regulatory and policy impediments to private sector participation; • Move towards unbundling ZESA to facilitate operational and investment efficiency; and • Develop strategy for rehabilitation and upgrade of existing generation, transmission and distribution infrastructure, including strategy to raise low interest, long term capital.
xix ZIMBABWE INFRASTRUCTURE DIALOGUE
Background 1. In June 2006, the World Bank published a report known as the “Zimbabwe Infrastructure Assessment Note” (ZIAN). The report reviewed government policies, institutions, management capacity and financing sources in three key infrastructure sectors, namely, roads, railways and water and sanitation. It identified critical areas to be addressed in order to restore serviceability levels in the three sectors. The ZIAN provided an opportunity to fill a knowledge gap that had developed since Zimbabwe went into non- accrual status in 2000 and was consistent with the Bank’s approved “Interim Strategy Note” (ISN), dated August 2005.
2. The government of Zimbabwe (GoZ) subsequently requested the World Bank to continue the dialogue initiated under the ISN and expand the scope of future work to include the energy and telecommunications sectors. The ZID in FY07 and FY08 contributed to the Bank’s Interim Strategy Note II (ISN II) for Zimbabwe, approved by the Board in June 2007. The overall objective of the ISN II is to provide limited support to GoZ, and particularly to maintain the Bank’s operational readiness to re-engage more deeply and quickly once conditions warrant.
3. The ZID is a joint effort between the GoZ and the World Bank undertaken in the context of prolonged and severe economic distress. Inflation is officially at over 3,000 percent, as of April 2008, and a cumulative Gross Domestic Product (GDP) decline of more than 30 percent since 1999. The country is experiencing severe shortages of fuel and foreign currency. In addition, Zimbabwe’s social indicators, which had been among the best in Africa, have deteriorated rapidly. Performance in the infrastructure sectors has been affected by inadequate capital investment, insufficient funding for maintenance, and the departure of skilled and experienced professionals to the diaspora.
4. The ZID continues the consolidation of the analytical work started under the ZIAN. The report presents action plans for the roads, railways, and water and sanitation sub-sectors, in line with the May 2006 workshop recommendations. These are supported by policy papers in selected areas. Assessment notes have been prepared for the energy and telecommunications sectors, and the status of regional integration efforts and scope for public-private partnerships is noted. The ZID is consistent with the World Bank’s Interim Strategy I and II for Zimbabwe and other published documents such as the government’s National Economic Development Priority Plan (NEDPP).
5. Supervision of the ZID was done through a task force chaired by the MoTC and comprised of representatives of the participating sector ministries. Technical working groups were established in the road, rail and water sectors to provide detailed input to the preparation of the action plans. For all action plans presented in the report, it is noted that significant progress is not likely without a return to macroeconomic stability. The ZID does not include any activity relating to feasibility studies, planning, engineering design, cost estimates or the preparation of any development program for the sectors covered in the ZID. The scope of the ZID is limited to building knowledge and sharing global practices through review of existing policy documents.
xx SECTION 1: ECONOMIC REVIEW
1. Zimbabwe’s economic growth began to slow down in the 1990s following a balance of payments crisis and repeated droughts. By the late 1990s, Zimbabwe’s economy was in serious trouble, driven by economic mismanagement, political violence and the wider impact of the land reform program on food and export crop production. During 2007, GDP contracted by more than 6 percent, making the cumulative output decline by over 35 percent since 1999. The prolonged economic deterioration is doing long-term damage to the foundations of the Zimbabwean economy.
2. Inflation spiraled to very high levels, driven by sharp money growth to finance an extremely large public sector deficit, estimated to have exceeded 90 percent of GDP in 2007. A large part of the high public sector deficit was attributed to quasi-fiscal spending by the Reserve Bank of Zimbabwe (RBZ, central bank) – the spending consisted mostly of concessional credits and subsidized foreign exchange to priority sectors (agriculture, parastatals), unrealized exchange rate losses, and losses incurred by the central bank’s open market operations to mop up liquidities.
3. Faced with accelerating inflation, in June 2007, the government introduced blanket price controls and freezes and businesses were ordered to cut prices by half. The strict enforcement of the price controls intensified price distortions and led to acute shortages of basic commodities (food, fuel), undermining social conditions. Despite the strict price controls, inflation continued to rise, as the root cause of high inflation—monetization of large public sector financing needs— remained unaddressed. The last officially released CPI suggests year-on-year inflation of 355,000 percent in March 2008, although this is believed to significantly underestimate price pressures on the ground as the CPI basket contains many items which are no longer available in the formal market.
4. The Zimbabwean authorities modified the exchange rate regime a number of times for the past few years in a bid to bring foreign exchange from the thriving parallel market to the official market (auction system, floating/interbank system, floating system with a daily volatility bands, fixed exchange rate system). In May 2008, the RBZ floated the Zimbabwe dollar again, allowing foreign exchange trading through authorized dealers (banks, money transfer agents) on a willing- buyer/willing-seller basis. The Zimbabwe dollar is currently trading at over Z$500 million to a US dollar as of end-May 2008.
5. Zimbabwe’s external position has also been under considerable pressure, as a result of the deteriorating export performance, especially in the agricultural sector, low capital inflows, and lack of BoP support, leading to a significant build-up of external arrears. This has seriously undermined the country’s creditworthiness and, together with political uncertainty, prospects for foreign investment. Zimbabwe’s external debt burden is unsustainable and arrears accumulation is expected to continue in the absence of a drastic change in policies. At the end of 2006, Zimbabwe’s external debt was estimated at US$4.7 billion, equivalent to over 300 percent of exports, with external arrears estimated at US$2.7 billion. About 70 percent of Zimbabwe’s external debt is owed to official creditors, including multilateral creditors.
6. Serious price distortions created through multiple quasi-fiscal measures and price controls led to severe shortages of basic goods, encouraged informal activity, and severely damaged business confidence. Private sector investment is virtually nil, Zimbabwe’s infrastructure is deteriorating, and people with needed skills, such as teachers, doctors, nurses, and technicians, are leaving the country. The deterioration of the skills base has likely reached a level that will be difficult to redress. Illegal emigration to neighboring countries, particularly South Africa, has surged.
2 SECTION 2: ROADS SECTOR
A. Background 7. The classified road network of Zimbabwe is about 88,300 km, of which about 15,000 km is paved. In 2005, it was estimated that about 24 percent of the road network was in “good” condition, 40 percent in “poor” condition and the remaining 36 percent in “fair” condition. The condition of the road network has deteriorated significantly since 1995, and continues to deteriorate. Most of this deterioration is occurring on urban roads and on the unpaved rural road network; the decline in the national paved network is slower due largely to high initial standards of construction, effective routine maintenance and declining traffic volumes. Inadequate funding to road authorities over the last few years has led to a major backlog of periodic maintenance and rehabilitation across the network. It is estimated that about US$1.7 billion would be required to restore the entire network to “good” condition.
8. The management of the primary and secondary roads is the responsibility of the Department of Roads (DoR) in the Ministry of Transport and Communications (MoTC). The department maintains the roads through a network of maintenance camps based on a force account system. A process to commercialize DoR operations and transform the DoR into a semi- autonomous State Highway Authority was initiated in the late 1990s, but not much has happened since the formation of the Road Fund in 2001. The unpaved tertiary road network is managed jointly by the District Development Fund (DDF) and by Rural District Councils (RDC) under the Ministry of Local Government, Public Works and Urban Development (MoLGPWUD). Urban roads are managed by Urban Councils (UC), under the MoLGPWUD. The DDF, RDCs and UCs are recognized as Road Authorities and are eligible for direct allocations from the Road Fund. The DDF and the local road authorities implement maintenance primarily through the force account system.
9. In 2001, Zimbabwe endorsed a new Roads Act. The purpose of the act was to establish the Zimbabwe National Road Administration (ZINARA) and the Road Fund (RF). The act is comprehensive and includes the Road Authorities and their functions, the planning, development, construction and maintenance of the road network. The Road Act covers all regional, primary, secondary, tertiary and urban roads in Zimbabwe, except those in the national parks and wildlife estates. Not withstanding the existence of ZINARA and the Road Fund, all maintenance operations are currently constrained by a shortage of funds. The total annual requirement for maintenance is estimated at about US$160 million,1 but the combined budget allocations for all the road authorities and the Road Fund, in 2005, was only about US$10m. Meanwhile all road sector institutions and the private sector are affected by a steady outflow of human resources. Roads authorities are forced to engage under-qualified staff in key posts in an “acting” capacity for long periods of time. Capacity building programs in local authorities were largely disbanded when donor support to the road sector was withdrawn in 2001.
10. As a signatory to the SADC Protocol on Transport, Communications and Meteorology (1996), Zimbabwe is committed to reform of road sector institutions. Since the creation of ZINARA, however, progress on further institutional reforms has been slow. The transformation of the DoR into an autonomous State Highway Authority (SHA) is still under discussion within
3 government, and any commercialization of road sector activities is constrained by uncertainty of funding, rapidly escalating prices, and non-availability of foreign exchange. Road fund revenues have been severely undermined by fuel shortages and devaluation.
11. Road accident rates in Zimbabwe are high, even by SADC standards. Stakeholders have identified inadequate coordination, and lack of communication between government and private sector agencies, as hurdles in addressing road safety issues. Institutional restructuring has been proposed to resolve this problem, through the establishment of a road safety coordinating committee or authority. Meanwhile social and environmental issues are not mainstreamed in road sector activities. The government has issued a policy statement on HIV/AIDS in the transport sector but this has not been widely disseminated in road authorities.
Action Plan to Implement ZIAN Recommendations a. Methodology used for developing action plan 12. The ZIAN, completed in June 2006, identified and presented a set of critical areas for attention in the road sector in Zimbabwe. Taking the ZIAN as a starting point, the ZID working group for the roads sector, reporting to the ZID Task Force under the Ministry of Transport and Communications (MoTC), prepared the action plan documented below. The ZID Working Group included representatives of the government, local authorities and the private sector. The group discussions were facilitated by a World Bank consultant.
13. At the outset of the workshop, it was agreed that the action plan developed should avoid reliance on high level government approvals, particularly where approvals were required from outside the MoTC and the Ministry of Finance. It was recognized that management capacity in road sector institutions is severely affected by the depletion of skilled manpower. The working group thus sought to develop an action plan that was practical and within the capacity of road sector institutions to implement. And which would, at the same time, promote significant change in the road sector, particularly in the areas of policy development, sector finances and sector management.
14. The action plan developed by the working group included short-term, medium-term and long-term actions. In the following presentation, the various activities have been re-grouped into those that can be completed immediately and those that will take a longer time to prepare and implement. The long-term actions are those that cannot realistically be initiated without stability in the local economy. The timeframe for the latter could be reduced once the political climate in the country has changed. b. Immediate Action Plan 15. The following activities are identified for immediate follow up by the MoTC. These policy oriented activities are expected to strengthen the management of roads, make the Road Fund more effective, and pave the way to address road safety issues.
• Finalize the National Transport Policy document for submission to Cabinet; • Adopt the Road Safety Review Report (2005) and proceed with preparation of a strategic plan to address road safety; • Review potential measures to increase revenues accruing to the Road Fund; and
4 • Promote community participation, on a pilot basis, in rural road maintenance through self-help initiatives, food-for-work etc., supported by non-government organizations.
These actions are elaborated below.
1. National Transport Policy 16. A draft National Transport Policy (NTP) document was prepared by the Ministry of Transport and Communications in 2005, with the objective of promoting “long-term sustainable development in the transport sector”. The document seeks to align the national transport policy with regional initiatives such as the SADC Protocol on Transport, Communication and Meteorology, and national policies such as the Zimbabwe Millennium Development Goals (MDGs). The adequacy of the draft document was questioned at the Ministerial level and MoTC is now required to improve the document through further dialogue with stakeholders. The Sub- Saharan Africa Transport Program (SSATP) has agreed to support the additional dialogue required to finalize the Transport Policy, following submission by the government of a formal request for this assistance in January 2007.
Next Steps
17. MoTC to organize a workshop of stakeholders to reach agreement on the contents of the policy document, incorporate agreed changes into a revised draft, and finalize the NTP.
2. Road Safety Strategic Plan 18. A Road Safety Review Workshop was convened by the Department of Roads in July 2005. This was in response to “worsening road traffic accident rates” which were becoming “increasingly costly in both human life and property losses”. The purpose of the workshop was to undertake a situation analysis and identify policies and strategies for the purpose of reducing accident frequencies, casualties and costs. Representatives of the Traffic Safety Council of Zimbabwe (TSCZ), the Vehicle Inspection Department (VID), the Department of Roads (DoR), local authorities, and the police participated in the workshop. The Sub-Saharan Africa Transport Policy Program (SSATP) provided technical advice and inputs to the workshop.
19. Lack of finance for road safety activities and inadequate enforcement were identified by the workshop as major contributors to the high accident rates. The main problem identified by the workshop was, however, lack of a mechanism for coordination of the various sectors and players, including the TSCZ, VID, DoR, City of Harare, other local authorities, and the police. The road safety workshop recommended the establishment of a semi-autonomous coordinating committee or commission for road safety and a Road Safety Fund. This committee would coordinate the implementation of national road safety strategies and action plans agreed by each sector. The road safety fund would be used to finance the committee’s secretariat, which would be responsible for coordinating and auditing sector traffic safety action plans.
Next Steps
• Obtain political endorsement of the workshop findings; • Commence sector meetings to prepare sector action plans and strategies; and, • Consolidate separate safety plans into one document to be managed by the new road safety committee.
5 20. The workshop stopped short of recommending that all agencies with a role in traffic safety be brought under a single authority but the establishment of a coordinating committee is seen as a step in this direction. The above steps were still to be completed at the time of the ZID discussions in 2006/2007, and remain part of the immediate action plan to address road safety issues. The approval of the workshop recommendations by the MoTC will trigger the process of preparing a Road Safety Strategic Plan. If funds are required to strengthen the existing proposals through further stakeholder consultation, the government plans to approach SSATP for their support.
3. Road Fund Revenues and Effectiveness 21. Inadequate funding for maintenance is a critical issue in the road sector in Zimbabwe. Using the market exchange rate (as opposed to the official exchange rate), Zimbabwe spent approximately US$10.2 million on road maintenance in 2005 against an estimated annual requirement of US$160 million to properly maintain the road network. When the Road Fund was established in 2001 it was estimated that locally generated revenues to the Fund would increase from about US$3 million in 2001 to about US$71 million in 2006.2 However, actual revenues amounted to only about US$6 million in 20063 with the balance of funding for maintenance coming from State and local authority budgets. Average exchange rates are difficult to quote in Zimbabwe given the hyper-inflationary environment in the country. The revenue and expenditure figures quoted here are therefore purely indicative and would need to be re-calculated as and when the exchange rate stabilizes.
22. Meanwhile the government is increasing its reliance on ZINARA to fund routine maintenance on the core national road network under the control of the Department of Roads. The State budget allocation to the DoR for routine maintenance has declined from about US$10 million in 19974 to less than US$400,000 in 2006.5 The ability of ZINARA to respond to increased reliance on road fund revenues will depend on whether it can increase its revenue base. This in turn will depend on local political will to raise revenues and the state of the economy.
23. The working group identified the following measures to increase road fund revenues:
• Deposit all road user charges i.e. fuel levy, transit fees, vehicle license fees, network access fees, abnormal load fees, and all other charges meant for the provision and management of the road network into one account under the Road Fund; • Collect levies in foreign currency on fuel procured through Foreign Direct Import.
24. Constraints against adopting these measures include lack of clarity in the government and local authorities on which agencies collect various road user charges, and who is entitled to keep them. Furthermore, ZINARA’s role as the principal funder of road works in Zimbabwe has not been promoted by the government since ZINARA’s formation in 2001.
Next Steps
2 Source: The World Bank. Project Appraisal Document. May 2000. Page 9. 3 This amount is calculated at market exchange rates. At the official exchange rate the Road Fund revenue in 2006 was about US$19 million. 4 Source: ZIAN Report. June 2006. 5 Source: Government Budget (Vote 12 - Ministry of Transport and Communications). Currency conversions based on an average market exchange rate for 2006 of Z$1,000 to one US$. It is noted that the State budget to DoR for construction increased from about US$4.5million in 2005 to about US$10 million in 2006.
6 25. Though it seems doubtful that measures to strengthen the road fund and increase revenues could be implemented in the current environment, a Policy Option Note has been prepared to assist MoTC to move forward (see Annex 1). Further assistance has been offered by the ZID Task Force and Road Working Group, if necessary. The MoTC will discuss these recommendations with the Ministry of Finance and other relevant ministries, and prepare the needed documentation for submission to Cabinet.
4. Community participation in road maintenance 26. The international donor community has continued to support rural development programs in Zimbabwe despite difficult relations with the government in recent years. This support is channeled through United Nations agencies and non-governmental organizations (NGOs). Support to local communities includes rural water supplies and sanitation and agricultural extension services. The effectiveness and sustainability of these interventions is threatened by deteriorating road access given weak capacity in most Rural District Councils to maintain rural access roads. Furthermore, the effectiveness of the District Development Fund, which is responsible for maintaining the core unpaved tertiary road network, has declined in recent years due to inadequate funding. The Zimbabwe Infrastructure Assessment Note for the road sector found that deterioration of roads in Zimbabwe is most critical on the unpaved network.
27. A program could be developed to harness NGO and community resources for the maintenance of rural access roads. Such a program would contribute indirectly to capacity building in RDCs. It would also create a platform for direct donor support for the unpaved rural roads network, following future re-engagement with the international donor community.
Next Steps
28. The ZID Roads Working Group under the MoTC will engage in discussions with NGO representatives to establish possible areas of participation of NGOs in rural roads works. The discussions will also identify inputs that may be required to facilitate this work, such as technical guidelines, training of field operators etc. The Working Group will identify funding sources to support these inputs, such as the SSATP and international donors. It is anticipated that this could lead to NGO participation in rural road works in a shot span of time. c. Long Term Action Plan 29. Four long term actions have been identified to address critical areas in the road sector. These actions will contribute to strengthening the institutional arrangements in the road sector, increasing effectiveness of the Road Fund, building capacity in the road authorities, and ensuring that social and environmental issues are incorporated in road projects. Some of the recommendations below can only be implemented in a significantly improved economic environment. In particular, a reverse flow of human resources is necessary for sustained recovery and development of capacity in road sector institutions. No specific time frame has been set for these actions.
30. The actions identified to be implemented in the long term are:
• Rebuild technical capacity in road sector institutions through appointment of qualified staff to vacant positions, and revival of intensive training programs to strengthen sector capacity; • Prepare enabling legislation for the transformation of the Department of Roads into a semi-independent State Highway Authority;
7 • Prepare a National Road Network Development Plan; and • Install Road Network Management System incorporating Geographical Information System (GIS) capabilities.
1. Re-build technical capacity in road sector institutions
31. Road sector institutions are being severely affected by the loss of qualified and experienced staff to the private sector and the diaspora. The losses are driven by the weak economy which results in low levels of remuneration, particularly in government sectors. Furthermore, there has been inadequate funding available to support the training of engineers and technicians in sufficient numbers to replace those that have left. Education programs at local universities and technical colleges have been disrupted by under-funding and staff shortages.
32. Capacity in road sector institutions will only be fully restored once there is stability in the local economy and consistent growth. This will encourage Zimbabweans in the diaspora to return. It will also encourage new graduates to remain in Zimbabwe. By streamlining road agencies, particularly the Department of Roads/State Highway Authority, and placing increased reliance on the private sector, it is anticipated that a reduced burden will be placed on the government to recruit and retain staff.
33. Restoration of relationships with international development partners will provide opportunities for increased support to universities, technical colleges and roads training centers.
2. Transform the Department of Roads into a semi-independent State Highway Authority 34. Inadequate management capacity is a critical issue in road sector institutions in Zimbabwe. Road authorities have lost and are continuing to lose qualified and experienced staff, mainly due to low public sector salary scales and uncertainties in the local economy.
35. The DoR continues to operate essentially as a traditional force account operator. This system has been effective in maintaining the trunk road network and in undertaking a low level of new construction under extremely difficult conditions in recent years; but it is unlikely that this system would be able to respond adequately to a major injection of funds into the sector under more stable economic conditions. The department has experience in the outsourcing of services to the private sector, but outsourcing is now mainly limited to hiring of equipment for the DoR’s force account construction units. Meanwhile the private sector in Zimbabwe remains relatively strong despite the weak economy. The private sector is able to respond more rapidly than the public sector to improved operating conditions, including the recruitment of experienced staff.
36. The government has stated its commitment to creating a semi-autonomous national authority for roads. This is a key principle of the SADC Protocol on Transport, Communications and Meteorology (1996). The “Road Sub-Sector Policy Green Paper”, which was published by the government in 1999, also supports the transformation of the Department of Roads into a State Highways Authority (SHA). The vision for SHA is that it would be a semi-autonomous organization established by an Act of Parliament; operating on commercial principles, engaging its own staff, and reporting to a Board of Directors. The Board of Directors would report to the Minister responsible for Roads, who would also be the appointing authority. Directors would be drawn from both the private and public sectors to ensure that stakeholder constituencies are well represented and participate in the management of road infrastructure.
8 37. A streamlined, semi-autonomous SHA, with its own salary structure, is likely to be better placed in recruiting and retaining qualified staff and re-building capacity after the losses suffered in the last decade. The restructuring would be accompanied by a reduction in force account works, with increased reliance on outsourcing to the private sector. New posts would be required in the departments of procurement and project management, with a reduced requirement for in- house design capability and the management of maintenance and construction units.
38. It will be possible to provide increased focus on social and environmental issues in the road sector through the establishment of a dedicated social/environmental unit in the State Highways Authority. This unit would ensure that social and environmental criteria are integrated into prioritization methodologies, oversee HIV/AIDS activities and training in the sector, implement Road Safety Audits, and monitor and evaluate labor based works and impacts of investments. The unit will also ensure that the needs of non-motorized transport are considered in designs for new roads and road upgrading. This includes roads in urban areas where pedestrians and bicycles must be catered for, and rural areas where bicycles and animal-drawn carts often predominate.
Next Steps
39. To proceed with the institutional restructuring, the National Transport Policy, including the formation of a State Highway Authority (SHA) as a key policy objective, needs to be completed and formally adopted by government. This would be followed by discussions with stakeholders to agree on the structure of the SHA, and its relationship with ZINARA and the local road authorities. Once the structure of SHA is defined, the supporting legislation would be drafted presenting as well the sources of funding for SHA. Delays in completion of the NTP and lack of financial assistance following the withdrawal of donor support to road sector institutional reforms in 2001 are major constraints in moving forward. Funding is required to support management restructuring for the SHA, and drafting the enabling legislation
40. The ZID Task Force and Road Working Group have prepared a Policy Option Note (see Annex 1) to assist in the restructuring process. The preparation of the enabling legislation for the transformation of the Department of Roads into a State Highway Authority could be fast tracked as the political and economic environment improves.
3. National Road Network Development Plan 41. There is currently no strategic plan for the development of the Zimbabwe road network. There is also uncertainty about the actual length of the network, with no information readily available on which roads have been formally “declared” by the Ministry of Transport and Communications under the provisions of the Road Act. A new Network Development Plan would be required to identify the existing network and guide future development. This will contribute to effective prioritization of road investment and maintenance funds. The plan would be developed with wide stakeholder involvement and would provide a basis for future investment programs in the road sector in Zimbabwe.
42. Constraints to preparing a Network Development Plan include lack of funding and inadequate management capacity in the Department of Roads and the local road authorities. Funding options include the Road Fund and SSATP. The preparation of the plan, including facilitating stakeholder consultations, would be outsourced to consultants.
Next Steps
9
43. The Department of Roads/State Highway Authority will secure funding for the preparation of the Network Development Plan. The DoR/SHA will appoint consultants to assist with the process.
4. Road Network Management System 44. A roads database and prioritization method using HDM was introduced to the Department of Roads in the late 1990s. The system is no longer functioning due to management constraints, lack of funding to upgrade computer hardware and software, and road data that is now out of date. Meanwhile a program to introduce computer-based road management systems in local authorities, which started in the early 2000s, was abandoned following the withdrawal of donor support to the sector.
45. New road network management systems are now required for the prioritization of investments and maintenance funds on the road network. This includes primary and secondary roads under the control of the Department of Roads/State Highway Authority, and core urban and unpaved roads under the control of the District Development Fund (DDF) and local authorities. A Geographical Information System (GIS) will be used to establish a database of network links identified within the Network Development Plan. Prioritization of road investments and maintenance will be undertaken with HDM for the preparation of works programs. The installation of these systems in the DoR/SHA and other key road authorities will lead to increased operational readiness for the resumption of relationships with international development agencies. Funding for this project will be provided by the Road Fund.
Next Steps
46. The DoR/SHA will develop a scope of work for the development and installation of a network management system, and will secure funding to support this. The DoR/SHA will engage consultants to design and install the system, provide training, map the existing road network and collect data on road condition, traffic volumes etc.
Budget for the action plan
47. The following is an indicative budget required to finance the activities identified for the immediate and long term action plans.
Action Activities Budget6 Possible Source of Funds MoTC to finalize the National Transport • Stakeholder workshop. US$20,000 SSATP Policy ready for submission to the •
e Redraft policy document. t s a i n Cabinet. d o i e t MoTC to adopt the Road Safety Review • Discuss current proposals at US$5,000 SSATP c m
A Report (2005) and commence
m management level in MoTC. I preparation of a Road Safety Strategic • Redraft document if necessary. Plan.
6 Road Working Group estimates.
10 MoTC to promote new measures to • Refine estimates of potential US$30,000 International donors increase Road Fund revenues. Road Fund revenue. • Outline study of economic benefits of increased investment in road maintenance. • Study of logistical and administrative measures. • Consult stakeholders. • Prepare detailed proposals for submission to the Cabinet. Community participation in road • NGO consultations. US$200,000 SSATP maintenance will be encouraged through • Prepare technical guidelines. International donors self-help initiatives, food-for-work etc., • Training / demonstration sites. NGOs supported by NGOs (on pilot basis) Prepare draft legislation for • Publish National Transport US$200,000 International donors transformation of the Department of Policy. Roads into a State Highway Authority. • Stakeholder dialogue on the revised institutional structure. • Develop suitable management structure for the SHA. • m Prepare enabling legislation. r e •
T A National Road Network Development Stakeholder consultations. US$100,000 International donors g Plan will be prepared. • n Prepare Network Development o L Plan. A Roads Maintenance Management • Procure and install computer US$500,000 International donors System based on a GIS will be installed. hardware and software • Training • GIS mapping of roads • Data collection including condition survey, traffic counts etc.
d. Monitoring the action plan 48. The implementation of the action plan for the road sector will be monitored by the ZID Task Force in the Ministry of Transport and Communications (which includes a Ministry of Finance Representative), and the Road Working Group. These groups will meet monthly, at least for the first six months from the start of the implementation of the action plan. They will continue to report to the MoTC and the Ministry of Finance.
Public Private Partnerships e. Government policy 49. The government published the Public Private Partnerships (PPP) Policy and Guidelines in 2004. The goal of this policy document is to “promote sustainable economic growth and development through mutual collaboration between government and the private sector in the efficient management and operation of infrastructure and other development projects in the country”.7 The PPP Policy and Guidelines provide for several forms of public private partnership, including management contracts, leasing, concessioning, and “new entry” through de-monopolization.
7 Public Private Partnerships Policy and Guidelines. December 2004. Page 1.
11 50. The PPP Policy and Guidelines provide a framework for the legal instruments required to support PPPs in infrastructure sectors. These legal instruments are, however, still in draft form and under consideration by the office of the Attorney General. f. Benefits from PPP in the Road Sector 51. The use of pubic private partnerships in the road sector provides a mechanism to mobilize private sector funding and expertise for the construction and improvement of roads. The government is presently unable to fund critical improvements to important trunk roads, leading to increased vehicle operating costs and increased requirements for routine maintenance. Increased vehicle operating costs lead to increased road transportation costs and further negative impacts on the local economy. The central geographic location of Zimbabwe in Southern Africa means that increased vehicle operating costs on Zimbabwe’s roads have an impact on the regional economy. Meanwhile some of the trunk roads carry sufficient traffic to generate attractive returns on private sector investment.
52. The ability of the private sector in Zimbabwe to respond to PPP opportunities is demonstrated by projects such as the Newlands By-Pass in Harare. A private sector consortium is constructing a two kilometer road by-pass in Harare on behalf of the local authority. The consortium is financing the construction of the road in exchange for land use rights for commercial developments facilitated by the realignment. g. Key issues in PPP 53. The absence of supportive legislation is a constraint to implementing PPPs in the road sector in Zimbabwe. The legislation will set out roles and responsibilities for the public and private sector partners, ensuring effective regulation and protection for the public, yet allowing the private sector to generate a reasonable return on the investment. The enactment of appropriate laws might not, however, be sufficient to ensure that the projects that are already being promoted by the government and private sector will succeed. A key issue for PPPs in the road sector is the level of tolls required to make such agreements attractive to the private sector, yet acceptable to the government and the public. This is exacerbated by the difficulty that the government presently has in accessing low interest loans available from international development partners to support this type of venture. The private sector in Zimbabwe also has limited access to the level of funding required to support major investments. Meanwhile traffic levels are diminishing due to the decline of the economy, leading to reduced potential revenue from tolls. The loss of experienced staff from the Ministry of Transport and Communications has limited the government’s capacity to adequately regulate the sector. h. Potential projects in PPP 54. A private sector consortium known as Zimhighways8 has been engaged in discussions with the government for several years for a PPP in the road sector. The consortium is seeking a 20-year concession to upgrade and operate the Harare to Beitbridge Road. This is the primary road link between Harare and South Africa. The road is used for north-south trade between South Africa and countries further north including Malawi, Zambia, DRC and Tanzania. It forms a key link in the SADC Regional Trunk Road Network.
55. Zimhighways intends to upgrade the road from the existing single lane standard with gravel shoulders to a dual carriageway. The initial phase of the project is expected to reach
8 The consortium members include several of the major construction companies operating in Zimbabwe and a commercial bank. The same consortium is constructing the Newland By-Pass in Harare.
12 Beatrice, about 50 km south of Harare, within two years. The second phase would see the dualisation reaching Masvingo, about 290 km from Harare, within the next seven years. A further eight years would be needed for the dualisation of the remaining 300 km to the border town of Beitbridge. The consortium would wholly fund the project on a build, operate and transfer basis, with toll-gates established on the road to recover costs. Traffic volumes on the road vary from about 1,500 vehicles per day at Beitbridge to nearly 3,000 vehicles per day approaching Harare. The proportion of heavy vehicles is over 30 percent. Zimhighways has reported that the volume of traffic on the road has reduced in recent years due to economic decline and fuel shortages, but this does not significantly threaten the immediate viability of the project.
56. A Memorandum of Understanding was signed by Zimhighways and the government in October 2003 as a framework to proceed with implementation. Subsequently there has been little progress and the government has concerns about the adequacy of the concessionaire’s resource to execute the project. None of the concerns have, however, been communicated officially to Zimhighways, and there have been no formal discussions between the government and Zimhighways on how the project would be financed.
57. It is anticipated that a successful launch of the Harare-Beitbridge PPP would lead to similar initiatives on other major trunk roads in Zimbabwe. These include Harare to Mutare, Harare to Bulawayo, and Beitbridge to Victoria Falls. Zimbabwe is uniquely placed in Southern Africa (aside from South Africa) to promote PPPs in the road sector since it has a well established private construction industry, and a relatively well developed and sophisticated financial sector. Of greater concern is whether the government has adequate capacity to promote projects identified for PPPs, while ensuring protection for the public through effective regulation. i. Next Steps in promoting PPP 58. The Ministry of Finance and the Ministry of Economic Planning and Development are responsible for promoting PPPs in Zimbabwe. The implementation of PPP projects in the road sector is delegated to the Ministry of Transport and Communications. The next steps to be taken by the government in promoting PPPs are: • Enact the proposed PPP legislation; • Ensure clear allocation of responsibility between the MoTC and the proposed State Highway Authority for the promotion and regulation of PPPs in the road sector; and • Pilot the use of Performance–Based Maintenance Contracts (PBMC) for routine maintenance of paved and unpaved roads; possibly with Bank developed sample bidding documents for award of civil work contracts under the PBMC approach.
Regional Integration j. Importance of regional integration 59. The government of Zimbabwe is a signatory to the SADC Protocol on Transport, Communications and Meteorology, which was adopted by the member states in 1996. Under the Protocol the Member States have agreed to promote a range of strategic regional goals. These include: • Integration of regional transport networks through the implementation of compatible policies, legislation, rules, standards and procedures; • Reduction of hindrances and impediments to the movement of persons, goods, equipment and services; and
13 • Broad-based investment to develop, preserve and improve viable strategic transport infrastructure within an investor-friendly environment generating adequate returns.
60. The Member States also agreed to “ensure and sustain the development of an adequate roads network in support of regional socio-economic growth”. This will be achieved by providing, maintaining and improving primary, secondary, tertiary and urban roads, in order to: • Ensure access to major centers of population and economic activity; • Ensure access between ports of entry between Member States and harbors of importance to the region; • Minimize total road transport costs; • Preserve assets vested in road infrastructure; • Enforce axle load control on paved road network; and • Minimize detrimental impacts on the environment.
61. Roads are the dominant form of transport in Southern Africa, carrying about 80 percent of cross-border freight and most passenger traffic. SADC has identified a core road network for the region known as the SADC Regional Trunk Road Network. Zimbabwe provides key links in this network due to its location in the heart of Southern Africa. These links are critical to efficient road transportation for north-south and east-west trade between neighboring countries. Since Zimbabwe is landlocked it also relies on these road links for access to sea ports. The upgrading of these links to SADC trunk road standard is constrained by funding shortages, inadequate management capacity in road authorities, and slow progress with implementing Public Private Partnerships in the road sector in Zimbabwe. k. Projects Supporting Regional Integration i. SADC Protocol 62. Zimbabwe is committed to a range of road sector activities designed to promote regional integration in accordance with the SADC Protocol. These include: • Harmonization of road signs; • Harmonization of drivers’ licenses; • Provision of one-stop border posts; and • Upgrading of trunk roads to comply with SADC technical design standards.
63. The DoR has embarked on a project to replace existing road signs with SADC standard designs. This process will also require a revision to the Zimbabwe Highway Code. Meanwhile SADC drivers’ licenses are in production and are scheduled to be offered to Zimbabwean drivers in 2007. Progress on both of these initiatives is constrained by a shortage of funds.
64. Poor customs facilitation is a major constraint to trade in Southern Africa. Systems are not streamlined and harmonized across countries, and physical facilities and basic services at border posts are generally inadequate. These factors all contribute to unnecessary delays and therefore added transport costs. The concept of a “One Stop Border Post” has been implemented on the Maputo Corridor at Ressano-Garcia, the border between South Africa and Mozambique. The concept requires agreement between the respective countries to inspect goods only once in each direction. The Chirundu Border Post between Zimbabwe and Zambia is being developed into a one-stop facility on a pilot basis under an initiative promoted by COMESA.9 Recent
9 Source: Common Market for Eastern and Southern Africa. Eighth Meeting of the Transport and Communications Committee. Lusaka, Zambia. 18th – 20th October 2004.
14 reconstruction works at the border post were designed to accommodate the one-stop concept, but new legislation is required to facilitate the collection of duties on one side of the border on behalf of the other country. Zimbabwe is also in discussion with South Africa on introducing a “One Stop Border Post” at Beitbridge. Meanwhile the customs and immigration facilities and access roads at the Beitbridge border post are being expanded and improved which should significantly reduce congestion at the country’s busiest entry and exit point.
65. Zimbabwe has several road links forming part of the SADC Trunk Road Network. The total length of these links is approximately 3,000 km. Most of these roads have a 7 meter wide paved carriageway with one meter wide unpaved shoulders. Gravel shoulders were adopted in order to reduce costs when the bulk of Zimbabwe’s primary road network was built in the 1960s and 1970s. As traffic levels have increased the unpaved shoulders have become a liability since they require a high level of maintenance. The seven meter paved road width is inadequate to safely accommodate the large proportion of heavy vehicles using the trunk road network, as well as increasing amounts of non-motorized traffic. This contributes to high accident rates. Road improvement programs in the 1980s and 1990s included the paving of shoulders on some of the higher trafficked links including Harare-Gweru and Harare-Mutare, but the bulk of the trunk road network remains with only a seven meter paved width. Zimbabwe is presently unable to invest in improvements to these roads to bring them to the required standard for SADC Regional Trunk Roads. Meanwhile maintenance on the trunk road network is limited mainly to routine activities such as pothole patching, with an increasing length of road now requiring either resealing or reconstruction where structural failure has occurred.
66. The cost of operating vehicles on Zimbabwe’s roads is increasing as the condition of the roads deteriorates. This has an affect on the regional economy through increased transportation costs. Meanwhile alternative north-south routes are being established through Mozambique and Botswana that will enable traffic originating in South Africa to by-pass Zimbabwe. This will result in reduced revenue for road maintenance in Zimbabwe from international transit fees levied on freight transport. ii. Regional Development Corridors 67. The concept of Regional Economic Corridors / Spatial Development Initiatives (SDIs) has been adopted by SADC member states to promote regional economic integration in Southern Africa. Infrastructure development along these corridors includes upgrading of roads, railways and telecommunication networks. The purpose of this infrastructure development is to support economic development in the corridor, in particular the implementation of “Anchor Projects” in sectors such as mining, agriculture and manufacturing. The development of SDIs includes all SADC member states, private sector players, international development agencies and NGOs. The Regional Spatial Development Initiative Program is coordinated by the Republic of South Africa’s Department of Trade and Industry. The responsible authority in the Zimbabwe government is the Ministry of Economic Planning and Development.
15
Figure 1: SADC Trunk Road and Railway Network (excluding DRC)
Zimbabwe is currently participating in three regional initiatives under the SDI program. These are: • The Trans-Limpopo Spatial Development Initiative (TL-SDI); • The Beira Development Corridor (BCG); and • The Zambezi Valley Spatial Development Initiative (ZV-SDI). iii. The Trans-Limpopo Spatial Development Initiative (TL-SDI) 68. The TL-SDI is a development corridor linking Polokwane in the northern Limpopo Province of South Africa with Victoria Falls. The TL-SDI is currently active with both countries having completed Geographical Information Systems (GIS) mapping of their respective areas. The GIS has proved to be a useful tool for marketing development corridors as it provides critical information concerning the SDI for the interest of the local and international investors. The next step in the promotion of the corridor is the integration of the GIS databases between Zimbabwe and South Africa, and the employment of a project manager for the SDI. Funding is being sought for these activities.
16 iv. The Beira Development Corridor (BDC) 69. The BDC links Harare with the Port of Beira in Mozambique. The corridor has significant economic importance to Zimbabwe since it provides the shortest distance to a sea port for most of the country. The two countries (Zimbabwe and Mozambique) have negotiated the BDC Agreement, a legal framework that will lay the basis for coordinating, promoting and implementing BDC Projects. After signing the agreement on the BDC, the two countries will prepare the BDC Business Plan. The plan will include, amongst other activities, stakeholders’ workshops, commissioning of a GIS database for the corridor, and an investors’ conference.
70. Road infrastructure on the Mozambique section of the Beira Corridor is currently receiving attention, particularly the lower sections across the Pungwe River valley. In Zimbabwe the most critical section of the road is the planned by-pass of the City of Mutare near the Mozambique border. This would divert cross-border traffic, particularly heavy vehicles, away from the city centre and allow traffic to bypass a difficult mountain pass. Detailed designs have been prepared for the new road but funding is not yet available for its construction. v. The Zambezi Valley Spatial Development Initiative (ZV-SDI) 71. A feasibility study of economic opportunities within the ZV –SDI corridor and an assessment of how development of the corridor would contribute to economic growth in the region are proposed. The corridor involves Malawi, Mozambique, Zambia and Zimbabwe, and is in the very early stages of planning.
72. Kazungula Bridge Project: The development of the Kazungula bridge at the border of Botswana, Zambia, and Zimbabwe is still at the inception stage. The Government of Botswana has taken the lead in planning through the organization of a workshop to review the project. An assessment of benefits accruing to Zimbabwe from the bridge would be a useful first step and could be organized by MoTC.
l. Next steps in promoting regional integration 73. The proposed reforms to the Zimbabwe Road Fund and creation of a State Highway Authority could lead to easier collaboration with similar national roads agencies in the region. However, unless the government can successfully launch PPPs on the Trunk Road Network, it is unlikely that significant funding will be available for upgrading these roads till there is stability in the economy and re-engagement with international development partners.
The next steps in promoting regional integration are:
• Support the ZID action plan to increase Road Fund revenue and transform the DoR into a State Highways Authority (see section B and C); • Upgrade Trunk Roads to SADC standards through PPPs (see section D) or international donor support to the roads sector; • Continue to engage with COMESA and SADC on regional projects such as uniform drivers’ licenses, road signs and one-stop border posts; and • Seek funding through the World Bank or other sources to: ° Strengthen GIS mapping on the Beira Corridor and Trans-Limpopo SDI (budget US$140,000); ° Organize stakeholder workshops and an investor conference on the Beira Corridor (budget US$90,000); and
17 ° Undertake a feasibility study of the Zambezi Valley SDI (budget US$20,000).10
SECTION 3: RAIL SECTOR
B. Background 74. The National Railways of Zimbabwe (NRZ) rail network has a single track, route length of 2,590 km, comprising 1,880 km of main line, and 710 km of branch lines. The gauge is 1067 mm. About 313 km of the main line is electrified using a 25 KV overhead system. The total track length including sidings, loop lines, switching yards is 4,300 km. The main lines are constructed with 45 kg/m and 54 kg/m long-welded rails while the branch lines are constructed with 30 kg/ m and 40 kg/m rails. The total locomotive fleet size in 2006 was 213, comprising 34 steam locomotives, 30 electric locomotives, and 149 diesel locomotives. The diesel locomotive fleet is heterogeneous and of different classes. NRZ has more than 10,500 wagons of different types, of which about half are currently sidelined.11 Train operations on the main line are managed through a centralized train control system (CTC), and train operations on the branch lines are managed through a paper order working system.
75. Over the past five years, i.e., 2001–2006, NRZ’s technical, operational, and financial performance has been adversely affected by the instabilities in the Zimbabwean economy. This includes an unstable fiscal deficit, an overvalued and unstable exchange rate and hyper-inflation, which exceeded 3,000 percent in April 2007. There is a critical shortage of foreign currency, which is required for the procurement of essential items such as fuel and spare parts. The declining economy, internal management issues within NRZ, and public service obligations (PSO) performed by the railways at a loss on behalf of the government, have led to poor fiscal performance, steady deterioration of infrastructure, locomotives and wagons, and further consequent loss of the network capacity to carry all the traffic on offer (ZIAN, World Bank, 2006). This has affected NRZ’s role as a critical provider of transport services for both internal and regional transit traffic.
76. According to the Zimbabwe Infrastructure Assessment Note (ZIAN, World Bank 2006), the major constraints affecting the efficient functioning of the railways, apart from the hyper- inflationary economic environment in which it operates, include, but not limited to, the following: unclear government policy on either railway commercialization or Private Sector Participation (PSP) in the railway sector; unclear policy on Public Service Obligation compensations to the railways; and network capacity constraints on account of aging infrastructure and rolling stock. A combination of the above has caused NRZ to enter into a spiral of poor financial performance and the resulting perpetual fiscal deficit. Additionally NRZ operates in a quasi-government environment, and because of this, it faces a lot of challenges in responding to the market dynamics, and in timely implementation of operational and investment decisions. This has, over
10 All budget figures from Ministry of Economic Planning and Development. 11 A complete description of the fleet of locomotive and wagons is given in the Zimbabwe Infrastructure Assessment Note (ZIAN, World Bank, 2006).
18 the years, culminated in a cycle of loss of network capacity leading to reduced traffic carried and thus reduced revenues, and consequently reduced availability of funds for infrastructure maintenance and renewal.
77. Moreover, the declining state of infrastructure has resulted in some major accidents and derailments in the recent past, resulting in loss of life and property. This has caused safety concerns to the general public. Apart from the aging infrastructure as a factor contributing to making the railways accident prone, the other factor is that, there is no clear policy on safety regulation of the railways.
78. In 1997, the government signed a concession agreement with New Limpopo Projects Investments for construction and operation of the Bulawayo to Beitbridge Railway (BBR). The route length is approximately 385 km running from Beitbridge, on the southern border with South Africa, to Heany Junction near Bulawayo where it joins the NRZ system. The line was designed to Spoornet12 standards, with a 20 ton axle-load, and has a capacity of 4 million tons per annum. It is operated by Spoornet under contract.
Action Plan to Implement ZIAN Recommendations m. Methodology used for developing action plan 79. The action plan to address key issues in the railway sector was developed by a railway working group reporting to the Zimbabwe Infrastructure Dialogue (ZID) Task Force. The working group comprised officials from the Ministry of Transport and Communications, the National Railways of Zimbabwe, and a selection of major customers. The lead Ministry and coordinator for the railway working group was the Ministry of Transport and Communications.
80. The railway working group, through a participative and consultative process and through re-visitation of past studies in the railway sector, identified the main constraints affecting the operational, technical and financial performance of the railways. The group then, together with other working groups on the ZID, conducted a workshop at which discussions were held and consensus on the action plan to address the constraints was reached.
81. The action plan consists of a series of activities framed to address short to medium term constraints. This includes immediate activities which would assist to reduce the gap between revenues and working expenses, and activities including financial, economic, safety and environmental aspects of the railway operations that would contribute to the medium to long term sustainability of the railways,. n. Immediate Action Plan 82. In the short term, the focus for the railways should be to reduce NRZ’s operating deficit by reducing expenses and increasing revenue through optimization of the available core assets with respect to market demand. The actions should, amongst others, include the following:
• GoZ should finalize the National Transport Policy in line with the SADC Protocol on Transport and Meteorology;
12 South Africa’s government-owned railway operator.
19 • The Ministry of Transport and Communications (MoTC) and National Railways of Zimbabwe (NRZ) should introduce well defined Public Service Obligation (PSO) contracts, including compensation, for unprofitable lines and services. If the government is unable to pay the agreed compensation for some of the unprofitable lines/services, then these lines/services should be subjected to a thorough analysis and as many as possible should be temporarily suspended;
• NRZ should modify and update the existing cost and accounting system to enable NRZ to identify those operations and lines that are loss making, particularly those that are not even recovering the variable cost. Based on this information prioritize and rationalize the tariffs, or move towards discontinuing the services. If PSO, take action as at (1) above;
• NRZ should, where possible, use third party distributors (freight forwarders etc), and should continue engaging clients in their freight transport planning;
• NRZ should enter into specific contracts with neighboring railways or major customers to find solutions to capacity problems, including operating agreements.
These actions are discussed in more detail below.
1. Government of Zimbabwe should finalize the National Transport Policy in line with the SADC Protocol on Transport and Meteorology to ensure a level playing field for all modes of transport. 83. Since the liberalization of the transport sector, the trucking sector has emerged as a powerful competitor to the railways and has progressively captured traffic for which the railways is the most economical mode, such as bulk and long-distance traffic. While healthy inter-modal competition is helpful in increasing productive and allocative efficiencies of all modes of transport, there are features of policy which have put railways to a disadvantage, predominant being the financing of infrastructure, compliance with safety and environment standards, and public service obligations.
84. The railways are at a disadvantage in that they self-finance infrastructure while roads remain the responsibility of the government. Many governments are now realizing this disparity. While a case cannot be, and should not be, made for 100 percent financing of the railways by GOZ, the government could finance the incremental cost the railways have to incur to maintain the track to higher standards than required for commercial operation of the main freight business and particularly for operating passenger services. GOZ should also ensure that the truckers’ cost for using roads is linked to the cost inflicted by them.
85. On safety and environment standards, the general feeling is that while the railways are expected to meet the highest standards, particularly if there is private sector participation in the railways, the truckers can get by with serious violations. Often the issue is one of enforcement but policy guidelines can help by specifying heavy penalties for violations.
86. Even though the railways are considered to be a commercial entity, they are expected to operate loss-making passenger services, maintain low-density traffic lines and stations and a large work force. The government needs to have a clear policy of dealing with regard to PSOs.
2. PSOs and Unprofitable Market Segments
20 87. NRZ operates both inter-city passenger trains and suburban commuter trains in Bulawayo and Harare as public service obligations. These services are loss-making for NRZ, but NRZ is not being fully compensated by the government and that is proving a drain on NRZ’s profitability. To avert this situation the following actions should be undertaken:
• NRZ and government should enter into a well defined PSO contract specifying the levels of service, the tariffs for different classes of service, approximate annual costs of operating the services and a sound basis for compensating NRZ for the deficit without encouraging inefficiency on the part of NRZ; • NRZ should update and modify the existing railway accounting system that is able to explicitly and accurately cost the operations of the PSO. This would be beneficial to both government and NRZ in terms of determining and adjusting the level of compensation as well as avoid any disagreement or delay.
88. In addition to the main passenger trains and suburban commuter trains, NRZ should segment freight on various lines and should jointly decide with government, taking into account costs, revenues, and other social-economic benefits, which lines should be covered by PSO contracts. NRZ should then negotiate with the government the annual total PSO compensation.
89. PSO compensation should be paid regularly and without delay. To achieve this, the following steps should be undertaken: • NRZ should present justifiable cost estimates for candidate PSOs to MoF and MoTC and suggest a reasonable compensation for each given PSO candidate and/or a total compensation for the recommended set of PSOs; • MoTC should form a committee comprising representatives of NRZ, MoF, and the Ministry of Legal Affairs to examine NRZ proposals and work out an equitable PSO contract; • MoTC and NRZ should take the lead to ensure that all processes for the implementation of the negotiated PSO contract are concluded.
90. Operation on those lines which are considered too costly relative to their expected social and economic benefits should be discontinued. This decision can also be formalized by the above-mentioned committee on PSO contracts and recommended to the government.
2. Disaggregated Railway Costing System 91. The NRZ railway accounting system was designed to identify costs on different aspects of operations, individual lines or market segments even though NRZ may not be making full use of the system for various reasons. Without disaggregated costs it is very difficult for NRZ to determine which market segment or line is profitable or loss making, and therefore virtually impossible for management to isolate PSO candidate lines or market segments. Once the costs are effectively determined, NRZ can prioritize traffic to be moved, rationalize tariffs, or discontinue service (if not a PSO) or apply for a PSO contract.
92. To update the current system, introduce new modules, and ensure effective implementation of the cost system, the following actions need to be implemented by NRZ:
• Form a committee comprising senior managers and a secretariat (staffed from the finance department) to review the current status of the system and identify updates needed;
21 • Hire a consultant, if needed, to advice on modules to be added to the financial and cost accounting system to allow analysis of NRZ business lines; • Consultant to assist NRZ to procure the preferred modules, install, commission, and test the same, as needed; • Committee to monitor implementation of improved system by various departments and units, to bring the system to a working level as soon as possible.
93. If updating the financial and cost accounting system is likely to take time due to various constraints, NRZ should, with the help of a costing expert, estimate variable and fixed costs of various operations, lines, stations, and services, which are believed to be loss-making. Such estimates can be used to develop PSO contracts while the financial and cost accounting system is updated.
4. Use of Third Party Freight Distributors 94. NRZ should as much as possible encourage the use of third party distributors such as freight forwarders. This would allow NRZ to maximize its traffic volume conveyed through use of a relatively small number of direct customers. These customers would act as wholesalers, on- selling space on trains to a much larger number of customers, accepting risk and arranging storage and feeder transport (to/from rail stations), where required. By directing a greater proportion of its business to such “wholesalers”, NRZ should be able to significantly reduce its operating costs in the short to medium term.
95. This strategy has been used by NRZ in a varying degree for many years. Given the serious funding and capacity constraints, NRZ has to ensure that collaboration with the freight forwarder helps in easing the most critical constraints and increasing traffic. Only then will there be an incremental benefit for NRZ, even with a reduced profit margin.
5. Contracts with neighboring railways or major customers 96. As analyzed earlier, the biggest constraint currently facing NRZ is inadequate locomotive capacity, followed possibly by insufficient wagons. NRZ would benefit from entering into short- term contracts with neighboring railways or major customers to help in providing more locomotives and wagons and capture more traffic. Various contract options can be considered by NRZ, but obviously the contract has to benefit both contracting parties. o. Long Term Action Plan 97. In the long run, the government of Zimbabwe needs to put in place a transport policy and legal framework which encourages private sector participation in railways, and supports operational synergies with other railway administrations in the region. Actions proposed by the working group are:
• Amend the Railway Legislation to incorporate adoption of all possible forms of public private participation in the railways sector;
• Establish a railway inspectorate unit in MoTC to monitor compliance with the railway safety and environmental statutory instruments;
• Revisit PSP options developed by Córas Iompair Éireann (CIE) in 1998 and agree on a road map to implement a preferred PSP model. CIE had suggested vertical separation and separate concessioning of infrastructure, freight operations and passenger services. This
22 was meant to facilitate the continuing use of the railway infrastructure in Zimbabwe by BBR, Transafrica Railways and other private operators on a reciprocal basis. These recommendations are still valid;
• Continue restructuring non-core assets to include lease and/or sale of farms, lodges, houses, motor vehicle repair workshops and clinics with a view to generating more income for NRZ;
• Design and implement a plan for Human Resource Development in the Technical Departments of NRZ; install management information systems that enable railway management to receive accurate information to guide business decisions, define corporate objectives, and formulate investment plans;
• Establish a concession management unit to monitor compliance of concessions in the railway sector;
• Recapitalize railway infrastructure to improve network capacity, efficiency and competitiveness.
These actions are discussed in more detail below.
1. Amend Railway Legislation to incorporate adoption of all possible forms of Private Sector Participation (PSP) in the railway sector. 98. The railways are facing a huge challenge, posed by the emergence of the trucking, increased expectations of the customers, and changing structure of the industry resulting partly from the continuing liberalization of the economy. Public management has serious limitations and it is unlikely that the railways can meet this challenge. PSP is essential if the railways are to survive and eventually become a major force in the transport sector. Of course, the mode of PSP has to be decided on the basis of analysis, but the Policy should remove any constraints to PSP and subsequent operations by the privatized railway.
2. Establish railway inspectorate unit in MoTC to monitor compliance with the railway safety and environmental statutory instruments. 99. The railways have so far been self-regulating. With increased PSP in railways, a transparent and effective safety regulation is required. However, such regulation must acknowledge that the primary responsibility for safety and environment management is that of the railways. The inspectorate will only ensure that the railways prepare adequate plans for safety and environment management and implement these plans effectively.
3. Revisit PSP options developed under various studies and agree on road map to implement a preferred PSP model. 100. The Ministry of Transport and Communications and the Privatization Agency of Zimbabwe have carried out a number of studies through consultancy services regarding private sector participation options. The government should revisit these studies, this time with very clear objectives and outcomes for involving the private sector in the management and provision of railway infrastructure and services. The focus should be on the broad economic benefits that are likely to accrue from a given PSP arrangement. Only after the government has carefully considered the merits of each option based on the objectives, risks, and obligations should Government select the strategic PSP model for the railway sector.
23
101. The actions to achieve the above should include procurement of a PSP Transaction Advisor by the Ministry of Transport and Communications. This Advisor would, amongst others tasks, assist MTC to: • Determine a PSP strategy. • Build the NRZ financial, operational, and technical data base to be used for due diligence for prospective PSP firms. • Prepare bidding documents such as prequalification, information memorandum, requests for proposals, draft concession agreements, draft performance bonds, etc.; and • Assist with the bidding process including evaluation of proposals, negotiations, contract signing, and financial closing
4. Asset Restructuring 102. Assets should be divided into core-assets and non-core assets based on NRZ’s business plan. The non core-assets or surplus-assets should be leased or liquidated to create fiscal space for NRZ in the short to medium term. The realizations from the sale or leasing of the assets can be used to rationalize staff to bring the same in line with the reduced traffic, and/or reduce other fixed costs such as interest on outstanding debt.
5. Human Resource Development in Technical Departments and management information systems (MIS) 103. There is a shortage of engineers, technicians and skilled artisans in all departments of NRZ. This is due mainly to the brain drain. The shortage of skills has contributed further to network capacity constraints because manpower to maintain the infrastructure and rolling stock is overstretched. Whilst NRZ needs to put in place a plan to recruit and train new skilled personnel and an incentive plan to retain technical skills in the railways, it should also be recognized that the pay scales of NRZ may not be attractive and retraining of staff may be quite difficult. Moreover, NRZ also cannot afford to create long-term liabilities by recruiting staff when its own future is uncertain. NRZ has to consider other solutions such as outsourcing complex jobs and making use of skilled staff on a consultancy basis. The rationale for these actions, and the considerable expenditure, involved lies in the fact that such expenditures should result in enhancing capacity and revenues. It is obvious that such actions would be taken only after a careful cost-benefit analysis.
104. Many railways are now opting for what can be considered as more than MIS. They are installing systems that not only advise on the optimal management decisions, but draw attention to suboptimal management decisions. European railways are opting for SAP-based or similar systems to ensure strict compliance with optimal operating and performance norms in all functional areas of the railways such as financial, cost and management accounting, marketing, operations, supplies management, human resources, maintenance etc.
105. Of course these systems are expensive and the railways should wait for a clear decision on PSP before embarking on such a development.
6. Establish Concession Manager 106. Whatever form of PSP model is selected it will have to be managed to ensure that the PSP process progresses without undue delay and decisions by various levels of the government are taken in a timely manner. Presumably, the Privatization Agency of Zimbabwe will be in charge of processing the transaction. Experience in this regard shows: (a) the respective roles of
24 the Ministry of Finance, the Ministry of Transport, and NRZ need to be clarified from the outset; and (b) formation of a steering group comprising representatives of all concerned ministries and institutions particularly the Attorney General’s office is very helpful.
7. Recapitalize Railway Infrastructure and Rolling stock 107. NRZ network capacity is constrained by aging infrastructure and rolling stock, to the extent that NRZ is not able to carry all the traffic on offer. To improve the efficiency and economy in train operations, and to therefore bring back the market confidence in the railways, the railway infrastructure will have to be recapitalized.
108. The government should take responsibility for ensuring that recapitalization of the railway infrastructure is achieved. Recapitalization could be entirely through private finance, government guarantees or resources, or a combination of these as the case may be in the PPP arrangements. The recapitalization plan should be based on a transportation plan required to support an envisaged long term market plan. p. Action Plan, Budget and Monitoring 109. Activities to ensure implementation of the action plan are summarized in the table below. The implementation of the action plan will be monitored by an inter-ministerial steering committee comprising NRZ, Privatization Agency of Zimbabwe (PAZ), selected Ministries including the Ministry of Finance (MoF), Ministry of the Public Service, Labor and Social Welfare (MPSLSW) and the Ministry of Transport and Communications (MoTC). The MoTC should be the lead Ministry and should have responsibility for the oversight of the implementation of the action plan.
110. The implementing agencies include the MoTC for all policy and regulatory related activities and NRZ, which should discharge all activities related to railway operations and related activities. The implementing agencies should be accountable to the steering committee for progress reporting and seeking guidance where necessary. An indicative budget to finance the various activities is included.
Period Activity Responsibility Estimated Remarks/ Cost in US$ Comments Short 1. Draft and agree on PSO Contracts NRZ/ MoTC 20,000 GoZ/ NRZ Term between NRZ and GoZ 2. Update accounting system capable of NRZ 70,0000 NRZ disaggregating rail costs 4. Lease and or liquidate non-core NRZ/ MoTC 30,000 NRZ assets, and de-market loss making traffics and lines 5. Introduce third party distributors NRZ 20,000 NRZ (Forwarders) 6. Finalize operating and cooperation NRZ 20,000 NRZ contracts with neighboring railways and major customers Medium 1. Finalize the National Transport Policy MoTC 200,000 PPIAF Term 2. Amend and or redraft the Railway Act MoTC 300,000 PPIAF and related legislation 3. Establish a regulatory unit within the MoTC 200,000 GoZ MoTC
25 4. Carry out PSP due diligence studies MoTC/ NRZ 300,000 GoZ (technical, operations, financial, and market share) 5. Develop a Management Information MoTC/ NRZ 400,000 NRZ System 6. Develop a human resource plan NRZ 20,000 NRZ Long 1. Conduct the bidding process for the MoTC 200,000 GoZ/ Donors Term agreed PSP strategy 2. Establish and appoint a PSP Steering MoTC 100,000 GoZ/ Donors Committee 3. Recapitalize railway infrastructure and MoTC 70,000,000 GoZ/ Donors rolling stock
Private Sector Participation q. PSP Experiences in Sub-Sahara Africa Railways 111. This summary of railway Public Sector Participation (PSP) experience in Sub-Sahara Africa is based on the following recent studies funded by the World Bank: (a) Review of Selected Railway Concessions in Sub-Sahara Africa (World Bank, 2006), and (b) Results of Railway Privatization in Africa (Richard Bullock, 2005), and (c) Railway Concessioning Tool Kit (World Bank, 2003). Since 1993, fourteen concessions, including one BOT, have been awarded in Africa (table1). Some of the key findings of the concessioned railways include the following:
• Railways still offer the most economical solution to transporting non time-sensitive bulk freight on distances over 500 km. As such their revival through concessioning is warranted whenever adequate evidence exists that the business fundamentals supporting the decision to concession are sound. At the same time better solutions must be devised to ensure that while host governments continue to benefit from substantial economic rates of return from these concessions, private operators’ financial returns are high enough to entice broader and more competitive investor participation (Review of the Railway Concessions in Sub-Sahara Africa, World Bank 2006);
• Private investment in the transport sector remains weak with the sector attracting only 9.0 percent of total private funding for infrastructure in Sub-Sahara Africa (SSA) from 1990 to 2002. Even when the private sector does invest in transport projects, because of the investment climate and business parameters, there is strong disincentive to assume risk. As a result: (a) governments have borne until now a large portion of the financial risk related to concession investment in railway operations in SSA, and (b) there have been notably few companies that are willing to invest in Africa (Review of the Railway Concessions in Sub-Sahara Africa, World Bank 2006);
• Until recently participation in railway concessions appears to have been driven more by the desire of firms to control logistical distributions chains or benefit financially from managing large investment programs, rather than earning substantial direct return on their investment (Review of the Railway Concessions in Sub-Sahara Africa, World Bank 2006);
• Actual railways financial performance has been disappointing so far. However this seems to be more of poorly designed concession financial structures (e.g. unsustainable debt levels and concession fee payment requirements) than a lack of performance on the
26 part of the concessionaires (Review of the Railway Concessions in Sub-Sahara Africa, World Bank 2006);
• Productive efficiency has improved. Labor productivity has increased steadily in all the concessions which have operated for close to five years. Asset productivity has also generally increased (Bullock, 2005);
• Allocative efficiency is difficult to measure, but the evidence is generally positive. The improved railway productivity, the active searching for traffic by concessionaires and improvement in internal business practices have improved railway cost structures and, perhaps more importantly, lifted the level of service, thus helping to attract traffic to the mode which carries it most efficiently (Bullock, 2005);
• Most concessions have been associated with substantial investments, principally in infrastructure, by bilateral and multilateral lending agencies. It is unclear whether, having been loaned (at concessional rates) such investment, many of these rail systems will be able to finance major future renewals. The evidence to date is that few, if any of the concessions are generating significant profits for their operators and certainly not enough to fund long-term renewals. It therefore remains an open question as to whether a purely privately financed rail concession model is achievable in much of Africa in the foreseeable future (Bullock, 2005);
• The threat of transport mode substitution (i.e. from rail to road) limits railway operator’s ability to charge abusive tariffs to their customers, regardless of their market share. There is no example where concessioning has led to any services being reduced so that resources could be redeployed to favored users (Review of the Railway Concessions in Sub-Sahara Africa, World Bank 2006); and
• Generalizing of conclusions about rail concession performance in SSA is difficult. This is because: (a) their operating environment is distorted by the competition from the trucking industry which only pays a fraction of the cost of the infrastructure it uses; and (b) their seemingly favorable debt structure has postponed to later years the true cost of railway track financing (Review of the Railway Concessions in Sub-Sahara Africa, World Bank 2006).
112. In summary, the railways in SSA that have been concessioned are operating more efficiently and are more competitively. Investment has largely been funded by multilateral and bilateral loans at concessioned rates. In general rail concessions have revitalized many systems, but it is doubtful whether they can ensure their long-term survival without further injections of public investment (Bullock, 2005). r. Key Railway PSP Recommendations 113. The following recommendations have been made through the economic sector work (ESW) study on the “Review of Selected Railway Concessions in Sub-Sahara Africa” (World Bank, 2006). In spite of the fact that monopolistic behavior was not identified in existing railway concessions, analysis uncovered a set of problems which, if not dealt with properly, could further diminish private sector interest, and hence the quality of participation in future concessions. Several problems specific to the industry were identified in addition to the general weakness in the investment climate such as inadequacies in the rule of law as well as unfriendly, unfair, and
27 non-transparent business practices. Some of the problems along with their possible solutions included:
• Limited capacity and/ or willingness of private operators to finance track renewals. The true cost of track renewals needs to be acknowledged upfront. This cost should be carefully assessed to ensure full value extraction from the existing assets, and factored into the realities of the business. The fees for the concession should be modulated accordingly. Solutions that have the advantage of limiting upfront cost to governments, whilst keeping the financial liability of the planned investment squarely on private operators, should be explored and, if feasible, favored even at the expense of lower concession fees;
• So far railway concession financial returns have been low. National transport polices that explicitly recognize the critical linkages between direct/ indirect road user subsidies and railway concession financial returns need to be defined. This could be done with the help of international donors and organizations such as the Sub Sahara Africa Transport Program (SSATP). Private operators also need to be realistically compensated for the financial risks associated with the operation of loss-making passenger trains, since governments often fail to honor their subsidy commitments to these operators; and
• Effective and efficient regulation of rail operators is needed. Better enforcement of concession contract rules by regulatory bodies is needed in order to make private rail operators more accountable. This can be achieved by strengthening the capacity of regulatory bodies, as well as imposing annually independent financial and operational audits as part of concession contracts.
Table 1. Concessions of African Railways Since 1993 (Bullock, 2005)
Country Concessionaire Year Commenced Ivory Cost/ Burkina Faso Sitarail 1995 Cameroon Camrail 1999 Gabon Transgabonais 1999 (cancelled 2003) Malawi CEAR 1999 DRC Sizarail 1995 Zimbabwe BBR 1997 Togo WACEM 2002 Maputo (Ressano Garcia) NLPI/ Spoornet 2005 (Cancelled 2005) Senegal / Mali Transrail 2003 Zambia RSZ 2003 Madagascar (North) Madarail 2003 Mozambique (Beira) Rites 2004 Mozambique (Nacala) CEAR 2005 Kenya/ Uganda RVRC 2006 Tanzania (TRC) - In Progress Tanzania (TAZARA) - PPP13 under consideration Ethiopia - In progress Congo Brazzaville - PPP under consideration Zimbabwe (NRZ) - PPP under consideration Swaziland (SwaziRail) - PPP under consideration
PPP13 - Public Private Partnerships
28 s. Bulawayo Beitbridge Railway 114. The Bulawayo Beitbridge Railway (BBR) is the only concession in Africa which is a BOT form of concession. The route length is approximately 385 km running from Beitbridge, on the southern border with South Africa to Heany Junction near Bulawayo where it joins the NRZ system.
115. BBR is a privately-owned Zimbabwe railway firm. New Limpopo Projects Investments (NLPI) owns 86 percent of the shares and NRZ owns the remaining 14 percent. The line was opened in July 1999 and was constructed at a total cost of US$87 million. It is designed to Spoornet standards, with a 20 tonne axle-load, and has a capacity of 4 million tonnes per annum. It is operated by Spoornet under contract.
116. Due to the continuing deterioration in NRZ’s ability to operate efficiently, NLPI has signed a further agreement with the government of Zimbabwe to allow the BBR to operate over the Bulawayo to Victoria Falls line, as NLPI also controls the Railways Systems of Zambia (RSZ). The terms of the concession have not been made public. There is also very little published information on the performance of BBR as regards commercial (traffic volumes), operations and technical performance (Bullock, 2005). t. Zimbabwe Government Policy on PSP 117. The National Transport Policy spells out government commitment to introducing the private sector in the provision of railway infrastructure and services. However, this policy document is in draft form, and still requires finalizing and adopting.
118. In the 1990s, there was considerable interest on the part of government to involve private sector in the railway sector. A number of studies were undertaken on identifying possible private sector participation options, and these studies in 1998 led the government, with the support of the World Bank, to invite bids for the concession of the infrastructure based on the separation of infrastructure and operations. This process was abandoned just before the date set for closing of bids. Instead the Ministry of Transport and Communications considered other options including the geographic unbundling of the network into two and awarding of two vertically integrated concessions. However, no concrete action was taken on this or any other proposal. In the early 2000s the government held high level stakeholders discussions to address the issue of private sector participation in the railways. These included a stakeholders’ workshop held in December 2000, chaired by the Deputy Minister for the Ministry of Transport and Communications, and another consultative workshop held in 2001 with labor representatives. The conclusions drawn from both workshops were that private sector participation in NRZ was the only option available to ensure the long term sustainability and provision of efficient and competitive railway transport in Zimbabwe. However, aside from the Bulawayo Beitbridge Railway concession, no specific action has been taken so far with regard to PSP. u. Benefits from PSP in Railway Sector 119. Private businesses operating in competitive markets have more focused aims and incentives. International experience suggests that technical efficiency (producing outputs at least cost) is more likely to be achieved by a private management responsible and accountable for achieving a stable and measurable commercial objective. Similarly, allocative efficiency (producing outputs most closely meeting market demands) is most likely to be achieved in a competitive market where consumers are free to express their demands through market choice,
29 and where prices tend towards production costs. These and other benefits were recognized in the conclusion of the stakeholders’ meetings. v. Key Issues in PSP in Zimbabwe 120. Government provision of transport services to the public has been far below expectation, not only in Zimbabwe, but in the whole sub-region. This has been attributed to a number of generic factors including: • Contradictions between government trying to be a policy maker, regulator and operator at the same time; • Confusion in trying to act commercially while seeking social goals; • Restricted management freedom caused by public service norms and procedures, for example, staffing levels and pay scales determined across sectors rather than by business needs; • Constraints on financial autonomy and investment due to government budgeting processes; • Competition for resources from the core government functions of health, education, etc; and • Where the activity creates surplus, cross-subsidization of other government activities rather than re-investment in the profitable business.
121. As a result of the summation of the above factors, NRZ like other state-run regional railways does not generate sufficient revenue from its core business to cover operating costs, nor sufficient gross operating margin above the operating expenses to provide for renewal of its assets. This, in turn, has led to deterioration in the condition of track, bridges, signaling systems, and locomotives and rolling stock, resulting in high rates of equipment failure and imposition of increasingly stringent speed restrictions. The falling standards of service has led to reduced traffic volumes carried by NRZ and declining revenues, and consequently to a persistent fiscal deficit. w. Potential Projects for PSP 122. The strategic options for private participation should be re-examined in the context of the changed business and economic environment. The re-examination could be carried out by carrying out the following short and focused studies: • Technical aspects including an inventory and expert opinion on the condition of the infrastructure, facilities, and equipment and the possible investment needed for rehabilitation as well as ascertaining the extent of staff redundancy; • Commercial aspects including the nature and evolution of traffic patterns, the status of competing routes, and differential advantages and disadvantages; • Legal and institutional aspects, including the current status of the legal and regulatory framework, Railways Act, privatization law, company law, property ownership regime, institutional arrangements both in terms of regulatory and concession management; • Operational aspects, in particular the performance of the network; • Environmental and safety aspects such as accumulated environmental liabilities, as well as issues surrounding illegal occupation of railway property; and • Economic aspects including the impact on local production, the development of trade, employment, and financial feasibility.
The re-examination with the help of the above-mentioned studies would serve to:
30 • Enable the government to assess the feasibility of the possible PSP options, select the most appropriate one, identify prior measures to be adopted for successful PSP, and commence the PSP process; • Identify the gains to be anticipated from the selected PSP such as improved national economic competitiveness through reduction in transport costs, reduced congestion on roads, less environmental degradation, reduced public spending on the railways by eliminating operations deficits, and shifting a share of railway investments to the private sector. Other gains would include improvement in the quality of service and price of services, imparting to the railway enterprise the flexibility, dynamism, and management efficiency of the private sector; • Enable the government to prepare an information memorandum providing background information that may later be consulted by bidders during the competitive bidding procedure (even though they would be well-advised to undertake their own due diligence); and • Provide the government and the public authority with an overall understanding of the project that will enable it to defend its decision throughout the concessioning process. x. Next Steps 123. The Ministry of Finance should source for funds to carry out the PSP feasibility studies as elaborated above. The Ministry of Transport and Communications should take the lead and work with the railway working group to draw the terms of reference and procurement of consultant to carry out the feasibility study, and prepare the concession bidding dossier.
Regional Integration 124. An efficient transport system is a crucial precondition for economic development, and is an asset in local, regional and international mobility. The efficiency of a transport network, in this case in the Southern African Development Community (SADC) region, depends on the capacities and quality of the transport infrastructure and facilities in individual Member States. Zimbabwe is strategically located in the main transport corridors of the SADC region and is critical to the regions’ economic development and growth agenda. Zimbabwe should thus ensure that its transport infrastructure has the capacity and efficiency to transport goods at optimal cost.
125. In cognizance of the above, the SADC Protocol on Transport, Communications, and Meteorology, to which Zimbabwe is a signatory, specifies that Member States should facilitate the provision of a seamless, efficient, cost-effective, safe and environmentally-friendly railway service, which is responsive to market needs and provides access to major centers of population and economic activity. In order to attain this objective, Member States have agreed to develop a harmonized regional policy in respect of the economic and institutional restructuring of the railways in a phased and coordinated manner. This includes consideration of the following:
• According autonomy to railways in order to enable them to achieve full commercialization by, amongst others, streamlining railway organizations, reforming management, upgrading essential railway labor, and improving labor productivity; • Increasing private sector involvement in railway investment with a view to improving railway work and service standards and lowering the unit cost of services; • Enhancing operational synergy amongst railway service providers in the region;
31 • Promoting an integrated transport system which supports fair competition between railway service providers on the one hand and the providers of other transport services on the other hand; and • Expansion and strengthening of government capacity to develop supportive regulatory and investor-friendly legislation, and to monitor compliance with such policy and legislation.
126. To ensure that Zimbabwe contributes to an efficient transport network in the region, the government should ratify the SADC Protocol in accordance with the government’s constitutional procedures. The government should adopt, amend or repeal, if required, national legislation to gives effect to the provisions of this Protocol.
127. To achieve this, the existing railway task force under the leadership of the Ministry of Transport and Communications should be appointed “National Coordinator” for implementation of the Protocol. The National Coordinator should, amongst other tasks: • Put in place an implementation plan for ratification of the protocol; • Promote the achievement of the general objectives, strategic goals and sectoral objectives; and • Coordinate and ensure input from the public and private sector stakeholders and canvass the views of such stakeholders regarding any matter dealt with in the Protocol.
32 Section 4: Water and Sanitation Sector C. Background 128. Since the onset of the economic decline in 1999, access to water and sanitation services in Zimbabwe has been steadily declining. Water production in urban areas, which previously enjoyed near 100 percent service coverage of the highest standards, is now estimated to be 30 percent below requirements. The quality of water delivered to consumers has deteriorated. Sewerage treatment works are no longer able to cope with demand or have broken down. Declining environmental health standards have resulted in increased incidents of water-related diseases, such as cholera and dysentery in urban areas.
129. In contrast, rural water supply coverage has remained relatively consistent, but this is mainly due to continued investment by NGOs in rural water points under humanitarian relief programs. Access to sanitation in the rural sector has remained low, with coverage of standard safe latrines estimated to be only 25 percent in 2004.14 The National Action Committee on rural water supply and sanitation, which was dysfunctional at the time of the ZIAN study, has been resuscitated with government funding.
130. Zimbabwe’s water supply and sanitation policy framework has not been adequately modified in response to the economic challenges presently facing the country. The basic assumptions on which the Water Act (1998), ZINWA15 Act (1998), and the Water Resources Management Strategy (WRMS - 1998) were based no longer hold in many cases. For instance, the continued existence of a Department of Water Resources as a supreme policy body in the water sector was not clearly envisaged during the WRMS formulation. Furthermore, the land reform program has resulted in new structures in both rural and peri-urban areas, new farming constituencies and new water users. The government has recently directed the Zimbabwe National Water Authority to take over responsibility for water supply and sanitation from urban local authorities, even though it does not have the capacity or legal mandate to carry out these functions. There is no policy in place to address infrastructure provision for peri-urban farm occupations. Furthermore there are several legal instruments held by different government ministries and departments that are not harmonized with the Water Act.16 Stakeholders in the water sector lack a shared vision for the sector, making coordination difficult.
131. Inadequate capacity in the Ministry of Water Resources and Infrastructure Development is a major constraint to implementing policy reforms in the sector. The Ministry is not adequately structured or staffed to meet these challenges, as well as perform its regulatory role. There has been a severe brain drain from the sector that has resulted in the engagement by sector institutions of under-qualified staff. The few remaining staff members are overloaded in a situation where real earnings continue to fall. Private sector capacity in the manufacturing, contracting and consulting industries has also seen significant decline.
132. The assessment of the water and sanitation sector, which was undertaken under the ZIAN study of 2006, has been updated to reflect recent developments in the sector. This includes the recent establishment of a Ministry of Water Resources and Infrastructure Development (previously this Ministry was a Department in the Office of the President and Cabinet), the re-
14 Source: ZIAN Report. June 2006. 15 Zimbabwe National Water Authority 16 For example the Forestry Act, Mines and Minerals Act, Urban Council Act, Rural District Councils Act, Defence Act, Environment Act.
33 establishment of the National Action Committee on rural water supply and sanitation, and the take over of urban water supplies and sanitation by ZINWA. The critical areas that need to be addressed to restore serviceability in the sector have been updated, and converted into an action plan for implementation by the government. Policy option notes have been prepared to assist the government to implement the action plan in two key areas (Annex 3). Options for public private partnerships in the water and sanitation sector have been assessed, along with issues concerning regional integration in the sector.
Action Plan to Implement ZIAN Recommendations y. Methodology used for developing action plan 133. The Ministry of Water Resources and Infrastructure Development has an advisory body, the National Steering Committee (NSC) on water. The NSC meets quarterly to review issues in the sector. Membership of the NSC is from the Ministry, ZINWA, Ministry of Local Government, Public Works and Urban Development, District Development Fund, National Action Committee for Rural Water Supply and Sanitation, Institute of Water and Sanitation Development (IWSD), University of Zimbabwe and the Zimbabwe Local Government Association (ZILGA). Catchment Councils and Sub Catchment Councils, as well as Harare and Bulawayo City Council, are also represented. The NSC was requested to form a Working Group for the Task Force on the Zimbabwe Infrastructure Dialogue (ZID). Membership of the Water Sector Working Group comprised a cross section of key stakeholders in the sector. The principal task of the Working Group was to develop an action plan for the water and sanitation sector. z. Critical Areas, Recommendations and Constraints i. Sector Policies: 134. The policy environment for the water sector is now outdated and unable to adequately address current challenges. The Water Act, ZINWA Act, and the Water Resources Management Strategy, which were all enacted in 1998, are based on assumptions that no longer hold in some cases. The May 2006 infrastructure workshop recommended that the present policy framework should be adjusted in order to be consistent with the current set up of existing institutions. It also recommended reallocation of roles in line with an adjusted policy framework in order to improve sector coordination. The following recent developments and national imperatives require concomitant policy initiatives: • The land reform program has established new structures in both rural and peri-urban areas, new farming constituencies and water users; • Water is a critical element in achieving social justice, empowerment and poverty reduction under the Zimbabwe Millennium Development Goals. • The government has recently directed the ZINWA to take over responsibility for water supply and sanitation services from urban local authorities. • There is no policy to address infrastructure needs created by peri-urban farm occupations.
135. The major constraint to implementing policy adjustments in line with the existing institutional changes is the state of the Ministry of Water Resources and Infrastructure Development. The Department of Water Resources in the Ministry is not adequately structured or staffed to accomplish its policy and regulation roles. Meanwhile there are several allied Acts held by different Ministries and departments which were not harmonized with the Water Act.
34 136. On sector policies, the Working Group recommended four short-term and medium-term actions to address sector policy constraints. The short term actions will be carried out within six months and medium term actions within two years.
• Strengthen the Department of Water Resources in its oversight and policy roles through restructuring (Medium Term);
• Prepare a Policy Framework Adjustment Note as an advocacy tool to sensitize key stakeholders within the Ministry and other allied Act holders. (Short Term);
• Hold a broad stakeholder Strategic Planning Workshop to agree on shared vision and strategy for the sector (Short Term); and
• Review the Water Act and harmonize it with Allied Acts, as well as regulations for water use by various groups (Medium Term).
1. Enhancing capacity of Department of Water Resources 137. The Ministry of Water Resources and Infrastructure Development (MoWRID) is responsible for managing the water sector in the country. The Zimbabwe National Water Authority (ZINWA) has responsibility for managing water resources. When ZINWA was established, it was assumed that the Ministry would be left with very few responsibilities, and many of the Ministry staff were transferred to ZINWA. Only four key staff members presently form the core of the DoWR. The DoWR is therefore ill equipped to deal with its oversight, coordination, regulatory and policy functions. The Department should prepare a management structure in line with its functions, and submit this to the Public Service Commission for recruitment purposes.
2. Prepare a Water Sector Policy Framework Adjustment Note 138. The Working Group noted that water will be a critical element in Zimbabwe’s economic fortunes in the future, but the Water Act does not adequately address the key elements in the current institutional landscape. A Water Sector Policy Adjustment Note is a starting point for engaging key stakeholders within the sector and other allied Acts holders on the need for a shared vision and strategy. This shared vision should addresses all key issues concerning institutional arrangements, poverty eradication, economic empowerment, social justice and entitlement in the access to and use of water. It should also try to harmonize the government directive concerning ZINWA’s take over of urban water supply. It should address the dire need for water and sanitation infrastructure in peri-urban areas. The Policy Adjustment Note should also address issues of increased revenue for the sector through appropriate tariff setting mechanisms, resource mobilization for rural water and sanitation, and sustainable community management frameworks that do not rely heavily on donor or other outside contributions. Policy direction is also required in the irrigation sector for the creation of sustainable funding mechanisms, support structures and increased involvement by the private sector.
3. Hold a broad stakeholder Strategic Planning Workshop to agree on shared vision and strategy for the sector. 139. The purpose of this action is to carry the Policy Note to a broader audience. The MoWRID should, through the DoWR, convene a stakeholder workshop to sensitize the sector of the need for a shared vision and strategy. In addition to discussing the Policy Review Note, the
35 workshop would assist in developing a shared vision and a strategic plan for the water sector. The outputs of the workshop would assist the DoWR to better direct the sector, coordinate it, as well as monitor achievements against targets.
4. Review of Water Act and harmonize it with Allied Acts, as well as regulations for water use by various groups 140. There is need to review the Water Act to synchronize it with allied Acts such as the Mines and Minerals Act, Urban Councils Act, Rural District Councils Act, Environment Act, and many regulations that govern irrigation processes.
ii. Institutional Reforms to Address the Brain Drain and HIV/AIDS 141. The water sector introduced the Water Resources Management Strategy in 1998, at the same time ZINWA was created as well as catchment and sub-catchment councils. The Ministry lost many of its staff to ZINWA while some of the provincial water engineers joined ZINWA or catchment councils. Since the start of the economic downturn, many technical persons have been attracted by better employment conditions, including outside Zimbabwe, thereby compromising the effectiveness of the new institutions and the private sector. In addition the HIV/AIDS pandemic has taken its toll on many of these organizations. The May 2006 ZIAN Infrastructure Workshop recommended the improvement of employment conditions in the water sector and the promotion of deliberate professional development programs.
142. A number of constraints limit the implementation of this recommendation. The major constraint is that as long as the sector is under-funded, the brain drain will continue. Water tariffs are significantly lower than the true value of water. There are inadequate financial resources to pay for requisite technical staff and to maintain, on a sustainable basis, existing infrastructure and equipment.
143. Another major constraint to improved sector employment conditions and deliberate staff development programs is the absence of a Sector Capacity Building Strategic Plan. Such a Plan can only be meaningful within an overall Sector Vision and Strategic Plan, and an enabling policy framework. Furthermore, there is a need to reduce corruption and the misuse of available sector resources. There is also a need to show greater appreciation for the inputs and contributions of professional and technical staff, which would contribute to improved working conditions.
The following actions were therefore recommended:
• Develop a Water and Sanitation Sector Capacity Development Strategic Plan (Medium Term). • Prepare accountability and transparency systems and guidelines for the water and sanitation sectors within the overall government anti corruption framework (Medium Term). • Improve management systems in the sector for efficiency, effectiveness and accountability, ensuring transparent, predictable performance based promotion and reward systems (Medium Term). • Establish an effective independent Water Tariff Commission for the water and sanitation sector (Medium Term).
36 1. Develop a Water and Sanitation Sector Capacity Development Strategic Plan 144. There is a need to develop a water and sanitation sector capacity development strategic plan inclusive of the public and private sector, tertiary institutions as well as other appropriate agencies. This exercise should take into consideration the impact of the brain drain, how it could be stemmed, the impact of HIV and AIDS on the sector, and how these effects could be minimized or even reversed through a capacity development thrust. The National Steering Committee (NSC) for water and sanitation should take the lead by creating a sub-committee focusing on capacity development of the sector. The sub-committee will prepare Terms of Reference for a study on the capacity situation in the sector to be presented at a workshop to develop a Sector Capacity Development Strategic Plan. A number of agencies led by GoZ, bilateral agencies, private sector and multi lateral agencies should play critical roles in funding or providing technical assistance.
2. Water and sanitation sector accountability and transparency systems and guidelines 145. The government has established an Anti Corruption Commission. There is a Department in the Office of the President and Cabinet responsible for State Enterprises, Anti-Monopolies & Anti-Corruption. The Water Sector is increasingly going to be involved in public private partnerships. There is need for the sector to put in place mechanisms that ensure transparent tender processes, public accountability frameworks, and practices with clear monitoring and evaluation guidelines. The government has set up a Baseline Survey on Corruption. In 2005, Zimbabwe was ranked 94th in the World Audit Index on corruption. The Baseline Survey is expected to highlight a comprehensive list of types of corruption most prevalent in Zimbabwe, and to identify institutions across all sectors where corruption is considered most prevalent. It will also analyze the existing legislation and institutional framework forming part of the anti- corruption mechanism.
146. It is within this wider scenario that the water sector should influence the Baseline Survey to capture sector related data on corruption in the sector in order to inform preparation of water and sanitation sector accountability and transparency systems and guidelines. Since the Baseline Survey will take about eight months to complete, the water sector, through the National Steering Committee and the DoWR, should include its work as medium term task starting beginning of 2008.
3. Results Based Management System in the sector for efficiency, effectiveness and accountability, ensuring transparent, predictable performance based promotion and reward systems
147. The water and sanitation sector should put in place a mechanism for ensuring that promotions and reward systems in the sector are based on merit and are done transparently in order to encourage staff to feel appreciated in their tasks. The strategic capacity development plan developed for the water and sanitation sector should take into account Results Based Management Systems introduced into the rest of the public service.
4. Establish an effective independent Water Tariff Commission for the water and sanitation sector 148. This aspect is covered in more detail below. It should be closely linked to institutional reforms in the sector for any degree of success to be achieved.
37 iii. Enhance management capacity in the sector through improved key management information distribution among sector institutions and effective community based management systems 149. The water and sanitation sector has a variety of stakeholders who need to coordinate management of the sector. Coordination and sector management require up to date information. At the moment key management information is not distributed effectively amongst the several stakeholder institutions.
150. It was recommended during the May 2006 Workshop that a medium term consultancy be recruited to create a central repository of all water and sanitation sector management information. It was, however, highlighted that a number of constraints to the achievement of such a consultancy would be found, including: • Disagreements among the variety of stakeholders on what information would be required, in what quantities and for what purpose • Disagreement on the location or repository of the key management information • Providing financial resources for the consultancy and required equipment • Ensuring sustainability of the central repository, especially in terms of updating, monitoring and distributing such key information.
151. In order to meet the sector management capacity objective a number of actions were therefore recommended:
• The NSC on water and sanitation should establish a sub-committee to discuss and manage the information needs of the water sector, and agree on an appropriate repository for the information (Short Term); • The Sub-Committee should prepare Terms of Reference for a consultancy to develop the Management Information System should seek funding for the consultancy (Short Term); and • The Sub-Committee should set up a Sector Management Information Fund (Short Term). ° The NAC should prepare and implement a program to strengthen community based management (CBM) systems in the rural areas, including an effective monitoring and evaluation system for CBM (Medium Term).
1. Establish an NSC Management Information System sub-committee 152. The National Steering Committee of Water and Sanitation needs to establish a Management Information System (MIS) sub-committee to oversee the function of information management in the sector, including the establishment of a Management Information System. The sub-committee should comprise major stakeholders in the water management and information dissemination field. A key issue to be discussed by this sub-committee is where the MIS should be housed.
153. The MIS so created will serve the needs of the sector only when the information so generated is used by the variety of stakeholders in a holistic manner. Data generated and provided by the individual stakeholders will be analyzed to produce information for sector management. Stakeholders should therefore link their planning, monitoring and evaluation departments to the central repository for sector management information. Each stakeholder would thereby enrich and be enriched by the information from the central repository. Institutionalization of these linkages by the individual stakeholders will be a crucial element contributing towards sustainability.
38 2. The Sub Committee should seek funding for a consultancy to develop the MIS 154. Once the committee is established it should prepare Terms of Reference for a consultancy to design the MIS, including the creation of a central repository. The sub committee should seek sector funding for the consultancy. Resources should be sought from amongst the key stakeholders before seeking donor support. Institutions such as ZINWA, DDF, DoWR, IWSD, and local authorities, catchment councils and the private sector (through their associations) should contribute towards the MIS development. The sub-committee will, from time to time, consult with stakeholders in the water sector on the outputs from the consultancy. 3. The Sub Committee should establish a Sector Management Information Fund 155. Resources will be required for personnel and equipment as well as other running costs for the MIS and central repository (including the inevitable website) to ensure sustainability. Donor assistance should be limited to establishment of the MIS only. A Fund should be created through annual contributions as well as some cost recovery mechanisms, such as the sale of information to users. Research and tertiary institutions will also be asked to make contributions annually for ready access to information from the repository. A Board of Directors for the Repository will be in charge of managing the enterprise for sustainability.
4. NAC should prepare and implement a program to strengthen Community Based Management systems in the rural areas and ensure effective monitoring and evaluation of CBM 156. The National Action Committee for rural water and sanitation should prepare and implement a nationwide program to strengthen Community Based Management (CBM) systems in close collaboration with non governmental organizations. A CBM Manual already exists but has not yet been fully implemented in partnership with NGOs involved in the rural water and sanitation sector. This is largely because the NAC has not funded a program for implementation. The NAC Sustainability Sub-Committee, which is assisted by the UNICEF-chaired Water and Environmental Sanitation (WES) Working Group, should take responsibility for this action.
157. The current weakness of CBM is a result of weak backup, monitoring and evaluation systems. This has allowed communities and local governments to weaken their resolve to maintain their water and sanitation facilities. The NAC will work closely with rural local governments, NGOs in the water sector, as well as private sector agencies to ensure that the existing CBM guidelines are updated and used by the relevant agencies on a cost recovery basis.
iv. Financing Financing of the water and sanitation sector is traditionally from four main sources: • Public Sector Investment Programme (PSIP); • External support agencies such as bilateral and multilateral sources and NGOs; • Private sector financing through loans or joint partnerships; • Local resources either through loans or own resources, and revenue generated from user charges.
158. The water sector is seriously under-funded due to donor flight and very limited PSIP allocations from government. Local governments are unable to raise required loans and have poor revenue collection due to the present economic difficulties. The major concern from most stakeholders is that there is an unsustainable tariff regime, which compromises the operation, maintenance and rehabilitation of existing infrastructure. There is also the question of effective
39 utilization of existing water infrastructure due to capacity constraints in ZINWA and the Ministry of Water Resources.
159. It was recommended in the May 2006 Infrastructure Workshop that it might be possible to raise revenue for infrastructure requirements in water and sanitation through public private partnerships. A number of constraints to achieving this objective were identified by the Working Group. PPPs in the water and sanitation sector are generally formed amongst the following groups: government, local authorities, farming community and private sector agencies (finance houses, banks, and property developers). The major constraint is the issue of return on capital under the very weak water and sanitation tariff structure. The poor performance of the economy and hyperinflation are a disincentive to investors. The policy and regulatory framework for PPPs in water and sanitation are weak.
160. Two actions have been identified which would contribute to improving the financial health of the water and sanitation sector:
• Establish a transparent policy and regulatory framework for PPP in the water and sanitation sector (medium term); and • Resuscitate the idea of a dedicated independent Water and Sanitation Tariff Regulation Commission (medium term).
1. Regulatory Framework for PPP in the water sector 161. In the medium term, there is need to set up a regulatory framework for PPP in the water sector. The private sector can provide the financial resources towards infrastructure provision in the water sector if the conditions are right. These conditions can only be created through an enabling environment and regulatory framework. There is need for government, through the Ministry of Water Resources and Infrastructure Development, to develop a clear Regulatory Framework based on local and international experience. The framework should reflect both Africa Union and SADC protocols which encourage the involvement of the private sector in beneficial partnerships in management contracts, leases, concessions, divestitures, joint ownership arrangements, etc.
162. Local authorities have, in the past, been successful in implementing PPPs in the water and sanitation sector in Zimbabwe. The government should support the enhancement of capacity in local governments to lead PPPs in the sector, though this may depend on how the role of ZINWA in the distribution of water ultimately unfolds.
2. Establishment of a dedicated independent Water and Sanitation Tariff Regulation Commission 163. A key action to improve funding of the water and sanitation sector is to establish a properly constituted Tariff Regulation Commission to ensure that that water is appropriately priced to generate sufficient resources for sustainability of supply and service provision, yet is not unaffordable to consumers.
164. The tariff issue has already been discussed in a paper presented to Cabinet. However, the water issues were included with similar issues from other sectors, yet water sector requirements are urgent since they have a direct bearing on the achievement of the MDGs, as well as the planned economic turnaround strategy for the country. The Ministry should therefore include the issue of a dedicated Tariff Regulation Commission for the water sector as an urgent policy matter
40 within the proposed Water Policy Adjustment Note. The note should include draft Terms of Reference for the proposed Tariff Commission.
v. Budget for the Action Plan Action Activities Budget Fund (USD) Source* Sector 1. Strengthening the Department of Water 30,000 GoZ Policies: Resources 20,000 WB 2. Prepare a Policy Framework Adjustment 35,000 WB Note 3. Hold a 3-day broad stakeholder Strategic 20,000 ZINWA Planning Workshop Donor 4. Review of Water Act and harmonize it with Allied Acts Institutional 1. Develop a Water and Sanitation Sector Capacity Development 40,000 DoWR reforms Strategic Plan. Donors 2 Prepare accountability and transparency systems and 20,000 guidelines for efficiency, effectiveness and accountability, and predictable performance based promotion and reward systems Management 1. Establish an 30,000 DoWR Capacity MIS needs sub committee of the National Steering Committee ZINWA; Enhancement (NSC) to prepare the Terms of Reference for the MIS NAC Consultancy, UNICEF 2. Mobilization IWSD of funding for the consultancy and a Sector Management Information Fund 3. NAC 50,000 NAC Sustainability Sub-Committee establishes an effective CBM UNICEF monitoring and evaluation system for the rural water supply and NGOs sanitation Improve 1. Transparent policy and regulatory 50,000 MoWRID Financing the framework for PPP in the water and sanitation sector ZINWA Water and establishment. MOF Sanitation 40,000 WB Sector 2. Establishment of dedicated independent MoF Water and Sanitation Tariff Regulation Commission MoWRID WB Donors *Possible funding sources
vi. Monitoring of the Action Plan 165. The Action Plan for the Water Sector will be implemented by the National Steering Committee for Water through its Working Group and other working groups established to supervise the specific function as described in the action plan above. The outputs from the action plan will be reported to the Task Force and the Ministry of Finance.
41 Private Sector Participation aa. The Government Policy 166. The government has, through the Ministry of Finance, prepared Public Private Partnership (PPP) Guidelines for government departments. This does not however apply to public private partnerships between local authorities and the private sector. These are guided by the Act and regulations on procurement. There are a number of examples emerging from experience of PPP in the water sector. bb. Public Private Partnership in the Water Sector i. Options 167. There are emerging possibilities for public private partnerships in a number of areas within the water sector despite the challenging environment: • Dam construction; • Waste water recovery, treatment and recycling; • Water and sanitation service infrastructure partnership in design and construction.
Dam Construction 168. The current fluid situation in the country is impacting on the participation of the private sector in the water sector. In the past, there has been public private partnership in dam construction, such as between government and Triangle Sugar Estates, between government and a German Company for Manyuchi Dam and between government and a consortium of farmers in Mashonaland West to build Biri Dam. There has been suggestion of PPPs for the construction/completion of dams such as Tokwe Mukorsi and Kunzwi Dams. All construction is done through private sector firms. There are no clear parameters or frameworks for establishing PPPs.
Waste water recovery, treatment and recycling 169. Bulawayo City Council is completing a joint venture with the private sector in the city with a view to recover waste water, treat, and recycle into the City treatment works at Criterion. The initial phase, to take 12 months, involves private sector investment of about US$20 million (at market exchange rates). The project will end up providing nearly 35 percent of the city’s total water demand. The PPPs involving municipalities are successful because the local authorities own land which they can exchange for infrastructure delivery. In some cases, the local authority can offer reduced water tariffs for a number of years as their contribution. (It is noted that ZINWA is at a significant disadvantage in entering PPPs since it does not own land).
Water Infrastructure collaborative design and implementation for peri urban areas in Harare 170. The second promising aspect is partnerships in Harare between private sector engineering firms, private sector organizations (holding land on the outskirts of Harare), parastatals and the Harare City Council in the provision of water and sanitation infrastructure for new peri-urban residents of the city.
42 ii. The Role of the World Bank 171. There is a potential role for the World Bank in assisting to establish appropriate frameworks for PPP in the water sector including dam construction. There is no experience in ZINWA or the Department of Water Resources in handling PPPs.
Regional Integration cc. Why Regional Integration is Important and Current Initiatives 172. Within the SADC region, water is a scarce natural resource whose distribution varies geographically and over time. More than 70 percent of the region’s water resources occur in shared river basins, compared to a world wide average of about 40 percent. For example, the Zambezi River basin meets basic needs of some 38 million people with its 8 riparian countries. However, despite the importance of the Zambezi river basin, very limited regional integration activities take place except for Lake Kariba between Zambia and Zimbabwe.
173. Water is a key developmental resource for SADC (See Map 1). The SADC Region is confronted by numerous challenges with the management of water resources, whilst at the same time it presents numerous opportunities for practical regional integration for the benefit of SADC citizens.
174. SADC is presently managing 44 regional development projects. Thirty one of these have been prioritized for implementation. The Priority Projects fall into six areas of focus: • Legislation, Policy and Strategy; • Capacity Building and Training; • Awareness Creation and Participation; • Information Management; • Infrastructure Development; and • Stand Alone - Special Areas of Focus.
175. The African Development Bank and SADC signed a grant agreement of US$13.80 million to finance the SADC Shared Watercourses Support Project for the Ruvuma River (Mozambique, Tanzania), Buzi River (Zimbabwe, Mozambique) and Save River (Zimbabwe, Mozambique) Basins. The goal of the project is to ensure the development of integrated water resources management and related physical infrastructure development that contribute to regional integration and poverty reduction. The project will also provide a sustainable framework for an integrated planning and management of shared water resources in order to support and improve the livelihoods of the local communities. The project will consist of five components, namely (a) Development of River Basin Monographs and Strategies, (b) Enhanced Knowledge and Information Support System (c) Community Basin Management, (d) Project Management and Capacity Building, and (e) Audit Services. The total cost of the project is estimated at UA 10.43 million, of which 75 percent is foreign cost and 25 percent is local cost. ADF will finance the entire foreign exchange cost (UA 7.84 Million) and part of local cost (UA 1.54 Million). The three SADC member states, through the SADC secretariat, will contribute the balance of local costs.
176. The proposed project is in line with the approved World Bank’s Regional Assistance Strategy Paper for Southern Africa (2004-2008), which states that the Bank’s preference is to channel its regional assistance efforts mainly through SADC. The proposed project is part of the
43 broader SADC Regional Indicative Strategic Development Plan (RISDP). It is also part of NEPAD’s Short-Term Action Plan on transboundary water resources management.
177. The Botswana Daily News reported on a stakeholder’s conference for the Zambezi River Basin held in Gaborone to identify and discuss Integrated Water Resources Management (IWRM) and other related issues in the Zambezi River basin. Issues discussed included the shortage of water in the villages along the Chobe River.
178. The SADC sponsored Zambezi Watercourse Commission (ZAMCOM) agreement, signed at Kasane, Botswana in 2004 by the eight countries that share its water, created a body to promote the equitable and reasonable use, efficient management and sustainable development of the water resources of the Zambezi. Officials from the riparian countries and international agency stakeholders from the Southern African Development Community (SADC), Food and Agriculture Organization (FAO), the African Development Bank (AfDB), and the World Bank met in Zimbabwe in July 2005 to discuss the operations of the Commission.
179. The U.S. government is actively involved in supporting the management of transboundary water resources in many parts of the world. Specific activities include: Transboundary Water Resources Management Protocol for the Southern Africa Development Community (SADC). USAID has been supporting SADC countries to develop a common water protocol for managing transboundary water resources, primarily in the Zambezi and Limpopo River basins. dd. Potential Projects in Regional Integration 180. While the Water Act says little about regional integration, there is appreciation in the government for the importance of regional linkages in water issues. Currently there are a number of regional water course commissions that the government has established in association with its neighbors. These include the: Zambezi Water Course Commission, Limpopo Water Course Commission, and Mozambique-Zimbabwe Water Courses Commission. The vision for regional integration includes water management as an instrument to assist regional integration especially in developing joint projects based on watershed development.
44 ee. Next Steps in Promoting Regional Integration
Figure 2: SADC Showing Shared Watersheds
1.1 MAP OF SADC
DRC
% Kingshasa TANZANIA
Dar Es Salaam %
% Luanda
MALAWI ANGOLA ZAMBIA Lilongwe % Lusaka%
Harare % MOZAMBIQUE ZIMBABWE NAMIBIA N BO TSW ANA WindhoekA % E C O Gaborone % C % Pretoria I % T % Maputo N Mbabane A SW AZILAND L T A Maseru% SOUTH AFRICA LESOTHO
IN D IA N N POPULATION: 202 MILLIONO AREA: 9.4 MILLION SQUAREC KM 1: 20,000,000 E A N
45 SECTION 5: TELECOMMUNICATIONS SECTOR D. Historical Background 181. The telecommunications sector is significantly more vibrant than most other infrastructure sectors in the Zimbabwe economy. This is due to substantial progress made by the government in the liberalization of telecommunication services, and advancements in technology that have made telephone and internet services accessible to a higher proportion of the population. Growth in the sector has, however, been limited by shortages of foreign currency, a low tariff regime, and failure to privatize the principal fixed line operator. This has resulted in failure to meet the demand for telecommunications services and chronic congestion, particularly on the mobile networks.
182. Prior to liberalization in 2001, the government-owned Posts and Telecommunications Corporation (PTC) held a monopoly on all telecom services in the country, except cellular. The PTC was a fixed line operator with a mobile telephone subsidiary, but also operated the postal service and carried the regulatory functions for the sector. The government decided to unbundle the PTC and separate its operational and regulatory functions as a means to encourage increased investment in the sector.
183. The Posts and Telecommunications Act came into effect in September 2000. Its purpose was to establish the Postal and Telecommunications Regulatory Authority, POTRAZ, which started operating in 2001. POTRAZ is mandated by law to issue licenses in the postal and telecommunications sector, to set the terms and conditions of the license agreements, and to regulate tariffs. The telecoms licensees contribute to a Universal Service Fund (USF), which is managed by the POTRAZ Board. The USF is intended to support the expansion of communication services to under-serviced areas.
184. The reform process in the telecommunications sector was supported by the World Bank until mid-2000, when Zimbabwe went into non-accrual status. The government managed to continue the process having negotiated a foreign currency loan through a local commercial bank. The loan was used to engage consultants to provide advice on the unbundling of the PTC, and subsequent privatization of the resulting entities. The postal services were separated and PTC assumed new corporate identities as TelOne and Zimpost. The privatization process continued through 2002 and 2003, but stalled when potential buyers of TelOne withdrew due to uncertainty in the local economy.
185. TelOne’s fixed line monopoly came to an end in early 2001 with the launch of a second fixed-line operator TeleAccess Zimbabwe (Pvt) Ltd. This was the first company allowed to enter the fixed-line market since it was opened to competition. The TeleAccess license was eventually withdrawn by POTRAZ in December 2005 due to non-performance. TeleAccess is currently disputing this action in the courts.
186. Zimbabwe’s first cellular network was launched by PTC in October 1996 under the name NetOne. The introduction of competition in 1998 sparked a surge in subscribers and by the end of 2000 the three mobile operators had more subscribers than the fixed network. All three operators (NetOne, Econet and Telecel Zimbabwe) utilize the GSM17 standard and offer contract and prepaid services, Short Message Service (SMS) and international roaming. Despite
17 Global System for Mobile Communications
46 significant growth in the mobile market since 1996, only half of the estimated total demand for services had been met by the end of 2006.
187. POTRAZ has also issued licenses to four data carriers and three internet Access Providers. The Data Communication Operators include Powertel Communications Ltd, a subsidiary of the Zimbabwe Electricity Supply Authority, which utilizes excess capacity on its internal networks including fiber optic cables draped over power lines. The other licensed data communications operators are Africom Zimbabwe, DataOne (owned by TelOne), and Broadlands. The licensed internet Access Providers are Ecoweb (owned by Econet), ComOne (Owned by TelOne) and Telco Internet.
188. The internet industry has flourished in recent years despite the limited fixed line infrastructure on which many internet Service Providers (ISPs) are dependent. There are now more than 20 registered ISPs in the country and numerous cybercafés in the main urban areas. A growing number of ISPs now offer broadband internet access through the fixed line data networks and radio links (UHF), in addition to dial-up services. POTRAZ only licenses the providers of internet backbone (Internet Access Providers), and not ISPs, in a deliberate effort to promote the expansion of internet services in the country. Sector Policies ff. SADC Protocol on Transport, Telecommunications and Meteorology 189. The government of Zimbabwe is a signatory to the SADC Protocol on Transport, Communications and Meteorology (1996). This is a regional protocol under which the Member States agree to develop a “harmonized regional telecommunications policy” aimed at: • Economic and institutional restructuring of telecommunications including granting public telecommunications service providers financial and management authority irrespective of ownership, and promoting fair competition between service providers; • Expanding and strengthening of governments' capacity to develop policy frameworks and regulate the sector; • Developing universal service goals and performance indicators; • Granting of access to telecommunications networks and services by each other's service providers on reasonable and non-discriminatory terms; • Encouraging indigenous participation in the telecommunications sector; and • Encouraging the enhancement of capacity and capability of service providers with a view to improving service provision in the region. gg. Sector Reform Policy, 1996 190. In response to the signing of the SADC Protocol, the Ministry of Information, Posts and Telecommunications (MIPT) announced a Sector Reform Policy for Zimbabwe in 1996. The new policy addressed the following government objectives for the communications sector: • Universal access to telecommunications and postal services; • Improvement of service availability; • Improvement of service quality; • Affordability of services; and • Development of new services.
47 The policy aimed to achieve these objectives by: • Commercializing the Posts and Telecommunications Corporation (PTC); • Deregulating the sector to allow the entry of other players, in particular the private sector; and • Setting up a regulatory mechanism to oversee the introduction of competition in the sector.
191. The Sector Reform Policy proposed the establishment of separate regulatory authorities for telecommunications/postal services and broadcasting. hh. Postal and Telecommunications Act, Chapter 12:05 of 2000 192. The Postal and Telecommunications Bill was passed in March 2000 in support of the 1996 Sector Reform Policy. The Act allowed for the establishment of a sector regulator, the Postal and Telecommunications Regulatory Authority of Zimbabwe (POTRAZ). It repealed legislation that conferred a monopoly on the state-owned Post and Telecommunications Corporation (PTC) and provided a liberalized framework for the sector. The Bill envisaged private sector participation through strategic partnerships with the entities emerging from the unbundling of PTC, and the entry of new players into the sector. ii. Ministry of Transport and Communications 193. In July 2000, the Ministry of Information, Posts and Telecommunications (MIPT) was abolished. The dismantled MIPT was split into two, with Information falling under the Office of the President, and Post and Telecommunications under the Ministry of Transport and Communications. jj. National ICT Policy Framework 194. The National Information and Communication Technology Policy Framework was published by the government in December 2005. The purpose of this policy statement is to “harness Information and Communication Technologies (ICTs) for sustainable national development”. ICTs are seen as “a powerful instrument for increasing national economic growth and development” which can “place Zimbabwe on the high road to becoming a knowledge based economy and society”.
195. The preparation of the policy framework was coordinated by the Ministry for Science and Technology Development, with inputs from other government ministries, the National Economic Consultative Forum (NECF), the United Nations Development Program (UNDP), the National University of Science and Technology, the private sector and civil society.
196. The purpose of the National ICTs Policy Framework is “to provide strategic direction and guidance for sustainable national development through the development and applications of ICTs”. The objectives of the Policy Framework are to: • Ensure provision and maintenance of infrastructure necessary for the development of ICTs; • Promote and support the sustainable development of ICTs; • Embark on extensive educational and training programs to provide adequate supply of qualified ICTs personnel; • Establish structures for effective implementation of ICTs strategies; • Establish institutional mechanisms and procedures for determining sectoral priorities; and
48 • Ensure equitable access to benefits offered by ICTs for disadvantaged groups in society, including rural communities.
197. The policy framework encourages full utilization of existing communications infrastructure to “reduce resource wastage”. It calls for increased bandwidth on the national backbone and international gateways, and measures to develop and retain skilled human resources. The policy framework envisages rationalization of tariff structures to make ICTs more affordable and accessible, enforcement of “stringent quality of service standards”, and “a conducive environment for investment through public private partnerships”.
198. The “leadership and catalytic” role of government for the successful implementation of the policy framework is emphasized. The policy provides for the establishment of a single national regulator to oversee all telecommunications, broadcasting and internet services, and envisages the development of new legal instruments on privacy, security and cyber crimes. Institutional Reforms kk. Regulatory Authority 199. The Postal and Telecommunications Regulatory Authority of Zimbabwe (POTRAZ) was established in 2001. POTRAZ is governed by a Board of between 5 and 7 members appointed by the government. The Board comprises private sector and civil society representatives, and a single representative of the government.18
200. The primary function of POTRAZ is to ensure a level playing field in the posts and telecommunications sector. Its functions include: • Ensuring the provision of postal and telecom services throughout Zimbabwe; • Licensing of all postal and telecom systems and services; • Allocating radio frequency spectrum; • Ensuring that the quality of postal and telecom services meet acceptable standards; • Promoting and encouraging the expansion of postal and telecom services; • Preventing unlicensed and illegal operators.
201. POTRAZ has powers to suspend or cancel licenses. It represents Zimbabwe internationally in matters relating to postal and telecom services and controls the provision of international transit services by providers of telecom services to Zimbabwe and the region. POTRAZ is funded through revenue from licensing and a levy on the gross turnover of the telephone operators, internet access providers, data communication providers and postal and commercial courier operators. The licensees are also required to contribute to a Universal Service Fund (USF), which is under the control of the POTRAZ Board. The USF is intended to support the expansion of communication services to under-serviced areas. It can also be used to finance training programs for the sector and is a potential vehicle for government or international donor funding.
202. As with most modern telecommunications regulators, POTRAZ is government-owned but expected to operate independently of direct government influence. POTRAZ has its own revenue stream independent of the fiscus, and a board with only one government representative. It is authorized to sign license agreements independently of direct government approval.
18 The term of office of the last POTRAZ Board expired in March 2006. At the time of writing this report POTRAZ was being overseen by an Interim Board chaired by the Permanent Secretary in the MoTC and comprising government officials.
49 ll. Sector Liberalization 203. The mobile market was the first telecommunications sector to open to full competition in 1997. The government opened up the mobile sector when its monopoly was challenged in the courts by Econet Wireless. Since then, mobile telephony has experienced excellent growth, including the entry of a third mobile operator, Telecel Zimbabwe, in July 1998.
204. The privatization of TelOne and NetOne was approved by the government in November 2001. The planned equity structure would leave the government with 70 percent shareholding with the remaining 30 percent offered to a strategic partner. International tenders were called for in January 2002, inviting potential partners to express interest. From 12 applicants, four companies were pre-qualified. Negotiations with these bidders were, however, unsuccessful and all eventually withdrew their offers. Subsequent attempts by the government to attract other investors were also unsuccessful, with potential investors deciding that Zimbabwe was not currently conducive for such major investments. Furthermore, TelOne is burdened with foreign currency debts reported to be about US$350 million in 2005, most of which were inherited from the PTC.
205. In mid-2000 the government approved a Second Public Fixed Telecommunication Services license for privately-owned company TeleAccess Zimbabwe (Pvt) Ltd. TeleAccess originally aimed to invest up to US$540 million in setting up infrastructure throughout the country, targeting the corporate market but also offering telephony services with a combination of phone shops and phone booths installed in major stores.19 The TeleAccess license was not issued until December 2002 due to a dispute over the license fee proposed by the government. Eventually a 20 year license was issued, but this was withdrawn in December 2005 due to failure to achieve the level of expansion required under the agreement. TeleAccess is challenging this decision through the courts.
206. There are currently four licensed data communications providers and three IAPs in Zimbabwe. The Data Operators are Africom Zimbabwe, Powertel Communications Pvt Ltd (a subsidiary of Zimbabwe Electricity Supply Authority), DataOne (owned by TelOne), and Broadlands Networks Ltd. The IAPs are Ecoweb (owned by Econet Wireless), ComOne (owned by TelOne) and Telco Internet (Telconet). Africom Zimbabwe was awarded the country’s first data communications license in 2001, allowing it to build a public data network and international gateway. It uses cable networks and licensed broadband radio frequencies for applications such as internet access, file transfers, and financial applications such as Point-of-Sale and ATM transactions. The Zimbabwe Electricity Supply Authority (ZESA) started Powertel in 1999. The service uses fiber optic and copper cables, power line communications and wireless systems. It has established a fiber optic network linking main cities and towns in Zimbabwe and has a fiber optic link between Harare and South Africa. Powertel leases spare capacity on its Gweru- Bulawayo link to TelOne. Privately-owned Telco Internet provided Zimbabwe’s first national integrated voice and data network via a fiber optic cable network with links to the main commercial centers. Telco Internet is licensed to provide internet access via dial-up accounts and broadband access. Broadlands Ltd is Zimbabwe’s newest private telecom operator, with an LMDS (Local Multipoint Distribution System) wireless broadband data network connecting Harare with Bulawayo.
207. Internet services were first introduced in Zimbabwe for academic purposes in 1991. Commercial service providers were gradually introduced using leased lines through South Africa. In 1997, the PTC launched an internet hub connecting directly to the USA. The national internet
19 Source: Paul Budde Communication Pty Ltd. Zimbabwe - Telecoms Market Overview & Statistics. September 2006.
50 backbone was upgraded to 2Mb/s in 1998 and expanded to 11Mb/s by 2003. By 2006 it was estimated that there were about 1.2 million internet users in the country.20 Meanwhile there has been consolidation in the ISP market with larger ISPs buying smaller ones to strengthen their positions in an increasingly competitive operating environment. The main players in the ISP market are M-Web (part of the South African based MIH Group), Zimbabwe Online, Africa Online, ComOne (operated by TelOne) and Ecoweb (part of the Econet Wireless group). There are also a significant number of smaller ISPs based in Harare, Mutare and Bulawayo. Condition of Infrastructure mm. Telecommunications Network Statistics21 Fixed lines in service 332,000 Fixed line tele-density22 2.7 % Number of ISPs 26 Internet host computers 6,600 Internet users 1,200,000 Internet penetration 10 % Mobile subscribers 1,100,000 Annual growth of mobile services 25% Mobile Penetration 9% nn. International and Regional Infrastructure 208. International communications are achieved through two Intelsat satellite earth stations and two international digital gateway exchanges in Harare and Gweru. The Mazoe Earth Station is Zimbabwe’s largest international telecommunications link. Legal restrictions require private operators to route at least out-going calls through the government-owned gateways. This tends to limit the availability of bandwidth and reduces options for ensuring continuity of supply.
209. Zimbabwe’s geographical location at the centre of the region makes it a key player in the development of an integrated regional telecoms network. Failure by TelOne to invest in a secure national backbone means that Zimbabwe is presently not able to adequately fulfill this role. In July 2001, Telkom South Africa Ltd completed a six-month project to upgrade the existing analogue telecom link with Zimbabwe to a Synchronous Digital Hierarchy (SDH) digital link. The old analogue system could no longer cope with the demand on Zimbabwe’s busiest route. In August 2004 TelOne announced the long-awaited commissioning of the system. TelOne has also installed a fiber optic link from Harare to Chirundu, which enables South African operators to link with Zambia, and Botswana Telecom has assisted TelOne to upgrade links between the border post of Plumtree and Victoria Falls via Bulawayo. Meanwhile other important links such as Harare to Mozambique via Mutare remain weak.
210. Zimbabwe is one of twenty three countries that are participating in the installation of a seabed fiber optic cable between Mtunzini, near Durban in South Africa, and Sudan on the east coast of Africa.23 The project, known as the East African Sub-Marine System (EASSy), is being promoted by the NEPAD E-Africa commission with support from international funding agencies.
20 Source: POTRAZ 21 Source: POTRAZ and network operators. 22 Teledensity – the number of telephone lines per unit of population. 23 At the time of writing this report only 12 of the countries (including Zimbabwe) had formally signed the agreement supporting this development.
51 From Sudan connections will be made to the Middle East and Europe. Access to this cable by countries on the east coast of Africa, including Zimbabwe, will significantly improve their regional and international connectivity, with reduced reliance on expensive satellite links.
211. Difficulties experienced by the government in making payments to foreign suppliers have resulted in periodic disruptions to international connections. For example in September 2005, Telkom (South Africa) disconnected Zimbabwe for non-payment of a multi-million US dollar debt, while British Telecom also imposed restrictions for the same reason24. In September 2006 Intelsat severed a satellite link that provided a significant portion of the bandwidth used by TelOne through failure to pay a US$710,000 bill.25 oo. VoIP Telephony 212. TelOne operates VoIP (Voice over Internet Telephony) through several global carriers. Since March 2001, it has been receiving international voice and fax calls by this means. The use of VoIP allows TelOne to channel a significant additional number of international calls simultaneously into Zimbabwe. Apart from providing additional revenue, VoIP technology has enabled TelOne to improve the quality of international call services.
213. Econet Satellite Services (ESS), the primary international carrier for Econet Wireless International, provides a direct link for international voice services. This interconnection enables Econet to route international voice traffic over a global VoIP network.
214. POTRAZ has a provision to license Class A Internet Access Providers, which would allow operators to provide VoIP services. No licenses have yet been issued in this category, but there have been a number of cases of unlawful operation of telecommunication systems using VoIP technology. POTRAZ has attempted to prevent these activities but has not been able to apply penalties that could act as a meaningful deterrent. The government and POTRAZ are now considering licensing provision of VoIP in Zimbabwe, but this must be done in a manner that does not seriously threatening the viability of TelOne or the mobile operators.26 Meanwhile there is a risk that regulatory efforts will be overtaken by technological development, with VoIP now available to any ISP customer through service providers, such as Skype. pp. Fixed Line Network 215. Teledensity rates on the fixed line network have improved in the past ten years (see table below). Nevertheless the PTC, and its successor TelOne, have been unable to meet consumer demand for fixed telecom services. Problems such as poor reliability and long waiting lists for fixed lines remain a serious issue. Frequent power cuts disrupt the operation of telephone exchanges and repairing faulty lines can take several months. The number of fixed lines provided by TelOne is currently about 332,000, with a total demand for telephone services estimated by TelOne to be about 3 million (25% of the population). Most urban exchanges have now been digitalized, but in rural areas the majority of exchanges are still analogue. TelOne is still operating shared telecom facilities (party lines) in rural areas, which in addition to presenting considerable inconvenience to subscribers; do not cater for dial-up as a means of data access.
24 Source: Paul Budde Associates…… 25 Source: The Herald 21 September 2006. 26 Source: Interviews with Ministry of Transport and Communications, TelOne and NetOne representatives.
52 Table 2: Fixed lines in service and teledensity 27
Year Fixed lines Teledensity 1995 152,500 1.4% 2000 241,400 2.1% 2006 332,000 2.7%
216. TelOne is currently achieving a Call Completion Rate of 58 percent (fixed to fixed) in urban areas against a target of 65 percent imposed by POTRAZ through the TelOne licensing agreement28. Meanwhile weak interconnectors between networks result in Call Completion Rates from TelOne to the mobile networks of only about 30 percent.29
217. TelOne aims to expand telecom services to a point where intending subscribers can be connected on demand and to improve the quality of service. However, investment in the fixed line network has remained largely stagnant for many years. TelOne is still operating equipment which has largely outlived its useful life and needs replacement, while additional equipment is required to expand geographic coverage. Areas particularly requiring investment are in access networks, transmission systems and switching equipment.30
218. A major expansion program on the fixed network began in mid-1998 to add 250,000 main lines by the end of 2002. A Joint Venture between the PTC and an international contractor was awarded a Build-Operate-Transfer (BOT) concession in May 1999, but the project was abandoned due to unresolved legal questions.31 Expansion of the fixed network since 2000 has been largely limited to the Matabeleland Digitalization Project, which gained an additional 80,000 digital lines and 10 stand-alone digital exchanges. The trunk and local junction network was also digitalized to cater for national and international traffic. In 2003 TelOne commenced implementation of a project to link Zimbabwe’s major towns and cities with fiber optic cables to replace radio links. This project is still ongoing. qq. Mobile Operators 219. Econet was awarded the second license to offer mobile services in Zimbabwe in 1997 and has grown rapidly to become the country’s largest GSM operator. The network covers the most important cities and towns in the country, and several of the main trunk roads. A backbone microwave link between Harare and Beitbridge on the South African border has been completed. Econet provides voice, SMS, fax and data services, mobile banking and international roaming.
220. The state-owned GSM network, NetOne, was launched in Harare in October 1996. Coverage has since been extended to all major towns, cities and resorts throughout the country as well as most major roads. NetOne offers the most comprehensive area coverage among the three providers. In addition to basic telephony, NetOne offers supplementary and value-added services such as vehicle tracking and monitoring, international roaming, fax, data, SMS and voicemail. NetOne is currently installing new switching equipment in Bulawayo that will increase their subscriber base from 340,000 to 840,000 lines.
27 Source: Paul Budde Communication based on ITU data. The data does not include PABX extensions that serve users beyond the normal confines of an institution, and leased lines for other private use. 28 Source: TelOne. 29 Source: MoTC. 30 Source: Interview with TelOne representative. 31 Source: Paul Budde Associates….
53 221. The third GSM operator, Telecel Zimbabwe, launched its mobile network in 1998. The company is owned by Telecel International (60 percent) and the Empowerment Corporation of Zimbabwe (40 percent). Telecel International is in turn owned by a major telecommunications payer in the Middle East. Telecel currently has about 120,000 subscribers.
222. The unconstrained demand for mobile telephone lines in Zimbabwe is estimated by NetOne to be about 2 million. The biggest constraint to NetOne expansion to meet this demand is the shortage of foreign currency available for the procurement of equipment. Econet and Telecel are also constrained by shortages of foreign currency, but they have more flexibility in sourcing foreign exchange through commercial bank loans and external shareholders. Econet and Telecel are constrained mainly by low a tariff regime, which they claim is enforced by POTRAZ, with tariff levels based on the availability of foreign currency at official exchange rates. (According to POTRAZ, the Authority does not prescribe tariffs, but these are calculated by the Operators using an agreed international cost model based on each individual operator’s actual costs). Telephone calls in Zimbabwe are amongst the cheapest in the world, particularly if denominated in foreign currency at the market exchange rate (see tables comparing tariffs in section 5).
223. Meanwhile significant congestion is being experienced on the mobile telephone networks, particularly for calls across networks. This is partly due to failure of the operators to upgrade the interconnectors between the networks and partly due to the low cost of calls. The low call cost encourages users to make longer duration calls than is catered for in the system design32. Call Completion Rates between mobile networks are estimated to be less than 10 percent. At peak times it is virtually impossible to make a call from one mobile network to another.
Table 3: Total of Mobile Subscribers33
Year Subscribers 1997 11,000 2001 325,000 2006 1,100,000 rr. Internet Services 224. Dial-up services are available nationwide via several hundred Points of Presence (PoPs) throughout Zimbabwe. Browsing speeds are restricted by the capacity of the TelOne fixed line network, bandwidth supply through TelOne, and the speed with which faults can be repaired. Meanwhile most ISPs are also now offering broadband internet access through the TelOne network, new infrastructure being installed by the licensed data carriers, and radio links provided by the government-owned broadcasting company, Transmedia. ss. Enforcement of License Conditions 225. POTRAZ is empowered to issue fines to Telecoms operators or to withdraw their licenses if they don’t achieve level of service benchmarks set out in their license agreements. POTRAZ is, however, constrained against taking such action since they must prove that the limitations are not beyond the operators’ control. Operators can simply attribute the poor service levels to foreign currency shortages. Furthermore, the level of fines that can be imposed by POTRAZ is low, thus not acting as a significant deterrent.
32 Source: Interview with Econet representative. 33 Source: Paul Budde Communication and POTRAZ
54
Financing tt. POTRAZ 226. POTRAZ receives license fees from the operators and 1.5 percent of their gross turnover. This revenue would be very substantial if tariffs were set at international levels and the sector was expanding and diversifying in full response to demand. According to POTRAZ, at current tariff levels the revenue is adequate to finance the current size of the organization but might not be sufficient if the intended size of POTRAZ is achieved. The levy on gross turnover can be increased with ministerial approval. Meanwhile POTRAZ is seeking means to enforce prompt payments by the operators, since the value of payments is rapidly eroded by inflation.34 POTRAZ is required to pay annual subscriptions to international telecommunications organizations in foreign currency, yet has a very small foreign currency revenue base. uu. Tariffs 227. Competition is lacking in the fixed line and mobile markets in Zimbabwe due to demand far exceeding supply. There is also currently very little competition based on services in the telecommunications sector (except for ISPs). The role of POTRAZ in regulating tariffs is therefore important to ensure fair treatment for consumers. However, the network operators predict that if tariff levels were increased and they were able to expand their networks, the increased revenue from increased traffic would lead to eventual lowering of call charges35. The current situation of low tariffs and suppressed demand is a constraint to development of the sector, and its contribution to economic recovery in Zimbabwe.
228. POTRAZ and the telecom operators use the COSITU36 model to set tariff levels. The operators initially run the model using their actual input costs to generate tariff proposals which are submitted to POTRAZ for approval. These tariff proposals are often subject to downward adjustment by POTRAZ before they can be implemented on the grounds that they do not reflect actual costs. The agreed tariffs are then rapidly undermined by inflation until the next adjustment is permitted three months later. The use of forward-looking costs and more frequent tariff increases would contribute to addressing the issue of sub-economic tariffs, as would relaxation of the fixed exchange rate. These measures are, however, either outside the control of POTRAZ or would introduce significant administrative challenges. The control on tariff increases in the telecommunications sector is seen by the government as a means of controlling the rate of inflation.
229. Comparison of fixed and mobile call rates in Zimbabwe against those of South Africa and Nambia show that Zimbabwe tariffs are significantly lower than regional trends (see tables below). It is evident that current tariff levels are also well below levels that the market can sustain. For example, SIM cards sold by NetOne for Z$5,000 can be immediately resold on the parallel or unofficial market for Z$120,000. Phone shops in Harare charge Z$100 a minute for a call to a mobile number, which costs the phone shop about Z$14.37
34 The year-on-year inflation rate was estimated by the Government to by over 1,600% in January 2007. 35 Source: Interview with TelOne representatives. 36 A computer model developed by the International Telecommunications Union for the Calculation of Costs, Tariffs and Rates for Telephone Services. 37 Costs effective on 17 January 2007.
55 230. For international traffic there is a direct negative impact of the fixed foreign currency exchange rate on tariffs charged by the telecoms operators. When operators handle traffic destined for other countries they must pay termination charges to foreign operators. In calculating tariffs to charge a local subscriber making a foreign call, the Zimbabwe operators must convert the termination charges at the official exchange rate. Meanwhile the Zimbabwe operator must source foreign currency in order to pay the foreign operator. This forex is derived mainly from terminating international calls in Zimbabwe. However, Zimbabwe has become a net-payer of foreign currency to foreign operators as local subscribers take advantage of the cheap international call rates. The duration of calls originating in Zimbabwe is far longer than calls into Zimbabwe, thus increasing local operators’ foreign currency obligations to their foreign counterparts. The extended calls are also causing severe congestion on international links. Operators recently warned that it may be necessary to suspend international call services if international call rates are not increased.38 POTRAZ is working with the operators to agree a mechanism that would enable the operators to pay their foreign currency bills and avert the impending crisis.
Table 4: Comparison of Fixed Network Tariffs – cost of a one minute call39
South Africa Namibia Zimbabwe - TelOne Telkom Telcom Official ex rate Market ex rate40 Local call to fixed network at peak time USD 0.073 USD 0.052 USD 0.025 USD 0.003 Call to mobile cellular at peak time USD 0.231 USD 0.238 USD 0.047 USD 0.006 Regional call to fixed line at peak time USD 0.239 USD 0.299 USD 0.067 USD 0.008
Table 5: Comparison of Mobile Network Tariffs – cost of a one minute call41
South Africa Namibia Zimbabwe Zimbabwe Zimbabwe Zimbabwe MTN MTC NetOne Econet NetOne Econet Parallel Market exchange Official exchange rate rate Call to same network at USD 0.306 USD 0.296 USD 0.232 USD 0.216 USD 0.029 USD 0.027 peak time (pay as you go) Call to fixed line at peak USD 0.306 USD 0.278 USD 0.204 USD 0.240 USD 0.026 USD 0.030 time (pay as you go) Regional call to mobile at USD 0.367 USD 0.592 USD 0.344 USD 0.344 USD 0.043 USD 0.043 peak time (pay as you go)
231. The interconnection arrangements between TelOne and the mobile operators currently favor the mobile operators. TelOne receives only 25 percent of the cost of calls from their fixed network to mobile networks, and only 25 percent of the cost of calls from mobile networks to TelOne, but this is mainly due to the inability of TelOne to negotiate more favorable interconnection agreements. Meanwhile the mobile operators complain that the rates set by POTRAZ for international traffic terminating in Zimbabwe are highly skewed in favor of TelOne, therefore discouraging international callers from dialing mobile numbers. TelOne has responded that it is normal international practice for fixed line termination rates to be lower than mobile termination rates; and furthermore the TelOne termination rate of US 7c is high by international
38 Source: The Zimbabwe Independent. 17 February 2007. 39 Source: Data published on operators’ web sites December 2006. 40 Based on a market exchange rate of Z$2,000 to one US$ in December 2006. 41 Source: Data published on operators’ web sites December 2006.
56 standards. Meanwhile the telecommunications sector is seen as a “quick fix” source of foreign currency by the government under the National Economic Development Priority Plan42 (NEDPP). POTRAZ was tasked by the government to maximize foreign currency revenue by setting termination rates for foreign calls at maximum possible levels.
232. The private mobile operators (Econet and Telecel) are licensed to operate their own international connections or may elect to pass international traffic through the TelOne system. The international call termination rates set by POTRAZ encourage the operators to use the latter option, which reduces the cost of calls to their networks. However, TelOne retains a portion of the foreign currency generated by these calls.43
Table 6: Zimbabwe International Call Termination Rates44
Calls terminating on: Termination Rate TelOne US7c Mobile networks direct US20c Mobile networks via TelOne US15c
233. TelOne and NetOne are not permitted to procure foreign currency outside official channels and do not benefit from any foreign investment. The shortage of foreign currency is leading to inadequate investment in new technologies and slow procurement of spares and upgrades for existing equipment. Meanwhile the private operators have more flexibility in sourcing foreign currency through foreign shareholdings and commercial bank loans. However, foreign currency procured in this way is valued at the market exchange rate, which is not adequately catered for in the existing tariff regime.
234. It is believed that the network operators in Zimbabwe are losing significant revenue through inability to deal with telecommunications crimes, in particular refilling45 of international traffic. Sophisticated network traffic monitoring systems are required to monitor this fraud, but these must be imported using scarce foreign currency. Meanwhile theft of telephone cables is an ongoing problem, with penalties for offenders too low to act as a significant deterrent.46 vv. Universal Services Fund 235. The Universal Service Fund (USF) is under the control of the POTRAZ Board. The purpose of the fund is to support the expansion of communication services to underserved areas. All telecommunications operators are required to contribute a percentage of their turnover towards the fund under their license agreements. Revenue to the USF in 2006 was about Z$150 million47. This is the equivalent of about US$1.2 million at the average official exchange rate for 2006, or US$150,000 at the average market rate.
236. To date, the USF has failed to have any meaningful impact on the improvement to telecoms services in underserved areas. Initially the process to register the trust fund took much longer than anticipated. Subsequently the administrative parameters by which the fund should
42 This economic recovery programme was launched in April 2006. 43 At the time of preparation of this report the mobile operators and TelOne had not come to agreement on how this revenue should be split. 44 Effective January 2007. 45 This is where an operator carries international incoming traffic and then terminates it on another operator in the same country, declaring it as national traffic. International gateways, known as ‘grey routes’, can be used by ISPs for this purpose. 46 Source: Interview with TelOne representatives. 47 Source: POTRAZ
57 operate have not been clearly defined. Meanwhile the value of the funds already collected is being rapidly undermined by inflation.
Management Capacity ww. POTRAZ 237. The effectiveness of PORTAZ is limited by human resource constraints. As with most other sectors in the Zimbabwe economy, POTRAZ has difficulty retaining staff, with competition from the private sector, other government agencies such as the RBZ, and the diaspora. Effective regulation requires not just sufficient numbers of staff, but also requires sufficient numbers of staff with particular specialist skills e.g. economists, lawyers, accountants, financial analysts as well as engineers. These skills are scarce in Zimbabwe today.
238. POTRAZ currently employs about 20 professional staff in two departments: Communications and Finance/Administration. It is intended to add two further departments: Legal/Corporate Affairs and Commercial/Public Relations, which would result in an increase of professional staff to about 30. This expansion is dependent on having sufficient revenue and on the availability of suitably qualified applicants. Salary scales for POTRAZ are determined by the government.
239. The size of organization envisaged by POTRAZ is not large by international or regional standards, particularly for regulators such as POTRAZ that have decision making powers. A survey of 13 national telecommunications regulatory agencies by Buckle (1999) found that the average number of staff employed by telecommunications regulators responsible for managing the radio spectrum was 202 employees. Only two of the regulators surveyed employ fewer than 50 staff. It was concluded that “adequate decision-making regulation with a staff of only about 25 people is not viable in the long-run”48. xx. Network Operators 240. Skills shortages are a major constraint to the expansion of the telecommunications networks in Zimbabwe. There is a continuous loss of skills from TelOne to NetOne, and from TelOne/NetOne to the private sector and the diaspora. Meanwhile the private operators are also losing staff to the diaspora, particularly in South Africa. TelOne continues to act as a training ground for the sector, yet the costs of training staff are high and cannot be fully absorbed by the company. The quality of training services offered by the TelOne training centre in Harare has deteriorated.
241. The skills shortage is contributing to slow network development by TelOne as management efforts concentrate on “fire-fighting” activities such as service restoration. Many of the faults on the network are induced by manpower shortages. There is a rapid deterioration of network elements due to inadequate maintenance.49 Furthermore, the loss of skilled staff in the commercial department of TelOne has significantly reduced their ability to negotiate fair interconnection arrangements with the mobile networks.
242. TelOne’s business operations and investment intentions are also constrained by the continuation of obsolete services such as telegraphy. As government owned companies, TelOne
48 Reference: Stern, J. Electricity and Telecommunications Regulatory Institutions in Small and Developing Countries. 49 Source: Interview with TelOne representative.
58 and NetOne are required to supply the government with services at non-commercial rates and must comply with bureaucratic government procurement procedures. Critical Areas 243. Future growth of the telecommunications networks in Zimbabwe is guaranteed due to the high level of unsatisfied demand and the scope for introducing new services. Growth is constrained mainly by shortages of foreign currency at official exchange rates and shortages of skilled manpower.
244. The future of fixed line networks in Zimbabwe is threatened by the expansion of mobile networks and the use of VoIP technology for voice calls via the internet. In order to secure its future, TelOne must introduce new technologies that ride on the existing infrastructure, maximizing the comparative advantage of better quality connections through fixed lines than wireless networks. Meanwhile the convergence of technologies offers significant opportunities for reaching previously uncovered areas. For instance, the use of VoIP technology will allow data carriers and broadcasters to offer voice services. This will, however, require more flexibility in the existing licensing regime.
245. POTRAZ has an important role in ensuring the expansion of telecommunications systems through an appropriate tariff regime. The USF is a key facilitator for expanding telecommunication services to underserved area, but needs to be operated efficiently. The ability of POTRAZ to recruit and retain a sufficient number of qualified regulatory professionals is likely to be a major constraint to its effectiveness until the present economic decline is reversed.
246. In due course, the government should create a single regulatory body for the information and communications sector in response to the convergence of technologies and in line with the National ICT Policy Framework. However, this is not seen as a critical issue for the growth or sustainability of the telecoms sector at the present time.
Immediate Action Plan • POTRAZ to confirm that international connectivity is fully liberalized; • POTRAZ to review licensing to facilitate access in rural areas and consider the licensing of community or municipal based micro-telecommunications operators interconnected to major operators; and • Remove the Interception of Communications Act (2007) from the statute book to restore confidence.
Long term Action Plan • GoZ to initiate a thorough audit of the assets and liabilities of TelOne to inform a restructuring of the corporation and re-consideration of a future privatization strategy; • Strengthen the independence and capacity of POTRAZ to encourage investment in the sector; • Consider participation of Zimbabwe in the Regional Communications Infrastructure project (RCIP) of the World bank or similar initiative to enhance international connectivity of all services to and from Zimbabwe; • POTRAZ to review Clause 3.23 public data network service licenses with the aim of amending the clause to allow such licensees to offer VoIP; • GoZ to ensure appointment of the Board of POTRAZ in accordance with the law; and
59 • POTRAZ to enter into a “twinning” arrangement for exchange of staff and transfer of skills.
60 SECTION 6: ENERGY SECTOR E. Introduction yy. Historical Background 247. The Zimbabwe power sector has undergone two major restructuring programs since the country’s independence in 1980. The first restructuring was an amalgamation of the industry in 1986/87 through the Zimbabwe Electricity Supply Authority, ZESA, which was established by the Electricity Act 6 of 1985. The Zimbabwe Electricity Supply Board (ZESB) was established under the same Act, with responsibility for the day to day management of the sector. The second restructuring was formally launched when the new Electricity Act 4 of 2002, as amended by the Electricity Amendment Act 3 of 2003, came into operation on 1st August 2003, and when the Rural Electrification Fund Act 3 of 2002, came into operation in May 200550. Restructuring under the 2003 legislation is still in progress.
248. At independence, the country had a power sector comprising two state-owned utilities and four municipal-owned electricity undertakings serving the four major cities of Harare, Bulawayo, Gweru and Mutare. The six utilities and their principal functions were:
• Central African Power Corporation (CAPC), owned jointly, in equal shares, by the government of Zimbabwe and the government of Zambia, was the successor company to the Federal Power Board that was set up to operate the Kariba Hydroelectric Scheme and its associated generation and transmission network in the two countries;
• Electricity Supply Commission (ESC), a parastatal responsible for electricity distribution and supply to the whole country except the four major cities. The ESC owned the Hwange and Munyati Power Stations which were operated under the control of CAPC as the generating and transmission authority;
• Harare Municipality Electricity Department (HMED), a division of the City of Harare responsible for electricity distribution and supply to the city and its environs. The HMED owned the Harare Power Station which was operated under the control of CAPC;
• Bulawayo Municipality Electricity Department (BMED), a division of the City of Bulawayo responsible for electricity distribution and supply to the city and its environs. The BMED owned the Bulawayo Power Station which was operated under the control of CAPC;
• Gweru Municipality Electricity Department (GMED), a division of the City of Gweru responsible for electricity distribution and supply to the city and its environs;
• Mutare Municipality Electricity Department (MMED), a division of the City of Mutare responsible for electricity distribution and supply to the city and its environs.
50 The formal establishment of the RE Fund was in 2005 at the same time as ZERC. Before 2005 both ZERC and REF fund operated informally using ZESA seconded staff.
61 249. The management of the power sector was done through a rather complex institutional arrangement. ESC, HMED and BMED purchased power in bulk from CAPC for sale in their respective licensed areas. GMED and MMED purchased their power from ESC. CAPC reported to the Higher Authority for Power, comprising officials from Zimbabwe and Zambia. ESC was under the control of the Ministry responsible for Power while the municipal undertakings came under local authorities controlled by the Ministry responsible for local government.
250. To streamline the management of the sector, the government decided to merge the different utilities under one parastatal organization, the Zimbabwe Electricity Supply Authority (ZESA). ZESA became operational on 24 January 1986 with the transfer of the assets, liabilities, staff and undertakings of the ESC. By the end of 1987, ZESA had taken over the electricity departments of the four cities as well as the Zimbabwe-based power generation and transmission assets, staff and operations of the CAPC. The power sector was brought under the direct control of one government ministry, responsible for energy. System development was now centrally planned and a uniform tariff scale was established. The unification saw a loss of technical and management skills affecting production; power generation from the relatively low cost Kariba hydroelectric scheme was further affectd by drought. The financial performance of ZESA, which was now effectively the power sector, deteriorated.
251. The restructuring of CAPC was done through the Zambezi River Authority (ZRA) Act of 1987, which was jointly enacted in Zimbabwe and Zambia. The ZRA took over the operation and management of the Kariba Dam complex, with its revenue largely derived from the sale of water for power generation to ZESA and ZESCO, the national electricity utility of Zambia. ZRA is also mandated to investigate and advise on the development of further dams on the Zambezi River. A committee of officials from the governments of Zimbabwe and Zambia was established to deal with the valuation and sharing of the generation and transmission assets of CAPC. This has proved to be a protracted process that has still not been finalized. This has adversely affected cooperation on the development of further dams, such as Batoka Gorge on the Zambezi River upstream from Kariba.
252. To address sectoral performance issues, the government adopted a public enterprise reform strategy in 1991, as part of the World Bank supported Economic Structural Adjustment Program (ESAP). A two-pronged reform program was approved for the power sector: (a) a ZESA performance improvement program (PIP), and (b) a review of the legal and regulatory framework. The latter was meant to create a framework supporting performance improvements and facilitating the implementation of the major long-term investments, especially in new power generation.
253. The PIP was a major success. It was driven by a performance contract signed between ZESA and the Ministry of Transport and Energy in September 1993, which gave the Zimbabwe Electricity Supply Board (ZESB) greater autonomy in managing the parastatal. The brain drain was reversed and the operational and financial performance of the utility improved. The drought induced power supply crisis was resolved through interconnections to Matimba in South Africa in 1995 and to Cahora Bassa, Mozambique in 1997. The interconnections enabled the generating units at the Hwange, Kariba and the three old thermal power stations at Harare, Bulawayo and Munyati to be taken out of service for the extended periods required to rehabilitate, refurbish and update as appropriate. The transmission and sub-transmission network and substations were refurbished and extended throughout the country. The Rural Electrification (RE) program was resuscitated in 1997 using an RE levy of 1 percent on customer bills introduced in 1996. ZESA was one of the few parastatals that had the liquidity and profitability to sustain its operations without direct government subsidies. These investments were carried out under the Power I, II
62 and III Projects supported by the International Bank for Reconstruction and Development (IBRD), and the Electricity I and II Projects supported by the African Development Bank (AfDB).
254. Meanwhile the review of the legal and regulatory framework for the sector proceeded at a much slower pace than anticipated. By the time the new laws were enacted the country was already experiencing a worsening macroeconomic environment, characterized by high inflation, unstable interest and foreign currency exchange rates and withdrawal of bilateral and multilateral financial support. Progress was achieved when the Zimbabwe Electricity Regulatory Commission (ZERC) and the Rural Electrification Agency (REA) were formally established in May 2005. Despite extensive preparations for unbundling over the past ten years, ZESA remains a vertically- integrated state-owned monopoly. The new Electricity Act of 2002 was amended in May 2003 to provide for the creation of a ZESA holding company.
255. Restructuring under the Electricity Act included the formation of the ZESA successor companies within six months, from August 1, 2003, the date fixed for the Act to become operational. Since ZESA had already created the companies needed to facilitate the restructuring, all that was required was for the ZESB to transfer the assets, liabilities and staff of the Authority to the new companies before recommending its own dissolution by the repeal of the Electricity Act of 1985. Meanwhile the regulatory authority, ZERC, which should have been established ahead of the ZESA restructuring, only became operational in May 2005.
256. The restructuring process became protracted because the ZESB, through which the Minister was expected to act, was dissolved in July 2003 shortly before the Act became operational. No board was appointed until October 2004 when a seven member board of ZESA Holdings was appointed. The Board failed to make significant progress on restructuring, and was replaced by the current Board in March 2006. Progress with restructuring continues to be slow, aside from a proposal to combine the transmission and distribution companies, which has been approved by the Cabinet51. This will require another amendment to the Electricity Act. zz. Current challenges 257. The current and future development of the power sector in Zimbabwe is dependent on successful macroeconomic stabilization and structural reforms, as well as clarity of policy and roles of the various government institutions that have an impact on corporate governance, pricing, regulation and investment. The ZESA restructuring process has been slow due to lack of an explicit electricity policy, leading to frequent changes in strategy during implementation.
258. There has been no new investment in generation infrastructure in Zimbabwe since 1986. There is now a large deficit between the installed capacity and the available capacity due to overdue maintenance, frequent breakdowns, and difficulty in obtaining spare parts for the coal fired generators. Output from the thermal power stations has also been affected by shortages of diesel and coal. The average maximum sent out capacity of the power stations of under 1,600 MW falls far short of the minimum 2,300 MW capacity necessary to meet demand and reserve requirements. Since 1996, the country has depended on imports for 35 percent of its electrical energy requirements. In recent years the shortage of foreign currency to import electricity has led to frequent load shedding affecting domestic, industrial and commercial consumers.
51 The new organisation will be called the Zimbabwe Electricity Transmission and Distribution Company (ZETDC).
63 259. Meanwhile overloading of transmission infrastructure is creating bottlenecks for regional power trading. The increased loading of the distribution network is reflected in the steady increase in system technical losses over the past ten years. Non-technical losses are also increasing due to criminal activity and vandalism of electrical distribution equipment.
260. Service performance by ZESA has shown a steady deterioration since 1999, with the annual rate of connecting new customers declining by more than 50 percent while the waiting list for connections has increased four-fold. It now takes 10 times longer than in 1999 to arrive at faults, and most faults take more than a day to repair. Declining service delivery is due to inadequate funding for maintenance operations, and the brain drain that is affecting all infrastructure sectors in Zimbabwe.
261. The financial performance of ZESA has deteriorated significantly since 2002. By 2005, net losses were 36.4 trillion Zimbabwe dollars compared to revenues of only Z$2.7 trillion. The utility is now being operated more as a government funded social service than a commercial entity. ZESA’s capital investment budget for 2006 was Z$31 billion, but by October 2006, less than 3 percent of this had been spent. Macroeconomic mismanagement, including in particular, distorted exchange rate policy, has resulted in acute shortages of foreign exchange. The hyperinflationary environment has undermined the local capital market at a time when official development assistance and foreign direct investment into the country have been drastically reduced. Scarcities of foreign currency and a low tariff regime have proved to be particularly difficult challenges for ZESA. Availability of foreign currency is a critical success factor because more than 80 percent of inputs are imported. ZESA has been in default of its foreign debt service obligations since the suspension of support by bilateral and multilateral development agencies. The ability of the economy to generate the foreign currency is in turn dependent on the availability of reliable and secure power supplies.
Sector Policies aaa. SADC Energy Protocol 262. The government of Zimbabwe is a signatory to the SADC Energy Protocol, which provides a framework for regional cooperation in the development and operation of energy infrastructure. The Protocol was signed by the SADC Member States in July 2002. Guidelines for regional integration and co-operation in the electricity sub-sector include: • Promoting electricity trading and power pooling; • Promoting integrated resource planning to take advantage of economies of scale and optimization of investment and equitable sharing of benefits; • Coordinating the development and regular updating of a regional electricity master plan; • Promoting the evolution of common regional standards, rules and procedures relevant to the generation, transmission and distribution of electricity; • Developing and utilize electricity in an environmentally sound manner; • Emphasizing the provision of universal and affordable service to all citizens and the importance of quality customer service; and • Encouraging agreements between Member States and non-Member States on regional electricity development and trade.
64 bbb. Southern African Power Pool (SAPP) 263. The government of Zimbabwe is a signatory to the Inter-Governmental Memorandum of Understanding (IGMOU) that established the SAPP in August 1995. In this memorandum the GoZ made a commitment to guarantee ZESA’s obligations under the inter-utility agreements governing the management and operations of the SAPP. These include the Inter-Utility MOU, which established the power pool’s management structure and reporting relationships, the Agreement between Operating Members (ABOM) which established the operation and pricing principles, and the Operating Guidelines.
264. The GoZ also signed the revised IGMOU of February 2006 to facilitate the restructuring of the SAPP in light of changes in the structure of the SADC Secretariat and power sector reforms in the member countries. The reforms introduced new players in the SADC power sector that needed to be accommodated in the institutions and activities of SAPP, namely regulatory agencies, Independent Power Producers (IPPs) and Independent Power Transmitters (IPTs). ccc. Power Sector Policies and Legal Framework 265. There is no published statement of energy policy in Zimbabwe, though a draft Electricity White Paper was published by the government in October 2000. The draft White Paper set out policy and legal framework principles that would guide the planned sector reform process. Key policies relevant to the sector, as reflected in the governing laws, sector management and regulatory practices, are as follows:
• Investment policy: private sector participation is encouraged in power generation with the state retaining control of the transmission, distribution and supply functions (Electricity Amendment Act, 2003).
• Price regulation: the Regulatory Commission (ZERC) has authority to fix and approve cost-reflective prices (Electricity Act, Chapter 13:19, section 53) but subject to policy directions that the Minister may give (Electricity Act, Chapter 13:19, section 35).
• Quality of service regulation: ZERC has authority to decide and enforce quality standards through licensing provisions (Electricity Act, Chapter 13:19 Part VIII and IX).
• Environmental protection: ZERC has authority to decide and enforce environmental protection standards through licensing provisions (Electricity Act, Chapter 13:19 section 54). Oversight on environmental issues is also provided by the Environmental Management Agency in the Ministry of Environment and Tourism.
• Competition: ZERC has authority to recommend, for approval by the Minister, services that should be provided on a competitive basis (Electricity Act, Chapter 13:19 section 59).
• Off-grid technologies: The Rural Electrification Fund is required to give particular attention to off-grid, stand-alone technologies for supply of electricity to rural communities (Rural Electrification Fund Act, Chapter 13:20 section 4).
• System Planning: no explicit planning authority is laid down in the new Act as was the case in the Electricity Act of 1985, which allocated that responsibility to ZESA. This function could be retained by the state owned ZESA transmission company, or taken over
65 by the ZERC using its function of ensuring that there is adequate supply that is safe, secure, reliable and acceptable quality. ddd. Electricity Act No. 6 of 1985 266. The Electricity Act No. 6 of 1985, [Chapter 13:05] became operational on 24th January 1986. It established ZESA and the ZESB to undertake the following functions: • To acquire, generate, transmit, distribute and supply electricity; • To investigate new or additional facilities for the generation, transmission, distribution or supply of electricity and to advise the Minister of the result of such investigations; • To acquire, control and operate other undertakings within Zimbabwe; and • To acquire assets from the Central African Power Corporation.
267. With the approval of the Minister, the Act also gave power to ZESA “to promote, establish or acquire companies or other undertakings” and, in connection with any such company or undertaking, provides management and secretarial services. The Act empowered ZESA to make by-laws and regulations prescribing anything which in the opinion of the Board is necessary for the better exercise of the functions of the Authority.
268. Under this Act ZESA acquired CAPC, ESC, HMED, BMED, GMED and MMED and, in anticipation of the restructuring under the new Electricity Act, established: • The Zimbabwe Power Company (ZPC) to own and operate all generation assets; • The Zimbabwe Electricity Transmission Company (ZETCO) to own and manage the transmission assets and to undertake system planning and operations including cross- border electricity trading through SAPP; • The Zimbabwe Electricity Distribution Company (ZEDC) to own and operate all distribution and supply assets;52 • Powertel Communications, to own, operate and commercialize the telecommunications assets and services; and • ZESA Enterprises (ZE) to own and manage all other ancillary services such as Transport, Projects, Production and Service of electrification equipment and spares, Training Centre and any other businesses established to support the core functions of ZESA..
269. ZESA also established a separate Rural Electrification Agency to collect, account for and manage the disbursement of the funds raised specifically for RE through the RE levy and other sources.
270. Except for the Rural Electrification Agency, which was taken over by the Rural Electrification Fund Board, all the companies currently operate as divisions of ZESA pending the repeal of the Act, which will take place in terms of section 76 of the new Electricity Act [Chapter 13:19] when the President is satisfied that the assets and liabilities of ZESA have been transferred to the appropriate successor companies. a. Rural Electrification Fund Act of 2002 271. Rural Electrification Fund (REF) Act No. 3 of 2002, [Chapter 13:20] became operational in May 2005 and established the Rural Electrification Fund and the Rural
52 The Government has recently approved the merging of the ZETCO and ZEDC into the Zimbabwe Electricity Transmission and Distribution Company (ZETDC) and has started a legal process to formalise this.
66 Electrification Fund Board to manage and control the Fund. The Act also provided for the transfer to the Fund of the assets, liabilities and staff of ZESA connected with RE. The object of the Fund is to facilitate “the rapid and equitable electrification of the rural areas of Zimbabwe” and, in pursuance of this, may undertake the following:
• Play a promotional role in rural development, identifying rural electrification projects and finding or advertising for projects sponsors to take these up; • Assist and train projects promoters to ensure that RE projects are implemented cost- effectively and efficiently; • Be a centre of information and excellence on RE in Zimbabwe, through collecting information about RE practice, carrying out research and keeping abreast of technological developments in RE world-wide; and • Give particular attention to off-grid, standalone technologies for the supply of electricity to rural communities.
272. The Fund consists of levies, government budget allocations, donations and any other moneys that may accrue to the Fund. To ensure balanced representation of all the country’s regions, the Act prescribes that the Board shall consist of all the Provincial Administrators and a representative of the association of Rural District Councils (RDC). a. Electricity Act No. 4 of 2002 and Electricity Amendment Act No. 3 of 2003 273. The Electricity Act 4 of 2002 [Chapter 13:19] provides for the restructuring of the Zimbabwe Electricity Supply Authority by the establishment of the Zimbabwe Electricity Regulatory Commission (ZERC) to take over the regulatory functions, and the establishment of successor companies to take over the functions of generation, transmission, distribution and supply. The Act became operational on 1st August 2003 after the passing of the Amendment in May 2003. The purpose of the Amendment was to provide for the creation of a state-owned company to hold the shares of the State in the successor companies, and to restrict privatization only to those successor companies responsible for generation and non-core functions. ZESA created a holding company called ZESA Holdings (ZH) in anticipation of the formal restructuring.
274. The objectives and functions of the ZERC as summarized from the Act, section 4 are as follows: • To create, promote and preserve efficient industry and market structures for the provision of electricity services and to ensure the optimum utilization of resources of such services; • To maximize urban and rural electrification access; • To ensure the availability of adequate, safe, secure, reliable supply of electricity, with quality production and delivery of service to consumers; this is done through appropriate operating codes, grid codes and safety, security, reliability and quality standards; • To ensure cost-reflective prices to allow efficient investors and operators to earn reasonable returns on their investment; • To adopt non-discriminatory and fair regulatory principles; license and regulate all persons engaged in the generation, transmission, distribution and supply of electricity; arbitrate and mediate disputes;
67 • To promote and implement competition and private sector participation when and where feasible; • To advise consumers regarding the efficient use of electricity; aid and advise stakeholders generally; advise the Minister on matters related to the electricity supply industry; and • To promote international cooperation in matters related to electricity services. a. Tariff policy 275. ZERC approves tariffs, proposed by licensees, as per law (Electricity Act, [Chapter 13:19] section 53), which requires that these should: • Cover the full costs, including a reasonable return, of the business activities of an efficient licensee; • Provide incentives for continuous improvement of technical and economic efficiency; • Protect consumers while providing information on cost of consumption behavior; • Avoid undue discrimination between customers and customer categories; • Allow for direct and indirect subsidies to some customers provided by the REF or from any other source; and • Not include any fines or penalties levied against a licensee.
276. ZERC is required to prepare a pricing methodology after taking account of any objections and representations received through a process of public consultations. The Commission has adopted the rate of return pricing approach as the methodology for setting tariffs. This methodology allows for automatic adjustments to cater for significant movement of major cost drivers such as the cost of coal, changes in the official rate of exchange between the Zimbabwe dollar (Z$) and United States dollar (US$) or other currencies of the major trading partners, and changes in the consumer price index. All tariff adjustment calculations are subject to confirmation by ZERC. For details on the electricity tariff setting mechanism in Zimbabwe, please see the draft report on Zimbabwe: A Preliminary review of Parastatals, February 2008.
277. Until recently tariffs were being adjusted on a monthly basis using official inflation figures, but this was seen as only a stop-gap measure by ZERC. The official inflation figures did not accurately reflect the decline in value of the local currency, leading to major price distortions that severely undermined the financial viability of ZESA. A significant tariff increase was agreed on 1st April 2007, which was intended to supersede the need for month-on-month tariff increases; but the new tariffs will, themselves, be rapidly undermined by inflation.
Institutional Structure a. Intended Structure under the Electricity Act of 2002 278. In terms of the original Electricity Act of 2002, before the 2003 Amendment, it was intended that ZESA would be unbundled into three successor companies to take over the generation, transmission and distribution/supply of electricity respectively. The successor companies were supposed to operate as separate and independent entities, each with its own board of directors. All other functions were to be undertaken by subsidiaries of these three companies. The subsidiaries would subsequently be privatized as appropriate.
279. The Zimbabwe Power Company (ZPC) was intended to hold the shares of the State in existing and future power plants. The power plants were to be established as separate ZPC
68 subsidiaries to facilitate their separate privatization beginning with the Hwange Power Station, where urgency was required to speed up the extension to avoid the power shortages that the country was facing. ZPC was also expected to hold shares of the State in new grassroots power plants that were being planned such as the Gokwe North Power Station; though ZPC/government shareholding in new power stations developed by Independent Power Producers is not mandatory.
280. The Zimbabwe Electricity Transmission Company (ZETCO) was intended to be the holding company for subsidiaries responsible for: • Owning and maintaining the grid assets and acting as an independent system operator (ISO); • System development planning and international cooperation through such bodies as SAPP; • Telecommunication services (Powertel); and • Other support services residing in Zesa Enterprises.53
281. Because of the strategic importance of ZETCO, it was envisaged that the ISO would remain 100 percent state owned, and the other subsidiaries would be amongst the last to be considered for privatization.
282. The Zimbabwe Electricity Distribution Company (ZEDC) was intended to be a holding company for rationalized distribution and supply companies established to facilitate efficient and profitable operation and subsequent privatization. Studies were initiated to determine the optimum number of regional distribution and supply companies.
283. No legal restrictions were imposed on private sector participation in the unbundled companies. While foreign investors were expected to dominate the large power generation business because of the huge capital requirements, it was expected that local investors such as local authorities, pension and insurance funds, and individuals would be able to participate in the privatization of the relatively less capital intensive distribution and supply businesses. State ownership and control in the distribution sector was expected to remain with respect to rural electrification, hence the Rural Electrification Fund Act.
284. During the amalgamation exercise under the Electricity Act of 1985, the interests of the four municipalities that owned electricity departments were recognized by providing for a local authorities representative on the ZESB. A system of royalty payments was also introduced to compensate the local authorities for lost revenue. In the present restructuring exercise the only local authority representation that is legally provided for is on the board of the REF. Proposals to recognize the investment of the four cities through share ownership in the successor companies were not incorporated in the new laws.
285. The industry as originally intended would have comprised Ministry of Energy and Power Development (MEPD), ZERC, ZPC, ZETCO, ZEDC and Independent Power Producers (IPP’s). The subsidiaries of these companies would have been at various stages of privatization in order to relieve the government of the financing burden for the industry. However, the Electricity Amendment Act of 2003 introduced a 100 percent state-owned holding company for all the successor companies, and decreed that the transmission and distribution companies would remain
53 In the roll out of the institutional reforms, Powertel and ZESA Enterprises have become stand alone core businesses reporting to ZESA Holdings. They are not subsidiaries of ZETCO. Transmission network ownership, system operation, system development, international cooperation and energy trading became direct functions of ZETCO, rather than the responsibilities of subsidiaries, after the 2003 Amendment to the Electricity Act.
69 State owned. In terms of this amendment only ZPC and Zesa Enterprises are subject to private sector participation. The industry now comprises MEPD, ZERC, Zesa Holdings and IPP’s. a. Ministry of Energy and Power Development 286. The MEPD is responsible for providing policy direction to the power sector in terms of section 21 of the Electricity Act of 1985, section 35 of the Electricity Act of 2002, and section 23 of the REF Act of 2002. Particular attention is to be given by the Ministry to policy direction on pricing. The Minister is responsible for issuing power sector regulations and statutory instruments.
287. The Minister is responsible for regulating the affairs of the ZERC by deciding the budget, approving levies charged on licensees, approving appointments of auditors, receiving financial and other reports as he may determine. The Minister recommends to the President the appointment of members of the ZERC and decides their salary and allowances. He also recommends the suspension of commissioners and sets up boards of inquiry to investigate alleged acts of misconduct. The Minister approves the deregulation of any service on recommendation from ZERC. ZERC can only dispose any assets when approved by the Minister and at a price approved by him. Any loans or donations need the Minister’s approval.
288. With respect to ZESA and its successor companies, the Minister is responsible for appointing members of the Zimbabwe Electricity Supply Board (ZESB), forming successor companies, nominating all the members of the successor companies and fixing the dates on which the assets, liabilities and functions of ZESA shall be transferred to the various successor companies. The Minister may give any lawful direction to the Board to facilitate the transfer of assets and liabilities of ZESA, including the cessation of any or all of the functions of the Authority.
289. The Minister administers the affairs of the REF, which reports to him on financial and any other matter as the Minister decides. After approval by the President, the Minister nominates the members of the REF and decides their terms and conditions of service. b. Zimbabwe Electricity Regulatory Commission 290. Since its appointment in May 2005, ZERC has developed a pricing methodology. In some cases the tariffs proposed by ZERC have been approved and implemented. However, in most instances the implementation of tariff increases has been deferred by the government due to the short-term impact on consumers and the economy. ZERC has therefore not been able to consistently establish and implement cost-reflective tariffs for ZESA.
291. ZERC’s mandate is not limited to pricing. Since its formation the Commission has supported the continued reform process in the electricity sector through various instruments including: • Development of codes and standards; • Development of a Licensing Framework, Compliance Framework and Arbitration Framework; • Strengthening health and safety regulations; • Preparation of an ESI Investment framework and polices; • Preparation of electricity regulations and statutory instruments; and • Increased attention to consumer rights and obligations.
70 292. The Commission has three full time and four part-time members. The full time members are the Commissioner General, who chairs the ZERC, the Commissioner responsible for legal services and public relations, and the Commissioner responsible for consumer services, technical and economic regulation. ZERC has a small support staff of about 20 people. The Commission is still in the process of establishing its position and role in the sector, and its full staff compliment. ZERC presently lacks adequate independence and staff resources to undertake the full range of functions prescribed under the Act. a. ZESA Holdings 293. ZESA Holdings is managed by a Board appointed by the Minister of Energy and Power Development. Until June 2006 the company was managed by a Board comprising an Executive Chairman and five non-executive members. The government has now abolished the post of Executive Chairman and has restored the post of non-executive Chairman and Chief Executive that were previously merged in December 2000. ZESA is currently in the process of recruiting a substantive Group Chief Executive.
294. ZESA Holdings owns 100 percent of the shares in the five subsidiary companies that have been created to be the successor companies to the Authority. The company is actively seeking investment partners with priority in the power generation and support services industries. However, this has so far proved to be unsuccessful in the current economic climate, and in the absence of a truly unbundled structure that allows potential investors to assess the relative profitability of the different sectors of the industry. b. Independent Power Producers 295. There are three IPPs that have been licensed by ZERC. They are the Rusitu Power Company (RPC) that runs a 750 kW mini-hydro scheme in the Eastern Highlands area, Hippo Valley Estates (HVE) and Triangle Limited, sugar companies that own cogeneration power plants using sugarcane waste. Hippo Valley is engaged in power banking with ZESA. The company is able to bank surplus power with ZESA during its peak cane cutting season and then draw down during the off-peak season. Triangle Limited produces power for its own use. The RPC was unable to operate profitably until recently, when ZERC decoupled its tariffs from the ZESA tariff regime. The company’s future plans include building a second mini-hydro plant of 4,000 kW in the same region.
296. The three IPP’s were established before the current legal and regulatory framework was in place. Approval was required from ZESA and the Minister. RPC was able to invest based on a tariff formula linked to ZESA distribution tariffs. At the time of the establishment of RPC, ZESA tariffs were cost-reflective. Hippo Valley and Triangle Limited were able to invest to reduce its own power costs by taking advantage of the sugar cane waste from their sugar operations. According to ZERC, all three IPPs have been operating within acceptable technical standards.
297. Attempts at Public Private Partnerships (PPPs) in the electricity sector have not yet yielded significant investments. In September 1996, the government signed a letter of intent with an electrical company (YTL) of Malaysia for the privatization and expansion of the Hwange Thermal Power Station by 600 MW. Then in April 1997, the government signed another letter of intent with National Power and Rio Tinto of the United Kingdom for the development of the 1,400MW coal-fired Gokwe North Power Station. Both initiatives were abandoned in 2000 after it became evident that the projects would not be viable under the worsening macroeconomic environment and absence of a supportive tariff policy. The average ZESA tariff in 1996/97 was US$0.026 per kWh, compared to a long run marginal cost of about US$0.06 which was required
71 to ensure the viability of the projects. In recent years the government has made approaches to potential IPPs in China, Russia, India and Iran. A plan was mooted in 2002 to purchase equity in the Mozambique hydro-generator, Hidroelectrica de Cahora Bassa (HCB) to provide 500MW. These initiatives have not succeeded due to the low tariff regime, shortages of foreign currency, and macroeconomic instability.
Condition of Infrastructure c. Generation Infrastructure54 298. There has been no new major investment in power generation infrastructure in Zimbabwe since 1986 when the present Hwange Power Station was completed. Investments have been limited to up-rating of the Kariba hydro station from 666MW to 750MW, improvements to Hwange Power Station55 and refurbishment of the small thermal stations. Consequently there is a large mismatch between the installed capacity and the available capacity as shown in Table 7.
Table 7: Generation Plant Capacity
Station Plant Year Installed Theoretical sent Actual average Remarks type Installed Capacity out capacity maximum sent out (MW) (MW)56 capacity57 (MW) Kariba Hydro 1959-60 666 666 750 Uprated in 1990’s Hwange Coal 1981-86 920 876 698 Overdue overhauls Harare Coal 1940’s-58 135 128 43 Units retired Munyati Coal 1950’s 120 114 42 Units retired Bulawayo Coal 1950’s 120 114 60 Units retired ALL 1961 1898 1593
The actual capacity sent out and energy sent out from each power station over the past 7 to 10 years is given in Table 8. Table 8: Actual Capacity Sent Out (MW) and Energy Sent Out (GWh) Year Kariba Hwange Harare Munyati Bulawayo MW GWh MW GWh MW GWh MW GWh MW GWh 1997 2122.3 736 4781.3 161.4 160.0 72.6 1998 1925.9 726 4407.7 121.5 127.6 - 1999 2949.3 678 3866.0 110.0 121.1 44.3 2000 601 3260.4 640 3317.3 74 186.0 70 110.7 63 121.4 2001 621 2997.7 782 4808.9 47 27.5 59 44.2 87 47.5 2002 631 3823.9 732 4580.7 47 66.7 53 19.1 74 47.5 2003 754 5359.2 606 3388.2 41 32.7 32 7.1 42 11.6 2004 753 5521.2 744 3907.5 46 106.5 57 58.6 63 124.5 2005 748 5418.3 698 3902.6 25 17.3 20 4.9 58 47.6 2006 729 5310.3 642 2430.0 24 1.7 - - 30 36.1 Average 691 3868.8 698 3939.0 43 83.1 42 65.3 60 55.3
54 Data adapted mainly from unpublished ZESA documents. 55 This included a new cooling water tower, a process control upgrade, and installation of equipment that allows usage of coke oven gas. 56 Assuming 5% internal station use for the coal plant. 57 For coal the average is over past 7 - 10 years.
72 299. The reduced capacity of the coal power stations is due to overdue maintenance (Table 9), frequent breakdowns due to old age, and difficulty in obtaining spares due to obsolescence and shortage of foreign currency. The reduced units generated at Kariba before 2003 was due to water rationing by the Zambezi River Authority, which was necessary to allow the lake level to recover from the drought of the early 1990s.
Table 9: State of Operating Units at Power Stations (February 2006)
Station Unit Date of last major Date of next major Remarks maintenance maintenance Kariba 1 December 2006 December 2007 2 September 2006 September 2007 3 February 2006 Due 4 March 2006 March 2007 5 May 2006 May 2007 6 April 2006 April 2007 GT1 January 2005 Overdue Generator transformers. GT3 February 2006 February 2008 Outage for GT1 planned for GT5 April 2006 April 2008 Feb/Mar 2007 Hwange 1 May 1996 Overdue Being monitored 2 December 1997 Overdue Being monitored 3 December 1995 Overdue 4 February 1996 Overdue Being monitored 5 May 2003 May 2008 6 August 2004 August 2009 Harare All 1994-95 Refurbishment Overdue The small thermal stations Munyati All 1994-95 Refurbishment Overdue were due to be retired 10 Bulawayo All 1994-95 Refurbishment Overdue years after refurbishment
d. Imports 300. The availability of competitively priced surplus generating capacity in the region has for a long time masked the inadequate state of the generation infrastructure in Zimbabwe. The actual average maximum sent out capacity of the power stations of just under 1,600 MW falls far short of the minimum 2,300 MW capacity necessary to meet demand and reserve requirements to cater for breakdowns and necessary maintenance.
Table 10: Electricity Power and Energy Imports (1997 - 2006) Import Capacity Energy Imported (GWh) Source (MW) 96/97 97/9858 1999 2000 2001 2002 2003 2004 2005 2006 Zambia 300 805.2 766.1 62.5 289.2 252.5 1.0 1.2 0.8 1.7 298.8 DRC 100 591.3 297.4 115.6 529.8 420.6 436.7 413.8 441.9 468.2 317.7 HCB 400 - 3813.5 3526.3 3484.9 3198.9 3270.1 2182.8 1451.8 2067.6 2980.7 RSA 400 2615.2 2578.4 1567.1 787.7 314.7 298.3 792.6 540.3 434 640.9 STEM - 0 - - - 0.4 7.6 57.2 53.4 39.8 3.2 Minor - 1.2 5.2 3.2 3.0 90.0 2.5 2.5 2.5 2.5 2.5 TOTAL 4012.9 7460.5 5274.6 5094.6 4277.1 4010.1 3450.1 2490.6 3013.8 4243.8
58 Figures for 1997/98 are for 18 months July 1997 to December 1998. Figures for 2006 are unaudited.
73 The total energy sent out and system maximum demand statistics for the past ten years are summarized in Table 11.
Table 11: Total Energy Sent Out and Peak Capacity Demand (1997 – 2006) Source Total Yearly sent out (GWh) (GWh) 96/97 97/98 1999 2000 2001 2002 2003 2004 2005 2006 Local 80,116.4 7,297.6 6,582.7 7,090.7 6,995.8 7,925.8 8,537.9 8,798.8 9,718.3 9,390.7 7,778.1 Imports 43,328.1 4,012.9 7,460.5 5,274.6 5,094.6 4,277.1 4,010.1 3,450.1 2,490.6 3,013.8 4,243.8 TOTAL 123,444.5
Average Yearly System Maximum Demand (MW) (MW) 96/97 97/98* 1999 2000 2001 2002 2003 2004 2005 2006 Demand 1,988.5 1,828 1,950 2,034 1,986 2,013 2,028 2,007 2,069 2,066 1,904
301. The average peak sent out capacity from internal generating sources over the ten years 1996-2006 is 1,534 MW and the average annual generation from the stations is 8,011 GWh. The average annual imports over the ten year period are 4,332 GWh. The total annual average energy sent out to the system is 12,343 GWh. The average power imported was 454 MW, which is the difference between the average demand of 1,988 MW and the average internal peak sent out capacity of 1534 MW. During this period the country depended on imports for 35 percent of its energy requirements and 23 percent of its power requirements.
302. A 400 kV interconnector to South Africa via Botswana was completed in October 1996 and a 400/330 kV interconnector to Cahora Bassa in Mozambique was completed in December 1997. Import contracts signed at the time had an expiry date of 31st December 2003 because it was expected that by that date the Hwange Extension and some of the Gokwe North Power Station units would be in operation. These projects failed to materialize and ZESA has had to resort to the SAPP short term energy market, renewing the import contracts on a year to year basis at a much higher average cost. The long term import contracts for firm capacity averaged US$0.015 to US$0.02 per kWh. The current contracts (Table 12) are not only for non-firm power, but are at unit costs that are at least two times higher. A combination of the restricted internal generating capacity, foreign currency shortages and the lack of firm power contracts have forced ZESA to resort to load shedding.
Table 12: Current Import Contracts (February 2006)
Import source Duration Quantum Mozambique 1 January 2007 to 31 50 MW firm ; up to 400 MW December 2007 non-firm DRC 1 January 2007 to 31 100 MW firm; review due in December 2007 June & September RSA 1 April 2007 to 31 March Up to 550 MW non-firm; review 2007 in progress Zambia 1 January 2006 to 31 250 – 300 MW non-firm; firm December 2010 to be agreed SAPP Varies Subject to market conditions e. Transmission Infrastructure 303. There have been two major investment phases in transmission infrastructure in the country. The first was the 330 kV network associated with the Kariba Hydroelectric Scheme in
74 the late 1950’s and early 1960’s. The second was during the mid-1990’s when the major 330/400 kV interconnections with Cahora Bassa and Matimba Power Stations were built and extensive refurbishment and reinforcement of the 330 kV network was undertaken. The lengths and age of the transmission lines at different voltage levels is shown in Table 13.
Table 13: Length and Age of Transmission Lines as at December 2006 Voltage Level Total Length Length (km) by Age (kV) (km) 0-10 years 11-20 years 21-30 years 31-40 years > 40 years 88 1762 140 174 179 437 832 110 5 0 0 0 0 5 132 1997 126 775 101 823 172 220 126 0 126 0 0 0 330 3357 343 248 355 1673 738 400 161 0 161 0 0 0
The total installed transformer capacity of the network is over 9000 MVA (Table 14). A significant number of transformers are old and overloaded.
Table 14: Capacity and State of Transformers as at December 2006 Voltage level Number of Installed Capacity Remarks (kV) transformers (MVA) 400/330 1 750 7 of the 330kV transformers are 330/220 2 200 over 40 years; 7 of the 330 kV 330/132 19 2115 substations are overloaded and 16 330/88 16 1423 require additional transformer 330/33 8 540 capacity for reliability. 132/110 1 75 27 of the 88 & 132 kV 132/88 4 195 transformers are over 40 years old; 132/33 44 1830 4 of the substations at these 88/33 23 363 voltages levels are overloaded and 132/11 16 935 25 require additional transformer 88/11 36 671 capacity for reliability. TOTAL 170 9097
304. In general the maintenance of the transmission substations and lines is satisfactory, but due to the strategic location of the transmission grid within the regional power pool, the overloading in the network is creating bottlenecks for the power trading. This is a matter that is of concern to the SAPP as it is critical that access to emergency and economy power should be available to all operating members through wheeling across any members’ network. f. Distribution Infrastructure 305. Over the past ten years there have been extensive investments in distribution infrastructure in the rural areas. Significant reinforcement to the urban distribution networks in Harare and Bulawayo was undertaken during the 1990s financed under the Power II and III Project supported by the World Bank, and the Electricity I and II Projects supported by the African Development Bank. Currently 80 percent of the urban population and 35 percent of the rural population are able to have access to the distribution network.
75 306. The installed distribution transformer capacity is approximately 6200 MVA comprising 2700 MVA for 33/11 kV and 3500 MVA for 33/0.4 kV and 11/0.4 kV. On average the urban network has been in operation for over 30 years with some equipment installed in the 1940-50s. The bulk of the rural network is under ten years old.
307. In recent years maintenance has been restricted to less than 10 percent of planned due to human and material resource constraints. The urban network is overloaded by about 20 percent to 30 percent due to failure to undertake necessary network reinforcement and extensions. Consequently there has been an increase in the number and frequency of network breakdowns resulting in significant economic and financial losses to the economy. For example the number of line faults per 100 km has increased from about 17 in 2001 to 50 in 2005 for high voltage distribution lines. Many industrial and commercial customers and high-income domestic customers have incurred considerable cost in acquiring and operating standby generators that use scarce imported petrol and diesel.
308. The overloading of the distribution network is reflected in the steady increase in system technical losses over the past ten years (Table 15). Non-technical losses have also increased due to criminal activity and vandalism of electrical distribution equipment.
Table 15: ZESA Transmission and Distribution Losses (1996 – 2005)
Source Technical losses (%) 96/97 97/9859 1999 2000 2001 2002 2003 2004 2005 2006 Transmission 4.0 3.6 4.3 4.3 5.9 3.9 3.3 2.6 2.4 2.3 Distribution 10.1 10.7 9.6 10.8 10.3 9.7 9.8 8.6 8.4 8.2 Non-technical losses 96/97 97/98 1999 2000 2001 2002 2003 2004 2005 2006 Transmission 0 0 0 0 0 0 0 0 0 0 Distribution 2.6 3.2 2.1 3.3 2.8 2.2 2.3 1.4 0.9 0.7 g. Metering 309. All non-domestic customers in Zimbabwe are metered. Most domestic customers are metered but there are 100,000 customers on load limiters. ZESA policy is to phase out the load limiters because they are a source of non-technical losses. Progress in replacing load limiters has been hampered by lack of funding. Table 16 gives a breakdown of the metering in the system.
Table 16: Meter Statistics by Customer Category Customer Category Type of Meter Number Domestic (1) Pre-payment 10,000 Domestic (2) Load limiter 100,000 Domestic (3) Conventional Meter 400,837 Commercial Conventional Meter 53,080 Commercial Programmable Meter 300 Mining Programmable Meter 667 Industrial Conventional Meter 2,090 Industrial Programmable Meter 60 Agricultural Conventional Meter 11,700 Agricultural Programmable Meter 87
59 Figures for 1997/98 are for 18 months July 1997 to December 1998. Figures for 2006 are unaudited.
76
310. Statistical metering is being installed at the generation, transmission and distribution interfaces in order to facilitate cost allocation and sales transactions between the unbundled business segments. The meters also facilitate measuring and controlling of non-technical losses at various voltage levels. The status of implementation of the statistical metering project is given in Table 17.
Table 17: Status of Implementation of Statistical Metering Progress (%) Generation 80 Transmission substations 75 Sub-transmission substations 68 Primary distribution substations 80 Secondary distribution substations 40 Maximum Demand customers 100 Non-Maximum Demand customers 100 h. Telecommunication infrastructure 311. Telecommunication infrastructure is owned and operated by ZETCO (now ZETDC) for the purposes of their own operations. Excess capacity on the ZETDC telecommunications network is utilized by Powertel Communications for public use, on the basis of service level agreements. The backbone of the power telecommunication network is the power line carrier and fiber optic cables on the old and new transmission lines respectively.
Customer Base and Tariffs i. Number of Customers 312. The ZESA customer base has increased by about 40 percent in the past ten years, with the increase coming mainly from the domestic sector followed by the commercial category (Table 18).
Table 18: Number of Customers (1997 - 2006) Customer 96/97 97/98 1999 2000 2001 2002 2003 2004 2005 2006 Category Agriculture 10,512 10,802 11,915 11,901 11,620 10,994 11,008 11,258 11,308 11,787 Mining 693 689 687 637 605 604 623 637 640 667 Industrial 1,887 1,854 1,802 1,778 1,741 1,786 2,016 2,062 2,071 2,159 Commercial 38,755 41,095 44,555 46,609 46,917 45,254 50,017 51,154 51,381 53,557 Domestic 358,935 383,448 414,285 437,860 455,903 464,000 477,074 487,922 490,081 510,837 TOTAL 410,782 437,888 473,244 498,785 516,786 522,638 540,738 553,034 555,481 579,006 j. Power and Energy Demand 313. Electricity consumption peaked at 10,779 GWh in 1999 and has declined by between 250 and 650 GWh in subsequent years (Table 19). There has been a steady decline in consumption in the agricultural, mining and industrial sectors but a significant increase in domestic and, to a lesser extent, commercial sectors. Electricity consumption in the agricultural, mining and industrial sectors has been adversely affected by declining capacity utilization and increased frequency of load shedding.
77 Table 19: Consumption Statistics (1997-2006)60
Year Agriculture Mining Industrial Commercial Domestic Total Load Energy Factor MW GWh MW GWh MW GWh MW GWh GWh MW GWh % 1997 163 900 301 1663 715 3947 302 1665 346 1911 10,085 63 199861 209 1669 305 2431 689 5491 351 2795 395 3147 15,533 61 1999 246 1304 310 1662 748 3961 310 1643 421 2230 10,779 60 2000 244 1291 270 1429 735 3884 298 1574 438 2316 10,493 60 2001 261 1324 265 1346 719 3653 306 1554 462 2349 10,226 58 2002 256 1310 282 1443 695 3555 305 1559 491 2512 10,379 58 2003 241 1245 276 1426 667 3447 295 1522 528 2728 10,367 59 2004 245 1197 290 1420 638 3121 306 1495 590 2884 10,116 56 2005 259 1303 280 1410 642 3233 331 1666 555 2796 10,408 58 2006 157 846 255 1379 547 2959 341 1846 603 3262 10,293 62 k. Quality of Service 314. There has been a steady deterioration in quality of service performance since 1999 (Table 20). The rate of connecting new customers has declined by more than 50 percent while the waiting list for connections has increased four-fold. The waiting time has increased from less than a month in 2000/01 to between 9 and 16 months over the past two years. It now takes 10 times longer to arrive at faults. Most faults now take more than 24 hours to repair, something that was rare before 2000. The average load being shed has quadrupled since 1999.
Table 20: Quality of Service indicators (1999 - 2006)
Service indicator 1999 2000 2001 2002 2003 2004 2005 2006 Customers Connected 25,838 24,651 22,585 22,871 12,130 12,296 12,742 11,139 Connection waiting list 3,725 7,109 9,020 5,653 11,365 12,317 14,143 15,907 Days to connect 36 23 25 32 44 96 586 270 Faults arrival time, minutes 70 73 100 99 116 354 908 1002 Faults fixed in 3h, % 65 67 66 65 58 53 32 36 Faults fixed in 24h, % 99 96 93 92 94 89 79 69 Load shed (MW) 83 86 90 100 119 156 169 300 l. Tariffs and financial status 315. Table 21 below shows the average tariff, over time, in local and US$ equivalent values.62 It should be noted that since 2001 the official exchange rate has diverged from the market rate which determines the cost of most inputs that ZESA obtains from its suppliers. The official exchange rate is of relevance when the Reserve Bank has been able to provide special facilities for power and fuel imports. Further, for ZESA the prices of inputs are typically below market prices. In November 2007, ZESA was purchasing coal from Hwange at only US$0.50 per ton when the price of coal was over US$70 per ton in Australia.
60 This data provided by ZESA. 61 Statistics for 18 months period July 1997 to December 1998. 62 The official exchange rate is used to calculate US dollar values.
78 Table 21: Average electricity prices in local and US$ equivalent at official exchange rates
Overall Exch. Overall Agriculture Mining Industrial Commercial Domestic Zc/kWh Rate USc/ Zc USc Zc USc Zc USc Zc USc Zc USc Z$:US$ kWh 1997 50 18.9 2.62 64 3.41 45 2.37 44 2.34 68 3.60 40 2.12 1998 62 37.9 1.64 72 1.91 54 1.41 61 1.60 84 2.22 48 1.27 1999 112 38.5 2.92 138 3.59 107 2.77 91 2.36 176 4.57 95 2.47 2000 247 57 4.34 340 5.97 226 3.96 189 3.33 412 7.24 197 3.46 2001 264 57 4.63 345 6.06 219 3.85 198 3.49 434 7.62 259 4.56 2002 418 57 7.34 519 9.12 342 6.01 295 5.18 626 11.01 452 7.94 2003 2,060 848 2.43 1,814 2.14 3,085 3.64 1992 2.35 3,584 4.23 1,045 1.23 2004 11,663 5,729 2.04 7,575 1.32 12,031 2.10 13,396 2.34 23,645 4.13 5,395 0.94 2005 41,240 87,125 0.47 17,563 0.2 26,181 0.3 81,615 0.94 40,176 0.46 18,789 0.22 200663 604 250 2.42 239 0.96 607 2.43 590 2.36 789 3.15 623 2.49 .
316. The US$ equivalent figures from 2001 are inflated as the official exchange rate has not declined at the same rate as inflation, hence overvaluing the local currency. The highest overall average tariff level achieved over the past ten years in real terms is 4.34 USc/kWh in 2000.
317. The financial performance of ZESA has deteriorated significantly since 2002. By 2005, the net loss was 36.4 trillion Zimbabwe dollars compared to revenue of Z$2.7 trillion. The utility is operated more as a government funded social service than a commercial entity. ZESA is still treated as a going concern as it is 100 percent government owned. Revenue collection has deteriorated to a situation where four months revenue was outstanding by the end of 2005. This has resulted in a serious cash flow crisis exacerbated by a low tariff regime.
Management Capacity m. ZERC 318. The effectiveness of ZERC is limited by human resource constraints due to the lack of adequate operational autonomy, recognition and independence of the institution. There is also a severe shortage of experienced regulatory professionals in Zimbabwe. ZERC has sought to overcome these constraints through the participation of key staff in regional training programs, and experience sharing with regional counterparts. Meanwhile ZERC intends to increase its compliment of professional staff from six to twelve by the end of 2007, but is constrained by under-capitalization, unattractive civil service salary scales, and cash flow difficulties due to late payment of levies by licensees. n. ZESA Holdings 319. ZESA is experiencing a loss of experienced managerial and technical skills due to uncompetitive remuneration in the face of a hyperinflationary economic environment. This loss of skills affects mainly engineers and technicians in the core business areas. There is presently a high demand for these skills in South Africa, Australia and the United Kingdom. Table 22 shows that the average vacancy level for technical staff posts over the past three years has been about 25 percent.
63 The Z$ figures do not reflect revaluation of the currency in August 2006 which saw the removal of three zeros.
79 Table 22: Technical staff levels for the ZESA core businesses
2004 2005 2006 Posts Filled Vacancies Posts Filled Vacancies Posts Filled Vacancies No. % No. % No. % ZPC 269 219 51 19.0 325 239 86 26.5 292 260 32 11.0 ZETC 221 174 47 21.3 221 165 56 25.3 222 176 46 20.7 ZEDC 484 321 163 33.7 484 363 121 25.0 551 404 147 26.7 Total 974 714 261 26.8 1030 767 263 25.5 1065 840 225 21.1
320. Although staff costs as at the end of December 2005 comprised 50 percent of expenditure and 127 percent of revenue, this is not a reflection of high salaries but of inadequate revenue generation capacity. A contributory factor to the dramatic fall in operational and financial performance since 2001 was the retrenchment of most of the senior management team that had been responsible for the successful implementation of the performance improvement program from 1993. It is a credit to more junior managers that they were able to move into senior positions and continue the operation of the utility under extremely difficult circumstances.
Critical Areas 321. Electricity is an essential service for the country’s social and economic development. The following critical areas need to be addressed in order to restore serviceability in the sector.
• Energy policy clarity: The restructuring of ZESA has not progressed as planned due to frequent policy changes. Legal and other regulatory and policy impediments to private sector participation in the electricity supply industry need to be removed.
• Cost-reflective tariffs: The low tariff regime is not only inhibiting the efficient operation of ZESA, but is a disincentive for private sector investment. ZERC lacks independence to set cost-reflective tariffs as provided for in the Act.
• Macroeconomic stability: the electricity sector is a capital intensive business whose development is constrained by the absence of a low interest long term capital in the market. There is also need for a stable exchange rate regime that reflects the inflation differentials between Zimbabwe and its major trading partners.
• ZESA restructuring: There is need to expedite the unbundling of ZESA to facilitate operational and investment efficiency. The pre-amendment structure is more in line with international best practice of separating the industry into three sub-sectors - generation, transmission and distribution.
• Operational Autonomy: There is need to grant greater management autonomy for ZERC and ZESA to allow them to set their own budgets and salaries so as to attract the skills and to undertake the projects required for strengthening capacity for service delivery. ZESA is no longer able to pay competitive salaries as was the case when it was operating under the performance contract. ZERC needs to increase skills for both technical and economic regulation and has to pay above average remuneration to ensure that it attracts the people with necessary skills and experience.
80 • Independent Power Producers (IPPs) Policy: The absence of such a policy is hindering the entry of IPPs in the electricity industry. The IPP policy should bring out clarity on roles of the Ministry, ZERC, ZESA and Zimbabwe Investment Authority. The IPP policy would guide ZERC in implementing one of their mandates of promoting and implementing private sector participation in the electricity sector.
• Infrastructure Investments: Significant investments are now required to rehabilitate and upgrade the existing generation, transmission and distribution infrastructure.
322. The following actions are recommended to address some of the issues highlighted above.
Immediate Actions • Allow ZERC autonomy to approve cost-reflective tariffs as provided for in the Electricity Act.
Long term Actions • Address legal, regulatory and policy impediments to private sector participation • Move towards unbundling ZESA to facilitate operational and investment efficiency • Develop strategy for rehabilitation and upgrade of existing generation, transmission and distribution infrastructure, including strategy to raise low interest, long term, capital.
81 Annex 1: ROADS - POLICY OPTION PAPERS
F. Policy Option Papers to Address Critical Areas a. Financing Road Maintenance
i. Key Issues • Inadequate funding for maintenance has been identified as a critical issue in the road sector in Zimbabwe. Only US$10.5 million was spent on road maintenance in 2005, against an estimated annual requirement of US$160 million to properly maintain the road network. • The Zimbabwe Road Fund was established in 2001 as the principal funder of road maintenance in the country. The fund derives its revenue mainly from a levy on the sale of fuel, but is also entitled to other road user charges such as vehicle licenses and international transit fees. • In 2005, the Road Fund provided only 30 percent of the total funding for road maintenance with the balance coming from State and local authority budget allocations. In 2006 and 2007 the government increased its reliance on the Road Fund for routine maintenance works, implemented by the Department of Roads, but with few corresponding measures to increase Road Fund revenue. • Mechanisms are available to the government to significantly increase the revenue to the Road Fund. This includes ensuring that all road user charges are deposited in the fund, and linking the fuel levy to the market price of fuel rather than to the government controlled price. This would enable the Zimbabwe Road Fund to achieve revenues similar to those collected by other national Road Funds in the region, and would significantly reduce the gap between maintenance funding and the annual requirements. ii. Situation Analysis 1. The ZIAN for the Road Sector identified inadequate funding for maintenance as a critical issue in the sector. Only US$10.5 million was made available for road maintenance in 2005, of which US$3.1 million was generated by the Road Fund and the balance by State and local authority budget allocations. The estimated annual requirement for routine and periodic maintenance of the classified network is US$160 million. Neglect of road maintenance has a significant economic impact. Experience has shown that one dollar “saved” in road maintenance causes between two and three dollars in increased cost for road users.64
Poor road maintenance raises the long-term costs of maintaining the road network. Maintaining a paved for 15 years costs about $60,000 per km. If the road is allowed to deteriorate over the 15-year period, it will cost about $200,000 per km to rehabilitate it. In other words, rehabilitating paved roads every 10 to 20 years is more than three times as expensive, in cash terms, as maintaining them on a regular basis, and 35 percent more expensive in terms of net 65 present value discounted at 12 percent per year.
64 Source: Thriscutt , S., and M. Mason. Road Deterioration in Sub-Saharan Africa. In The Road Maintenance Initiative: Building Capacity for Policy Reform. Volume II. Washington, D.C. World Bank. 1999. 65 Source: Heggie, I. and Vickers, P. Commercial Management and Financing of Roads. World Bank Technical Paper No. 409. May 1998.
82 2. It was noted in the ZIAN study that some road user charges such as vehicle license fees, network access fees and abnormal load fees are being retained by local authorities and the Ministry of Transport and Communications (MoTC). These road user charges are not being deposited into the Road Fund in compliance with the Road Act and General Laws Amendment No. 2. Meanwhile, the fuel levy is calculated as 5 percent of the “landed cost” of fuel, estimated at the government’s official exchange rate whereas road maintenance must be carried out at rates that reflect the real market value of the Zimbabwe dollar.
3. In 2000, the Ministry of Finance agreed that the fuel levy could be increased to 10 percent of the fuel cost in order to strengthen Road Fund revenues.66 This change has not taken effect and in the current economic environment, it would be difficult, if not impossible, to implement.
4. In July 2006, the government agreed that transit fees paid by international traffic using Zimbabwe’s roads should be deposited into a foreign currency account under the control of the Road Fund. These fees add up to approximately US$500,000 per month and contributed to an increase in RF revenues of about US$6 million in 2006. When the RF was being established in 2000 it was estimated that the locally generated revenues to the fund would increase from about US$3 million in 2001 to about US$71 million in 2006. The actual revenues accruing to the fund in 2006 were less than 10 percent of this targeted amount.
5. A review of sub-regional road funds indicates that annual collections by the RF in Zimbabwe are significantly lower than those of its neighbors, despite greater numbers of registered vehicles and a similar or larger road network. The disparity in revenue collections is greater for dollar values using the market exchange rate. These data are summarized in the table below. Table 1: Comparison of Road Fund Revenues, 200667
Zimbabwe Official Market Mozambique Tanzania rate rate Road Fund Revenue 2006 (US$ million) 19 6 64 70 Approx. number of registered vehicles 1,100,00068 1,100,000 205,00069 550,00070 Revenue per registered vehicle (US$) 17 6 312 127 Length of classified road network (km) 88,000 88,000 33,000 95,000 iii. Government Strategy 6. The government of Zimbabwe is a signatory to the SADC Protocol on Transport, Communications and Meteorology, which was adopted by the member states in 1996. The Protocol was developed in response to recognition that traditional approaches whereby road management was carried out by government departments using general budget allocations were not effective. The Protocol sets out significant changes to road sector management and financing in the region. It commits member states to the development of road sector policies which include the following key features:
66 A Road Fund existed in the MoTC before the formation of ZINARA in 2001. 67 Mozambique and Tanzania data from the National Road Administration (ANE) and TANROADS respectively. 68 It is estimated that about 900,000 vehicles are operational in Zimbabwe. 69 It is likely that the actual number of vehicles using the roads in Mozambique may be higher than the official number of vehicles that are registered. 70 It is estimated that only 50% of these vehicle are operational in Tanzania.
83 • Financing principles and practices in the road sector should secure adequate and sustainable sources of funding through incremental expansion of road user charging. • All revenues from roads should be dedicated to their provision, operation and maintenance.
7. A “Road Sub-Sector Policy Green Paper” was published by the Zimbabwe government in March 1999 in response to the signing of the SADC Protocol. The Green Paper is not in itself stated government policy, but is a “consultative document” designed to “provide a framework for focused policy discussions”. It was published after significant efforts on the part of the government to engage with a wide stakeholder base to ensure a broad consensus of opinion. The Green Paper includes the following key policy proposals: • The Zimbabwe National Road Administration (ZINARA) will be created to solicit funds from road users for the maintenance of existing road infrastructure. • A Road Fund will be set up to provide an adequate, stable, secure and sustainable source of funds for the maintenance of the road network.
8. When the Green Paper was published in 1999 it was anticipated that it would shortly be approved by the government and be published as a “White Paper” of stated government policy. Legislation would then be enacted to support the implementation of the various policy statements. Instead the Green Paper has never been approved and remains a draft policy document. However, the government did decide to proceed with partial implementation of its recommendations, including the establishment of ZINARA and the Road Fund in 2001.
9. A Draft National Transport Policy is currently under preparation by the MoTC. The purpose of the policy is to promote “long-term sustainable development in the transport sector”. The document seeks to align national transport policy with regional initiatives such as the SADC Protocol. The first Policy Objective identified in the current draft of the document71 is “the provision and maintenance of high quality road infrastructure”. Strategies to achieve this policy objective include “widen the revenue base of ZINARA” and “institute measures such as the user pays principle and road tolls”.
10. The Zimbabwe Road Act [Chapter 13:18] was enacted in 2001. The purpose of the Act was to establish the Zimbabwe National Road Administration (ZINARA) and the Road Fund. The Act was subsequently amended through the General Laws Amendment No. 2 of 2002. This amendment included an important new measure affecting the operation of the Road Fund: the definition of “road user charges” (i.e. revenue due to the Road Fund) was changed to include all fees charged and collected in terms of the Vehicle Registration and Licensing Act. (Previously the Road Fund could only collect vehicle license fees and heavy vehicle surcharges).
11. The functions of ZINARA, as defined by the Road Act, include: • Establish and collect road user charges, fuel levies and other revenue for the Road Fund • Allocate and disburse funds from the RF to the road authorities.
12. The operations of ZINARA are controlled and managed by a Board comprising twelve members appointed by the Minister responsible for roads. The Board includes representatives of the transporters association, commerce and industry, professional engineers, farmers, and local authorities. One member represents civil society. The remaining members represent the
71 MoTC. Draft National Transport Policy. September 2005.
84 Department of Roads and the Ministers responsible for local government and finance. The Board is responsible for appointing a Chief Executive and other staff required by ZINARA.
13. Since the formation of the Road Fund in 2001, it has not been able to establish itself as the principal funder for road maintenance in the country as envisaged by the Act. The reasons for the weakness of the Road Fund and ZINARA include: • Lack of clarity in the government and local authorities on which agencies are responsible for collecting the various road user charges • Lack of clarity on who is entitled to the revenue from road user charges once it has been collected • Failure to increase the value of the fuel levy in line with inflation • Lack of participation, since March 2005, of non-government representatives on the ZINARA Board.
14. The maintenance of roads has relied heavily, in recent years, on allocations from the state and local authority budgets. Meanwhile RF revenues from fuel levies have fallen well short of their potential due to price controls on fuel and supply shortages. The total of levies collected does not reflect the effects of inflation on the cost of road maintenance. The price control policy has also seen fuel become almost impossible to obtain through normal channels, with most consumers either importing fuel directly into the country, or procuring it on the black market. In either case the value of the levy paid is based on the government controlled price, and is therefore a very small percentage of the true cost of the fuel for most consumers. In response to this the DoR has embarked on its own program to raise funding for maintenance, including the introduction of tolls on major trunk roads. It is intended that proceeds from these tolls will be retained by the DoR for routine maintenance activities. i. Suggested Policy Options 15. At the ZIAN workshop in May 2006 several recommendations were made to strengthen funding for road maintenance through the Road Fund; these are listed below.
• Deposit all road user charges into one account under the Road Fund. This includes the fuel levy, international transit fees, vehicle license fees, network access fees, abnormal load fees, and all other charges meant for the provision and management of the roads network. • Denominate the levy on fuel imported through Foreign Direct Import72 (FDI) in foreign currency paid into the Road Fund foreign currency account. • Increase the fuel levy to 10 percent of the pump price, whether in local currency or foreign currency for FDI fuel.
16. These recommendations have subsequently been refined and expanded by the Road Working Group under the Zimbabwe Infrastructure Dialogue. These recommendations arise from the felt need for road maintenance funding. Yet it is highly unlikely that these recommendations, in particular the increase of the fuel levy to 10 percent of the pump price and denominating the levy on FDI fuel in foreign currency, would be implemented in the current economic environment with hyper-inflation and political uncertainty. The last officially released CPI suggests year-on- year inflation of 165,000 percent in February 2008. It would be appropriate to undertake, as recommended by the Roads Working Group, a study of the economic benefits of increased
72 Under this arrangement, individuals and companies with access to foreign currency are permitted to procure their own fuel through licensed importers.
85 investment in road maintenance in Zimbabwe and publicize the results73. The appointment of a full ZINARA Board would facilitate dialogue between the government and the private sector on the issue of increasing road fund revenues.
17. Increased revenue would enable the Road Fund to increase allocations to the road authorities for maintenance works. In addition, the Road Fund would be able to support institutional reform in the road sector and activities designed to improve road maintenance efficiency. This would include the preparation of a National Road Network Development Plan and the installation of a road management system based on HDM. It would also enable the Road Fund to increase allocations for road safety, and to finance the integration of social issues such as HIV/AIDS awareness in the road sector.
18. In order to progress this policy option it is recommended that the government should take the following steps: • Prepare an estimate of the total potential revenue to the Road Fund with an increase in fuel levy; • Undertake an outline study of economic benefits of increased investment in road maintenance and publicize the results; • Undertake a study of logistical and administrative options for collecting the levy on FDI fuel in foreign currency; • Prepare detailed proposals for expanding the ZINARA revenue base for submission to the Cabinet; and • Monitor the implementation of the recommendations through periodic meetings of the ZID Task Force and Road Working Group. a. Strengthening Institutional Capacity in the Road Sector i. Key Issues • Inadequate management capacity in road sector institutions is a critical issue in the road sector in Zimbabwe. Road authorities are continuing to lose qualified and experienced staff, mainly due to low government salary scales and uncertainties in the local economy; • The Department of Roads (DoR) has been severely affected by the “brain drain”. It is now forced to engage lower-qualified staff in key posts in an “acting” capacity for long periods of time. Senior staff are now covering several posts, with few subordinates to whom they can delegate tasks and responsibilities; • The Department of Roads continues to operate essentially as a traditional force account operator. The Department has past experience of outsourcing services to the private sector, but this is currently limited mainly to hiring of equipment for its force account construction units; • The private sector in Zimbabwe remains relatively strong despite the weak economy. The private sector is able to respond more rapidly than the public sector to improved operating conditions, including the recruitment of experienced staff; and • A streamlined Department of Roads, with greater autonomy, might be able to stem capacity losses and may even see an increase in the same. The restructuring would
73 A study of this nature undertaken in Zambia (Haral and Faiz, 1988) showed that savings in vehicle operating costs would more than offset inflationary pressures caused by the introduction of a fuel levy, provided the extra revenues were spent on improving road maintenance.
86 include a reduction in force account works with increased reliance on outsourcing to the private sector. i. Situation Analysis 19. The Zimbabwe Infrastructure Assessment Note (ZIAN) for the Road Sector, June 2006, identified inadequate management capacity in road sector institutions as a critical issue in the road sector. Institutional and management structures still reflect the needs of old-style force account operators, rather than the new type of streamlined commercial road agency that is emerging elsewhere in the region. Road authorities are continuing to lose qualified and experienced staff to the private sector and the Diaspora. This is due to low salary scales, non- payment of salaries and uncertainty in the local economy. The rate of departure of staff has accelerated in recent months with the current buoyancy of the construction industry in South Africa.
20. Capacity within the Department of Roads has been heavily affected by the loss of experienced engineers and technicians at all levels. The Department is now forced to engage lower-qualified staff in key posts in an “acting” capacity for long periods of time, without being able to fill the incumbent’s original post. As a result, senior staff is covering several posts, with few subordinates to whom they can delegate tasks and responsibilities. Junior engineers that previously served a two year probation period under the supervision and mentoring of a more experienced colleague are now being sent directly into the field, where they are required to operate independently from the outset. The force account maintenance and construction units have continued to function relatively efficiently (when funding has been made available) because the DoR has managed to retain the dedicated supervisors, operators and support staff that operates the units. Nevertheless, the loss of high level management and technical oversight is increasing the risk of inefficiency and declining standards of workmanship on the roads. Training programs have virtually collapsed.
21. The management structure of the DoR supports the requirements of a force account operator. The Department has experience in the outsourcing of construction works, including the design and supervision services, but in recent years this has been mainly confined to hiring earthmoving equipment from the private sector for the force account construction units. Significant changes would be required to the structure and staffing of the DoR if it were to be transformed into a modern commercial road agency responsible for the procurement of services from the private sector, rather than the in-house execution of works. Of critical importance would be greater flexibility in setting salary scales in order to attract and retain suitably qualified staff. Streamlining of the organization would reduce overhead costs, focusing resources on the efficient management of annual works programs. Increased capacity will be required in the departments of procurement and project management, with reduced requirement for in-house design and construction management skills.
22. The DoR operates an in-house computer-based management system for the preparation of works programs. In recent years the system has not been fully utilized due to staff shortages and lack of funds to upgrade computer equipment and software. The system cannot deal adequately with the current hyper-inflationary environment, which affects the costing of road works based on unit rates in the local currency. A prioritization method using HDM, which was introduced in the late 1990s, is no longer functioning. There is no internal data management system (intranet) within the DoR and no internal email facility. Significant investment is required to install modern information management systems in the DoR, but the full benefit of this investment would only
87 be realized in the context of institutional reform and management restructuring to create a more vibrant and commercially minded organization.
23. Meanwhile the private sector in the construction industry in Zimbabwe has shown significant resilience in the past and remains strong in comparison with other countries in the SADC region. This resilience is partly due to a strong skills base built in previous years, and partly due to the ability of local firms to find work in neighboring countries. A consortium of local firms recently completed the construction of the Selous-Ngezi road for a platinum mining company. This seventy-seven kilometer road, including high-level bridges, was built in only seven months. The same consortium is currently building a road by-pass for a shopping centre development Harare on behalf of the local authority, with funding from private sector investors.
24. The private sector has, however, also suffered in recent years due to a declining workload, the inflationary environment and loss of skills, plant and equipment. Work for public sector clients has been characterized by long payment delays. A proposed Public Private Partnership (PPP) for the rehabilitation and upgrading of the Harare-Beitbridge Road has not been approved by the government, despite strong government policy statements encouraging PPPs. Work in the private sector has declined due to the contraction of the national economy and foreign currency for imported components is scarce. Nevertheless, the private sector is better placed than the public sector to restore capacity in response to increased workload in a more stable economic environment. What is required is a sustained workload at viable prices. The “brain drain”, which on the surface appears the most significant constraint affecting the industry, could be reversed if local companies were able to offer more competitive remuneration packages. ii. Government Strategy 25. The SADC Protocol on Transport, Communications and Meteorology, mentioned above, commits member states to the following institutional features: • Establish an autonomous Road Authority which is representative of the public and private sectors and is responsible for strategic management and planning of the development, maintenance and rehabilitation of the network; and • Adopt commercial management practices to foster institutional, economic and technical efficiency; introducing competition in undertaking road-related activities and contracting out of all types of road construction and maintenance activities.
26. The “Road Sub-Sector Policy Green Paper”, which was published by the Zimbabwe government in March 1999, includes the following key policy proposals concerning the institutional arrangements for the management of roads in Zimbabwe: • The Ministry responsible for transport shall be the National Roads Authority and have overall responsibility for the sub-sector; • Rural District Councils and Urban Councils will be defined as road authorities; and • The Department of Roads will be transformed into a State Highways Authority.
27. The Green Paper also describes a process for commercialization of road works operations. It notes that, “In the past, government has acted as a provider of services, sometimes in direct competition with the private sector. Government now recognizes that it is more cost- effective to split the political role of government from that of management, implementation and provider of services.”
28. When the Green Paper was published in 1999 it was anticipated that legislation would be enacted to support the implementation of the various policy statements. Instead the government
88 decided to proceed with only partial implementation of its recommendations, including the establishment of the Zimbabwe National Road Administration (ZINARA) and the Road Fund in 2001. The proposals to transform the Department of Roads into a State Highways Authority are progressing at a much slower pace.
29. The draft National Transport Policy, which is currently under preparation by the MoTC, will promote “long-term sustainable development in the transport sector”. The draft document includes a Policy Objective (No. 5), “To improve the management of the road infrastructure”. Strategies to achieve this include, “Institutional reforms of the road sub-sector”, “Commercialization of the management of the road infrastructure”, and “Strengthening human resource capacity of road authorities in the planning, management, and maintenance of road infrastructure”. The draft policy refers to the need to establish a regulatory authority known as the “Roads and Port Authority”, though this is only considered to be required in the “medium to long term”.
30. The current Road Act (2001) and the General Laws Amendment (No. 2, 2002) were enacted by the government to support the road sector institutional reforms. The legislation identifies the following road authorities responsible for different classes of road: • Regional, primary and secondary roads- the Department of Roads; • The core network of rural unpaved tertiary roads- the District Development Fund (DDF); • Other tertiary roads- Rural District Councils; and • Other urban roads- municipalities and Rural District Councils.
31. The DDF, Rural District Councils, and Urban Councils are referred to in the Act as “local road authorities”. The Minister may direct the Department of Roads to undertake works on roads under local road authority jurisdiction if the local road authority has failed to comply with a directive from ZINARA to undertake the work.
32. The institutional structure for the road sector is shown in Figure 1. The Road Fund is the only institution that does not report directly to a government ministry, though road departments in local authorities also report to their elected councils74. The DDF is shown as a local road authority under the MLGPW&UD, though it presently reports to the Office of the President and Cabinet.
74 Since March 2005 ZINARA has been overseen by an Interim Board comprising only government officials and chaired by the Permanent Secretary in the Ministry of Transport and Communications.
89 Figure 1: Existing Road Sector Institutions
Ministry of Ministry of Local Minstry of Transport and Government Finance Communication PW&UD
ZINARA Board
Local Road Department of Authorities: DDF Road Fund Roads Urban Councils Rural District Councils
Primary Relationship
Secondary Relationship
33. The Department of Roads has significant influence in the road sector. It has a proud history of achievement in road construction and maintenance, having developed a national road network that was once considered amongst the best in Africa. The development of this network was a significant contributor to the growth of a modern economy in Zimbabwe in the 1950s and 1960s. Research and field experience carried out by the Department of Roads resulted in road design standards and construction methods that are based on international standards, yet adapted for local conditions. These standards and work methods are well documented and are well understood by practitioners in the government and the private sector.
34. The Department of Roads is responsible for the development and maintenance of primary and secondary roads, which form the most strategically important part of the national road network. The DoR is therefore a major recipient of government funding. As a force account operator it also has some flexibility in the use of these resources. Therefore the Department has continued to operate under direct control of the Minister, notwithstanding continued efforts to introduce policy reform and legislation that would support the establishment of a State Highway Authority. i. Suggested Policy Options 35. At the ZIAN workshop in May 2006 several recommendations were made to restore and strengthen the management of the road sector in Zimbabwe. These recommendations have subsequently been refined and expanded by the Road Working Group under the Zimbabwe Infrastructure Dialogue. The key recommendation is the transformation of the Department of Roads into a semi-independent State Highway Authority (SHA). The SHA would be a semi- autonomous organization established by an Act of Parliament, and operating on commercial principles, employing its own staff, and reporting to a Board of Directors. The Board of Directors would report to the Minister responsible for Roads, who would also be the appointing authority. Directors would be drawn from both the private and public sectors to ensure that stakeholder constituencies are well represented and participate in the management of the road infrastructure.
36. In order to progress this policy option it is recommended that the government should take the following steps:
90 • Finalize and publish the National Transport Policy, which should include the formation of a State Highway Authority (SHA) as a key policy objective; • Engage in stakeholder dialogue on the revised institutional structure for the road sector to accommodate and support the SHA, including defining the relationship between the SHA and ZINARA and the local road authorities; • Develop a suitable management structure for the SHA; • Prepare legislation to support the formation of the SHA, and revise the Road Act to enable the Road Fund to finance SHA salaries and overheads; • Monitor the implementation of these recommendations through periodic meetings of the ZID Task Force and Road Working Group.
37. By commencing the process of transformation of the Department of Roads into a State Highway Authority, the government would have increased its operational readiness for the resumption of investment in the road sector by international development partners. The government would also have made further progress towards compliance with the SADC Protocol. Direct improvements would be expected in the management of the primary and secondary road network if the SHA is able to restore technical and management capacity by offering more competitive salaries; but this assumes that institutional reform and management restructuring are accompanied by significantly increased revenue to the Road Fund75. Of critical importance is an analysis of how the SHA will be funded. The commercialization of road maintenance will lead to increased mobilization of private sector resources, opportunities for local contractor development, and employment opportunities in both urban and rural areas. The process of transformation to a more commercial organization should, however, avoid disruption to the existing force account system for routine maintenance, until an alternative system can be developed and proved to function more efficiently.
75 It is assumed that the Road Fund would finance salary costs in the SHA, as is the practice in neighbouring countries.
91 Annex 2: RAILWAYS – POLICY OPTION PAPERS F.1 “Reducing Railways’ Fiscal Deficit”
i. Key causes of fiscal deficit • Capacity constraints due to aging infrastructure (track, signals and telecommunications), locomotives, and rolling stock leading to progressive decline in traffic and revenues. • Unclear Public Service Obligation contracts between NRZ and government and irregular and inadequate compensation. • Underutilization of locomotives and rolling stock leading to further reduction of carrying capacity. • Inadequate and aggregated railway costing information to managers who are not able to determine which traffic or lines are profitable and those that are not profitable. With improved costing systems which disaggregate costs between different traffic, unprofitable traffic can be isolated and demarcated, and/or tariffs rationalized • Uneven playing field with the trucking sector having unfair advantage. ii. Situation Analysis 1. Network capacity: (a) Track and Signals: The track has deteriorated further in the recent past and approximately 9 percent length of the main line is under speed restrictions, varying between 10 km per hour to 20 km per hour. Many of the signals have been vandalized, and in the event that traffic increases, the inadequate signal and telecommunication system is likely to pose a serious capacity constraint. (b) Locomotive Availability and Reliability: Availability of locomotives during 2004 on requirement basis was 67 percent, and has since been declining. The low availability of locomotives reduces the capacity of NRZ to carry all the traffic available to it in the market. Due to lack of spare parts, locomotive reliability has declined from a one time high of 57,000 km between failures to 16,000 km between failures. In an efficiently run railway, reliability should be more than 100,000 km between failures. (c) Wagon productivity: Wagon availability declined from 93 percent in 1993 to 59 percent in 2005, and utilization declined from 36 km per wagon per day (itself very low) to 21 km for high sided wagons and from 49 km per wagon per day in 2000 to 23 in 2005 for other types of wagons. The current wagon fleet, excluding the wagons which are side-lined for serious defects and requiring heavy inputs, is about 6,000 with an availability of only 59 percent. The ZIAN report noted that if the utilization is improved, the current fleet of wagons would be sufficient for 16 million tons, and therefore wagon availability should not pose a serious capacity constraint.
2. Staff right sizing: NRZ has been restructuring the work force for the past 10 years, and has now reached manageable staff levels with a wage bill of 35-40 percent of total revenues. It is, however, not established that this staff level is the optimal level required. Further studies will have to be undertaken to derive optimal staff levels. Most concessioned railways are managing with far fewer staff. There is, however, a critical staff shortage in technical departments, and in these departments either staff levels will have to be enhanced, or some work outsourced.
3. Public Service Obligations: NRZ has in the recent past started operating commuter trains in the suburbs of Harare and Bulawayo under PSO arrangements with government. Though government is compensating NRZ for this service, the ZIAN notes that there is no clear PSO contract between NRZ and the government, and the accounting system is not up to date to determine whether the government is over or under compensating NRZ for the services.
92 iii. Current Government Strategy 4. NRZ has taken a number of initiatives to increase availability, reliability and utilization of locomotives and rolling stock: (a) encouraging customers to offer loans to NRZ to rehabilitate locomotives and rolling stock in return for which the customers receive priority allocation of locomotives and rolling stock; (b) proposed to government that exporters pay for transport charges in foreign exchange since earnings are in foreign exchange; (c) NRZ is importing fuel directly to avoid fuel shortages; (d) NRZ has introduced the caboose system in order to improve locomotive utilization; (e) NRZ is operating customer dedicated trains; and (f) resuscitation of steam locomotives to avert the fuel shortages. The ZIAN notes that whilst these measures may prove helpful in the short term, some of them are not sustainable or even desirable in the long term particularly (a), (c), (d), and (f).. iv. Suggested Policy Options 5. The main responsibility for reducing the deficit lies with NRZ, but the government could help by clarifying basic principles and providing guidelines and procedures for NRZ. Government ministries should facilitate orderly compliance. The policies in this regard should focus on: • Public Service Obligations. This includes establishing criteria for identifying PSOs, procedures for determining the level of compensation, the process and the authority for allowing compensation, format of the PSO contracts to be signed between NRZ (operators) and the government, and the timetable for payment of PSO compensation; • Performance contract between NRZ and the government. This would require, among others, the railways to introduce disaggregated railway costing which is able to compute the point to point cost of carrying different traffic on different lines. This will enable management to determine which traffic is profitable and to make appropriate business decisions, and enable the government to monitor compliance with the performance contract; • Involving others in railways operations by facilitating the use of independent distribution channels (freight forwarders). This would mean having a smaller number of customers or wholesalers who purchase on-train space and take care of storage logistics for a large number of customers. This would significantly reduce NRZ operating costs; • Traffic segmentation and de-marketing of unprofitable traffic and closing of un- profitable lines. This can be done directly through operational priorities in favor of profitable traffic, and/or indirectly through the pricing (tariff) mechanism. NRZ should introduce a market and pricing strategy based on cost and market considerations; • Asset restructuring. Divide assets into core and non-core assets. Shed-off non-core assets through liquidation or leasing; • Staff rightsizing. Surplus staff should be shed in non-technical departments whilst enhancing staff numbers in technical departments (civil, electrical, and mechanical); • Temporary arrangements with neighboring countries to operate on the NRZ network by paying access charges. This would address capacity constraints due to low availability of locomotives and rolling stock.
93 a. Railway Safety and Environmental Regulation
i. Key requirements • The public has to be assured of personal safety and protection of their property within NRZ operations. • There is need to ensure that the railway companies (NRZ and BBR) take the responsibility to ensure safety of their operations for the public and for their workers. • There is need to ensure that NRZ and BBR and future concessionaires are complying with the provisions of the Railways Act and other related safety and environmental legislation. ii. Situation Analysis 6. At the moment the NRZ and BBR are self regulating in terms of safety of railway operations. There is neither a government agency nor an authority in the country that ensures that the public and property is protected from negative operations that relate directly or indirectly to the operation of a railway, including railway equipment. Compliance with the Railways Act by NRZ and the Bulawayo Beitbridge Railway (BBR) company is also not assured since there is no independent referee to ensure compliance with the Railways Act relating to the regulations, rules, and orders made under the Act. iii. Current Government Strategy 7. The government has a Railways Act in place, but there is no agency or authority to ensure compliance of this Act by the operating railways (NRZ and BBR). iv. Suggested Policy Options 8. Options that are available to the government to improve safety and environmental compliance in railway operations are listed below. • Establish a Railway Regulatory Unit in the MTC to monitor safety compliance by the NRZ and BBR, and to ensure that accidents are thoroughly investigated; • Introduce appropriate statutory tools in the Railways Act to ensure compliance and to allow the regulatory agency to respond effectively and proportionately to violations of the Act. These could include a Letter of Non-Compliance, Notice/Notice and Order, and prosecution; and submission of railway safety plans by the operating railway firms; • Introduce independent railway safety audits and mechanisms for receipt and review of complaints from the public.
94 Annex 3: WATER – POLICY OPTION PAPERS F.2 Critical policy review of the ZINWA take over of water and sanitation/sewerage functions from cities and municipalities
i. Key Issues: • Poverty eradication and centralized service delivery of water and sanitation • Legal framework in the proposed takeover and implications for economic turn around strategies using water and sanitation infrastructure development as economic drivers ii. Situation Analysis 1. Government directed that ZINWA take over water and sanitation/sewerage functions from municipalities and towns with immediate effect (beginning of January 2007). This action was taken without any prior discussion or negotiations with the local authorities involved. Prior to this the urban local authorities were mandated to manage water production and distribution to their residents in terms of the Urban Councils Act, as well as the Water Act. ZINWA was responsible for providing raw water to the local authorities and for operating small water supply systems at rural growth points. This they managed to do without much difficulty. Local authorities, except for Harare, were largely effective in supplying water. In some cases local authorities actually own the major sources of raw water, e.g. Harare City Council holds more than 80 percent ownership of its main water supply reservoir, Lake Chivero, and the City of Mutare owns the pipeline from the Pungwe River. All pumping stations, distribution networks, sewerage treatment and water recycling plants were constructed by urban councils through the contribution of their ratepayers. These assets are therefore de jure owned by the urban councils who are body corporate who can sue and can be sued. Urban councils were credit worthy with financial institutions because of their asset ratios and their ability to repay loans, largely due to revenue from the water account.
The following issues are pertinent to this emerging scenario. 2. Existing legal instruments, i.e. the Urban Councils Act, Rural District Councils Act and the Water Act enshrine division of responsibility between central government and local authorities through specific decentralization modes. The recent government directive to ZINWA nullifies the tenets of these Acts. The previous arrangements tended to contain government/public expenditure as residents would largely finance their own development without calling on the national fiscus. There is therefore need for a policy pronouncement that addresses expectations from the directive as well as implications for national financial management. For instance, will the take over by ZINWA assist or hinder national turnaround strategies?
3. The directive has implications for future ZINWA focus areas: urban or rural. Whilst ZINWA provided raw water to urban areas for residential, industrial and mining uses, it also catered for the critical agricultural sector. The emergency needs of urban centers such as Harare are already taxing ZINWA’s technical and financial capabilities with the attendant risks of diverting resources away from agriculture. What impact will the ZINWA takeover of urban water production and distribution have on its support to agriculture productivity i.e. construction of dams for irrigation purposes?
95 4. Financing ZINWA could be another major constraint in the future, much on the lines of other parastatals such as ZESA76, ZISCO77 Steel, which financially insolvent due to factors such as weak management, uneconomic tariff structures and corruption. There is an existing social contract between local authorities and the residents, who establish the council through elections and then expect services for which they pay rates. Local authorities can borrow with the consent of their residents and the residents contribute towards repayments. ZINWA has no mechanism for interface between itself and residents of local authorities and cannot borrow on their behalf. It is therefore difficult to understand how ZINWA will be able to borrow the large volumes of money required to purchase the local authority infrastructure, rehabilitate it, expand into new areas with new reservoirs and new waste water treatment works, recycling etc. Based on experience with other parastatals, will the new arrangement be attractive for PPPs? No financial calculations or cost benefit analysis has been undertaken of the ZINWA take over.
5. The ZINWA takeover supports centralization as against decentralization, which could lead to a reduced level of service delivery to residents, especially the poor and marginalized. The Water Act, which established catchment and sub catchment councils and recognizing local authorities as major players in water distribution, takes a decentralized approach to water production and delivery. iii. Current Strategy 6. The government instructed ZINWA to take over and run water and sanitation services in all urban centers with immediate effect. This followed an earlier ZINWA takeover of water supply for Harare City. The takeover has, however, not led to immediate improvements in service delivery. The situation has continued to deteriorate, with some suburbs of Harare not receiving water for weeks on end due to poor pumping capacity, lack of foreign exchange to purchase required chemicals, and inadequate staff capacity. ZINWA has also failed to meet bulk water supply requirements for Bulawayo through the rehabilitation and refurbishment of boreholes in the Nyamandlovu Aquifer. iv. Suggested Policy Options 7. There is need for government to put in place a clear policy statement highlighting the reasons for changing and implications for poverty reduction, service delivery and the new roles of local governments towards their residents. The policy statement should also address the question of decentralization in the water and sanitation sector.
b. Policy on Peri-Urban Water and Sanitation Infrastructure Provision through Public Private Partnership Policy
i. Key Issues • Harare and other cities in Zimbabwe have always prided themselves in having 100 percent water and sanitation coverage • Since the land reform exercise commenced in 2000, when many peri-urban farms around Harare were occupied, many of the settlers have had neither secure water supplies nor sanitation facilities, let alone proper housing. This situation is a serious hazard to the health of the city as a whole.
76 The Zimbabwe Electricity Supply Authority 77 The Zimbabwe Iron and Steel Corporation is a Government owned parastatal organisation which operates a steel refinery in the Midlands.
96 • There is no government policy on the provision of water and sanitation infrastructure for the peri-urban areas • The potential for Public Private Partnership in water and sanitation infrastructure provision for the peri-urban areas requires a policy framework • To achieve poverty eradication and the MDGs, attention to peri-urban settlements is an important priority. i. Situation Analysis 8. Peri-urban development, especially around Harare, since 2000 requires urgent attention in water and sanitation infrastructure. The City of Harare maintains that it has insufficient funds to construct any new infrastructure. The cooperatives formed by residents of the peri-urban settlements also have insufficient resources for infrastructure provision. Options of resolving this issue include: • Harare City Council provides resources for servicing stands as well as offsite infrastructure • Cooperatives themselves provide resources for onsite and offsite works • Loans arranged to cooperatives for onsite and offsite infrastructure • Private developers provide infrastructure and then sell water to residents • Private developers invited to provide onsite and offsite infrastructure in exchange for land (as has occurred in other arrangements in the city).
9. Examples exist in Zimbabwe of Public Private Partnerships between municipalities and private sector firms in infrastructure provision. Three examples can be given here. The Harare City Council worked with a consortium by providing them with land to construct the Westgate Shopping Mall in exchange for construction of part of the Harare Drive connector road. Currently a road by-pass is being constructed by the private sector in exchange for a piece of land for commercial use (shopping mall) in the Harare suburb of Newlands. Bulawayo City Council is completing a joint venture with a private sector consortium in the city with a view to recover waste water, treat, and recycle it into the City treatment works at Criterion. The initial phase, to take 12 months, involves private sector investment of nearly US$400 million at official government rates or (US$20 million at the unofficial parallel market). It is anticipated that the project will ultimately provide nearly 35 percent of the city’s total water demand. The PPPs involving municipalities have been successful because they own land which they can exchange for infrastructure investments. In some cases, the local authority can offer reduced water tariffs for a number of years as their contribution to the investment. ZINWA as a parastatal has very little as exchange. i. Current Strategy 10. There are 20 farms which have been occupied by cooperatives around Harare. The government recognized the housing cooperatives occupying peri-urban land and directed that they be assisted in building houses in terms of the existing planning laws. Some cooperatives started constructing houses without any formal layout plans. Most of these houses were demolished by the local authorities in May 2005. All cooperatives were ordered to only construct houses after they were in possession of approved plans. Some portions of the occupied farms belong to private companies such as Crest Breeders, CFI, Zimbabwe Tobacco Association (ZTA), National Social Security Agency (NSSA) and the City of Harare. Some farms belong to the State.
11. Of the 20 farms, 10 (50 percent) have approved layout plans (see Table 1 below). However many of the cooperatives do not have the resources to service the areas before
97 construction of houses in terms of the Urban Councils Act. Since the Harare City Council (HCC) has categorically stated that they do not have resources to service the occupied farms, they have left it to the cooperatives to source own funds for that purpose. Private agencies have however tried to service their own portions without necessarily link these to other neighboring farms. Nehanda Housing Cooperative on Quality Flowers Gillingham Estate is one that is making some remarkable progress but still requires nearly Z$3 billion to complete works. The cooperative has constructed over 2,500 housing units out of an expected total of 5,276. It has approved designs for water supplies and sewers (both offsite and onsite), approved layout plans, approved general plans, and has constructed a water main gravity line from Dzivarasekwa Reservoir. Road network designs have been prepared and approved by HCC. ii. Suggested Policy Options 12. There is need for a policy to guide development in the peri-urban areas of major cities and towns. It is possible that the current unstructured approach will lead to the development of slums. The policy should address the efficacy of decentralization for effective and responsive water and sanitation infrastructure provision. In the absence of financial and human resources, there is need for the policy to clearly address the greater inclusion of PPP in water and sanitation provision. iii. Support from development partners 13. There is room for assistance from development partners coordinated by the World Bank on policy options for PPP and peri-urban water and sanitation infrastructure provision. The private sector has demonstrated that it is available to participate. The Harare City Council needs to be allocated land by the government in order to enter partnerships with the private sector. ZINWA’s role in infrastructure provision needs to be clarified e.g. ZINWA needs to be transformed into some kind of water utility at the local level.
98 Annex 4: Members of the Task Force Contact details (telephone and Name Name of organization Cell members)
1. N S M Ministry of Transport and 04-250693 or Mudzinganyama Communications (MoTC) 04-700991/9 (Chairperson) 011217024
04 700991-9 2. Eng N. Kudenga Department of Roads [email protected] 3. Eng T. 04-702834 M‘Dawarima Department of Roads [email protected] Ministry of Transport and 4. Ms J.Sibanda Communications (MoTC) 011869717 Ministry of Water Resources and Infrastructural 5. Mr Mutede Development. 011866471 National Railways of 09-363233 6. K Kasirori Zimbabwe 09-363714 Zimbabwe National Water 7. FManzira Authority(ZINWA) 797611/13 09-75011 ext 2192 or 011613277 8. P Sibanda Bulawayo City Council [email protected] 011865241 or 333048 9. H Mutseyekwa POTRAZ [email protected] 011801687 or 798111 10. T.T Chipere Tel*One [email protected] Zimbabwe National Roads 11. Z Osmen Administration (ZINARA) 04-703735 or 011610595 011980420 or 775361 12. P Mandeya Net* One [email protected] Ministry of Energy and 13. M Munodawafa Power Development 04-799194 14. E Muringani City of Harare 04-775086 or091265010 Department of Physical 04-706258-9 or 011423313 15. R T Ziracha Planning(DPP) [email protected] Zimbabwe Electricity 16. L Nechitoro Regulatory 0912438173 or 780010 Commission(ZERC) [email protected] Zimbabwe Electricity Supply 011803605 or 774545 17. B Rafemoyo Authority(ZESA) [email protected] Zimbabwe Electricity Supply 011208265 or 773715 18. E Rugoyi Authority (ZESA) [email protected] Zimbabwe Local 19. R Mozhendi Government Associations (ZILGA) Ministry of Transport and 04700991-9 20. G Sibanda Communications(MoTC) 011507270
99 [email protected] Ministry of Transport and 04700991-9 21. O Kawonde Communications(MoTC) 011874850 [email protected] Ministry of Transport and 04700991-9 22. P Nyoni Communications (MoTC) 011430759 [email protected] Ministry of Transport and 04700991-9 or 0912845568 23. M Machiridza Communications(MoTC) [email protected] Ministry of Transport and 0912768314 or 700991 24. J M Madya Communications(MoTC) [email protected] 011801279 or 700693 25. I D Michael MoTC-Roads [email protected] 011417822 or 706571-2 26. T Maurukira ZINWA [email protected]
100
Annex 5: ZESA Tariffs Effective 1 February 2007
TARIFF RATE US$ TARIFF CATEGORY TARIFF ITEM Z$ US$ official market DOMESTIC Conventional Fixed charge 2,227.31 8.91 0.445 1st 250 kWh 0.88 0.00 0.000 251-500 kWh 11.71 0.05 0.002 501 kWh + 15.89 0.06 0.003 Prepayment std 1st 250 kWh 11.71 0.05 0.002 251-500 kWh 11.71 0.05 0.002 501 kWh + 11.71 0.05 0.002 Prepayment stepped 1st 250 kWh 0.88 0.00 0.000 251-500 kWh 11.71 0.05 0.002 501 kWh + 13.38 0.05 0.003 Load Limited Fixed charge 2,227.31 8.91 0.445 1A 119.04 0.48 0.024 2.5A 295.83 1.18 0.059 5A 593.42 2.37 0.119 7.5A 889.25 3.56 0.178 10A 1,186.40 4.75 0.237 15A 1,779.82 7.12 0.356 22.5A 2,668.63 10.67 0.534 30A 3,558.76 14.24 0.712
PUBLIC LIGHTING Metered Fixed charge 5,335.43 21.34 1.067 Energy charge per kWh 15.06 0.06 0.003 Unmetered Monthly charge per watt 6.69 0.03 0.001
MINING, INDUSTRIAL, COMMERCIAL, PUMPING, WORKS Low Voltage Fixed charge 6,475.63 25.90 1.295 Energy charge per kWh 11.71 0.05 0.002 11 & 33 kV MD Fixed charge 17,842.49 71.37 3.568 MD charge per unit 223.51 0.89 0.045 On peak energy per kWh 15.06 0.06 0.003 Off peak energy per kWh 3.35 0.01 0.001 Standard charge per kWh 5.02 0.02 0.001 Secondary Dist. Fixed charge 19,413.51 77.65 3.883 MD charge per unit 1,044.00 4.18 0.209 Interruptible demand charge 783.00 3.13 0.157 On peak energy per kWh 15.06 0.06 0.003 Off peak energy per kWh 3.35 0.01 0.001 Standard charge per kWh 5.02 0.02 0.001
GOVERNMENT INSTITUTIONS Low Voltage Fixed charge 3,412.83 13.65 0.683
101 Energy charge per kWh 6.17 0.02 0.001 11 & 33 kV MD Fixed charge 9,403.48 37.61 1.881 MD charge per unit 11 kV 1,171.85 4.69 0.234 MD charge per unit 33 kV 859.71 3.44 0.172 On peak energy per kWh 7.94 0.03 0.002 Off peak energy per kWh 1.76 0.01 0.000 Standard charge per kWh 2.65 0.01 0.001
AGRICULTURE Low Voltage Fixed charge 3,412.83 13.65 0.683 Energy charge per kWh 3.53 0.01 0.001 11 & 33 kV MD Fixed charge 9,403.48 37.61 1.881 MD charge per unit 11 kV 644.56 2.58 0.129 MD charge per unit 33 kV 473.06 1.89 0.095 On peak energy per kWh 4.41 0.02 0.001 Off peak energy per kWh 1.32 0.01 0.000 Standard charge per kWh 1.76 0.01 0.000
102 Annex 6: Terms of Reference: Zimbabwe Infrastructure Dialogue (ZID) (Roads, Railways, Water, Energy and Telecommunication Sub-sectors)
Introduction and Background
1. Once, the breadbasket of Africa, Zimbabwe has been confronting economic, social and development challenges since 2000. It still has the potential to be a critical force and engine of growth in the sub-region. Zimbabwe is currently undergoing severe economic distress with inflation of over 1200 percent and a cumulative GDP decline more than 30 percent between 1999 and 2005. The country is experiencing shortages of food, fuel and foreign currency. In parallel to the economic decline, Zimbabwe’s social indicators, which had been among the best in Africa, have deteriorated rapidly between 1996 and 2006. The Second Round of the Poverty Assessment Study Survey has shown that the total consumption poverty has increased from 42 percent in 1995 to 63 percent in 2003. Compared to the mid 1990’s, donor activity in Zimbabwe has sharply declined, and currently donor funds are largely channeled to humanitarian assistance, governance and HIV/AIDS related activities. In October 2000, Zimbabwe went into non-accrual status with the World Bank, and since then the Bank’s engagement has been limited to policy advice and dialogue through non-lending activities.
2. Consistent with the Bank’s approved Interim Strategy the Bank prepared a report on Zimbabwe Infrastructure Assessment Note (ZIAN) in June 2006 principally for Roads, and other distressed sectors of Railways, Water and Sanitation. The ZIAN reviewed the government policies, institutional reforms, management capacity and financing in the sectors and it provided a good opportunity to fill the knowledge gap in the three sectors. The findings and recommendations of the ZIAN were discussed in a workshop held in Harare on May 23, 2006, which was attended by 95 participants from government agencies, donor community, NGOs, private sector, and civil societies. The three sectors are characterized as follows:
3. Roads: Zimbabwe’s total road network (88,330 km) is comprised of 18,430 km national roads, 8530 km urban council roads, 26,000 km District Development Fund roads and 35,370 km rural district council roads. The roads play a major role in service delivery, regional integration, trade expansion, and rural development. It is estimated that 24 percent of the network is currently in “good” condition, 36 percent is in “fair” condition, and 40 percent is in “poor” condition. About US$1.7 billion is now required to restore the entire network to a “good” condition. This figure is increasing about US$80m per annum. In 2005, against the total road maintenance budget requirement of US$160m, only US10m (6%) was allocated. Institutional reforms in the road sector are progressing slowly. The June 2006 ZIAN report identified the following key issues: (a) A wide gap between the maintenance funding requirements and the budget allocations; (b) No well defined priorities for utilizing the meager maintenance budget, (c) Road Fund established in 1999 but currently ineffective; (d) Weak management capacity of the road sector institutions; and (e) Inadequate integration of social and environmental issues in the road projects.
4. Railways: The Zimbabwe railways network of 2752 km continues to be critical for economic expansion, regional integration, and provision of public services. Freight traffic declined sharply from 14 million-tons in 1990 to its lowest level of 4.9 million-tons in 2004, though it recovered to about 6 million tons in 2005. In 2004 the outstanding debt was US$16.5m
103 and in 2005 the overall deficit was US$7m. Unclear rail policies, inadequate budget support, and inefficient use of rolling stocks have been established as the main causes. The inefficiency of the railways is leading to deterioration of some sections of the road network due to diversion of heavy loads from rail to road transport. The June 2006 ZIAN report identified the following key issues: (a) Railways required to provide passenger services without any budget support, (b) No clear strategy for allowing third party operations on payment of track access charges; (c) Slow progress in railway concessioning in spite of government- approved policy, and, (d) Inefficient utilization of locomotives, and rolling stocks.
5. Water and Sanitation: In the 1980s and 1990s, Zimbabwe embarked upon far-sighted policy and strategy reforms and was a regional leader of innovations in the rural water and sanitation sector. Since the onset of the economic decline in 1999, access to water and sanitation services has been steadily declining. Urban and rural centers that previously registered nearly 100 percent service coverage are experiencing the steepest decline in water quality and production, now estimated to be 30 percent below requirements. Against the target for the rural water supply set at 80 percent coverage of safe water points operational at all times, the coverage peaked to 75 percent in 1999, but has since declined to 70 percent in 2004. In rural areas, lack of repairs and spare parts have put many boreholes out of service and poor households have returned to using unsafe sources. The key institutions for the coordination of water and sanitation sector in rural areas (the National Action Council) have virtually collapsed due to insufficient resources. It is estimated that approximately US$10bn is needed to rehabilitate Zimbabwe’s water and sanitation infrastructure. Harare alone needs in excess of US$100m to refurbish its bulk water works. The June 2006 ZIAN report identified the following key issues: (a) Lack of co-ordination between National Action Council and National Coordination Unit; (b) Too many overlapping roles among existing institutions; (c) Policy environment outdated and inconsistent with current challenges; (d) Unsustainable tariff regimes that compromise operation and maintenance of existing infrastructure; and (e) Significant reduction in technical capacity due to brain drain.
6. Social Issues in Infrastructure Sector: The ZIAN report and infrastructure workshop both confirmed the importance of social dimension of infrastructure and the potential the sectors have to impact socio-economic issues. The incidence of HIV/AIDS infection is currently estimated at 21.3 percent, giving Zimbabwe the fourth highest prevalence rate in the world. The June 2006 ZIAN report identified the following issues: (a.) Insufficient attention to HIV/AIDS in all three sectors (i.e., lack of sector policies, activities and outreach to workers and communities); and (b.) Insufficient technical capacity to plan, implement and monitor social safeguards issues.
7. The GoZ has requested the Bank to continue this dialogue in FY07, aimed at developing an action plan to implement the recommendations of the May 2006 Infrastructure Workshop. Some recommendations can be easily implemented by the responsible institutions. However, to implement the key recommendations, GoZ needs to take policy decisions at Cabinet level. This can only be done if policy option papers are produced with participation from all stakeholders outlining different possible scenarios and considering their impacts on the general economy. This is an important step before Cabinet can make any policy decisions to address the critical areas in the roads, railways and water sectors. In addition, the current macroeconomic situation has also affected the serviceability of other sub sectors, and to address this GoZ has requested the Bank to expand the coverage of the assessment notes to two other distressed sectors: “Energy” and “Telecommunications”:
104 Objectives
8. The overriding goal of the proposed ESW is to sustain the serviceability of the infrastructure sector through building knowledge, enhancing partnership and deepening harmonization agenda. The development objectives are: (a) To continue dialogue in the identified critical areas in line with the recommendations of the May 2006 infrastructure workshop in three sectors (Roads, Railways, and Water);
(b) To update the Bank’s knowledge through expanding the scope of the June 2006 Bank Infrastructure Assessment Note to other two distressed sectors: Energy,& Telecommunication.
9. The proposed infrastructure dialogue will provide a focus on the implementation of May 2006 Infrastructure Workshop, and June 2006 final report on ZIAN. It will not include any activity relating to the feasibility studies, planning, engineering design, cost estimate or preparation of any development program aimed at improving the condition of infrastructure or enhancing the serviceability for the proposed five sub-sectors. The scope of the proposed ESW on Infrastructure Dialogue with GoZ will be limited to building knowledge, sharing of global practices, and reviewing of existing policy documents. As Zimbabwe is currently under non- accrual status, the proposed ESW will be the right instrument for both the Bank and GoZ as it will contribute to: (a) Knowledge sharing about current developments in the infrastructure sectors; and (b) Creating an appropriate dialogue forum to discuss common interests aimed at sustaining the serviceability of the infrastructure sector.
Scope of Services
10. The consultants’ scope of services shall be divided in five sub-sectors Roads, Railways, Water, Energy, and Telecommunication.
Sub-sector- Roads (Infrastructure Engineer and Lead Consultant)
11. The consultant will serve as a coordinator. The June 2006 Report on ZIAN has identified the critical areas in the sector policies, institutional reforms, organization structure, management capacity, financing, cost recovery, and has proposed recommendations. The consultant will review the identified critical areas and recommendations and will update in consultation with the MoTC constituted working group and MoF appointed Task Force. The consultant’s scope of service will be mainly to develop a time-based action plan and to produce draft policy option papers aimed at addressing the critical areas in line with the workshop recommendations. The consultant’s scope of services will comprise, but not be limited to the following activities.
(a) To review June 2006 final report on ZIAN, and update its key information or technical data that will have an impact on implementation of the workshop recommendations;
(b) To discuss with the Task Force the several options for developing an action plan to implement workshop recommendations, and reach an agreement on the selected option.
(c) To identify key activities for the preparation of proposed action plan and group them into critical areas (Sector policy, Financing, management, cost recovery or any
105 other) on the basis of the subject themes and the current set up of the road institutions in Zimbabwe. In order to implement the action plan, reach an agreement with the Task Force if they need a review of the existing policy or legal framework, update of the policy paper or legal framework in pipe line, or the preparation of new draft policy or legal framework in the form of policy option papers/briefs or overviews.
(d) To propose the title and/or key outline of the proposed policy option papers in numbers between 2 and 3, and seek the approval of the task force to come up with the results framework as proposed in the proposed Zimbabwe Interim Strategy Note 2. (This document is currently under preparation by the country office in Harare and is under discussion with the MoF. The draft results framework for the infrastructure sector which was discussed with the Task Force can be seen in the Annex to the Identification Mission Aide-memoire of September 2006 and this can be adjusted if needed).
(e) To make recommendations to the Task Force of on the composition of the forum of the dialogue comprised of the private sector, civil societies, NGOs. Advice and assist MoTC in setting up of the working group, schedule and agenda for the meetings that would be needed during the process of preparing the proposed policy option papers or legal framework documents.
(f) To prepare the outline of the proposed policy option papers consistent with the agreed results framework and request Task Force for their comments. If the outline is agreed, send a request to the Task Force for supply of additional data if needed. The consultant will provide the technical support to task force if needed for the required data collection.
(g) To prepare the draft policy option papers or legal framework documents in line with (c) above and consistent with the agreed results framework. Send the draft reports to Bank and Task Force and request for their comments.
(h) To provide technical support in the planning, designing, and organization of stakeholders workshop and provide facilitation support if needed.
(i) To prepare the final report on action plan, policy updates, policy option papers, or legal framework after incorporating comments from the Task Force, donor community, Bank and the workshop audience.
(j) To coordinate with the other consultants engaged for this dialogue. The lead consultant will have an overall responsibility as a Team Leader for compiling, submission, and consistency in the contents of all sub-sectors in the final report on ZID.
(i) Advise the Task Force in the planning, design and organization of stakeholders’ workshop for other sub-sectors.
Sub-sector- Railways (Bank’s Transport Specialist)
12. The June 2006 Report on ZIAN has identified the critical areas in the sector policies, institutional reforms, organization structure, management capacity, financing, cost recovery, and has proposed recommendations. The consultant will review the identified critical areas and recommendations and will update in consultation with the MoTC constituted working group and MoF appointed Task Force. The consultant’s scope of service will be mainly to develop a time-
106 based action plan and to produce draft policy option papers aimed at addressing the critical areas in line with the workshop recommendations. However, the consultant scope of services will comprise, but not be limited to the following activities.
(a) To review June 2006 final report on ZIAN, and update its key information or technical data that will have an impact on implementation of the workshop recommendations;
(b) To discuss with the Task Force the several options for developing an action plan to implement workshop recommendations, and reach an agreement on the selected option.
(c) To identify key activities for the preparation of proposed action plan and group them into critical areas (Sector policy, Financing, management, cost recovery or any other) on the basis of the subject themes and the current set up of the road institutions in Zimbabwe. In order to implement the action plan, reach an agreement with the Task Force if they need a review of the existing policy or legal framework, update of the policy paper or legal framework in pipe line, or the preparation of new draft policy or legal framework in the form of policy option papers/briefs or overviews.
(d) To propose the title and/or key outline of the proposed policy option papers in numbers between 2 and 3, and seek the approval of the task force to come up with the results framework as proposed in the proposed Zimbabwe Interim Strategy Note 2. (This document is currently under preparation by the country office in Harare and is under discussion with the MoF. The draft results framework for the infrastructure sector which was discussed with the Task Force can be seen in the Annex to the Identification Mission Aide-memoire of September 2006 and this can be adjusted if needed).
(e) To make recommendations to the Task Force of on the composition of the forum of the dialogue comprised of the private sector, civil societies, NGOs. Advice and assist MoTC in setting up of the working group, schedule and agenda for the meetings that would be needed during the process of preparing the proposed policy option papers or legal framework documents.
(f) To prepare the outline of the proposed policy option papers consistent with the agreed results framework and request Task Force for their comments. If the outline is agreed, send a request to the Task Force for supply of additional date if needed. The consultant will provide the technical support to task force if needed for the required data collection.
(g) To prepare the draft policy option papers or legal framework documents in line with (c) above based on demand driven approach and consistent with the agreed results framework. Send the draft reports to Bank and Task Force and request for their comments.
(h) To provide technical support in the planning, designing, and organization of stakeholders workshop and provide facilitation support if needed.
(i) To prepare the final report on action plan, policy updates, policy option papers, or legal framework after incorporating comments from the Task Force, donor community, Bank and the workshop audience.
107 Sub-sector- Water and Sanitation (Water Specialist)
13. The consultant will work under the overall guidance of the Lead Consultant. The June 2006 Report on ZIAN has identified the critical areas in the sector policies, institutional reforms, organization structure, management capacity, financing, cost recovery, and has proposed recommendations. The consultant will review the identified critical areas and recommendations and will update in consultation with the MoTC constituted working group and MoF appointed Task Force. The consultant’s scope of service will be mainly to develop a time-based action plan and to produce draft policy option papers aimed at addressing the critical areas in line with the workshop recommendations. However, the consultant scope of services will comprise, but not be limited to the following activities.
(a) To review June 2006 final report on ZIAN, and update its key information or technical data that will have an impact on implementation of the workshop recommendations;
(b) To discuss with the Task Force the several options for developing an action plan to implement workshop recommendations, and reach an agreement on the selected option.
(c) To identify key activities for the preparation of proposed action plan and group them into critical areas (Sector policy, Financing, management, cost recovery or any other) on the basis of the subject themes and the current set up of the road institutions in Zimbabwe. In order to implement the action plan, reach an agreement with the Task Force if they need a review of the existing policy or legal framework, update of the policy paper or legal framework in pipe line, or the preparation of new draft policy or legal framework in the form of policy option papers/briefs or overviews.
(d) To propose the title and/or key outline of the proposed policy option papers in numbers between 2 and 3, and seek the approval of the task force to come up with the result framework as proposed in the proposed Zimbabwe Interim Strategy Note 2. (This document is currently under preparation by the country office in Harare and is under discussion with the MoF. The draft results framework for the infrastructure sector which was discussed with the Task Force can be seen in the Annex to the Identification Mission Aide-memoire of September 2006 and this can be adjusted if needed).
(e) To make recommendations to the Task Force of on the composition of the forum of the dialogue comprised of the private sector, civil societies, NGOs. Advice and assist MoTC in setting up of the working group, schedule and agenda for the meetings that would be needed during the process of preparing the proposed policy option papers or legal framework documents.
(f) To prepare the outline of the proposed policy option papers consistent with the agreed result framework and request Task Force for their comments. If the outline is agreed, send a request to the Task Force for supply of additional date if needed. The consultant will provide the technical support to task force if needed for the required data collection.
(g) To prepare the draft policy option papers or legal framework documents in line with (c) above based on demand driven approach and consistent with the agreed result
108 framework. Send the draft reports to Bank and Task Force and request for their comments.
(h) To provide technical support in the planning, designing, and organization of stakeholders workshop and provide facilitation support if needed.
(i) To prepare the final report on action plan, policy updates, policy option papers, or legal framework after incorporating comments from the Task Force, donor community, Bank and the workshop audience.
Energy Sector
To be carried out by the Infrastructure Specialist and the Lead Consultant.
(a) To carry out a diagnostic study and an analysis of the current situation – operational and financial performance, condition of infrastructure, stock availability, utilization, reliability, management and staffing;
(b) To develop a questionnaire for collecting the information relating to sector policies, institutional reforms, organizational structure, management capacity, financing and cost recovery.
(c) To analyze the information so collected and identify the critical issues that need to be addressed to enhance the operational efficiency and ensure sustainability of the sector.
(d) To review current government policy with regard to energy management, financing, and operations as applied in the current situation and make recommendations for sustaining the services.
(e) To prepare the draft outline for the assessment note and discuss with the Bank and Task Force.
(f) To prepare the draft report on the assessment note and discuss with the Bank and Task Force.
(g) To advice and assist the Task Force in the planning, design, and organization of the workshop.
(h) Submit the final report after incorporating comments form the Task Force, Bank, donor community and the workshop.
Telecommunication Sector
To be carried out by the Infrastructure Specialist and the Lead Consultant.
(a) To carry out a diagnostic study and an analysis of the current situation – operational and financial performance, condition of infrastructure, stock availability, utilization, reliability, management and staffing;
109 (b) To develop a questionnaire for collecting the information relating to sector policies, institutional reforms, organizational structure, management capacity, financing and cost recovery.
(c) To analyze the information so collected and identify the critical issues that need to be addressed to enhance the operational efficiency in order to ensure sustainability of the sector.
(d) To review current government policy with regard to telecommunication management, financing, and operations as applied in the current situation and make recommendations for sustaining the services.
(e) To prepare the draft outline for the assessment note and discuss with the Bank and Task Force.
(f) To prepare the draft report on the assessment note and discuss with the Bank and Task Force.
(g) To advice and assist the Task Force in the planning, design, and organization of the workshop.
(h) Submit the final report after incorporating comments form the Task Force, Bank, donor community and the workshop.
Social Expert (For all Sub-sectors to provide desk support in Washington)
14. The key socioeconomic issues are: (a) prevention of HIV/AIDS epidemic in roads, rails, water sub sectors; (b) gender equality in terms of employment and payment of wages; (c) impact assessment of roads, rails, water, energy, and telecommunication services on poverty reduction in rural and urban areas; (d) impact assessment on the social life of poor on account of high road accident rate; and (e) inadequate technical capacity to plan, implement, and monitor social measures in roads, rails, and water sub-sectors.
(a) To carry out a diagnostic study and an analysis of the current situation in the social activities of the roads, rails and water sub-sectors, and to identify the issues that need to be addressed in infrastructure dialogue.
(b) To review current policies for the infrastructure sector with regard to any emphasis on the social issues on HIV/AIDS, gender equality and poverty reduction, and make recommendations where there is need for the expansion or modification of the existing policy or the proposed policy option papers.
(c) To assess the capacity of the private sector in terms of consulting industry to plan, design and implement social activities in the roads, rails and water sub-sectors.
15. Given the budget constraint the consultant is not expected to carry out an in-depth study on the social issues. However, it would be appropriate if consultant could carry out a desk review of the Bank reports on social issues, develop a questionnaire, review the response received from government agencies in Harare and contribute to the main report in liaison with the lead consultant and the Bank focal points of social activities.
110 Reporting
16. The Lead Consultant shall submit three copies of each deliverable to the Task Manager. The list of deliverables and the submission schedule are indicated below:
(i) Inception Report: Initial findings, conclusions, adequate work plan, and a brief outline of the draft report. Two weeks after the start of the study;
(ii) Interim progress report: Four weeks after submission of the inception report;
(iii) Draft Final Report: Report on all activities carried out under the study, including all sub-sectors and executive summary. Six weeks after presentation of the inception report.
(iv) Stakeholder workshop: Present key findings, recommendations, and the action plan. Two weeks after submission of the draft final report.
(v) Final Report: Final report should incorporate all relevant views and comments from stakeholders Four weeks after the stakeholder workshop.
Schedule of Deliverables
The assignment period shall not exceed 4 months
(a) Signing of Contract: M
(b) Inception Report: M+2 weeks
(c) Interim Progress Report M+6 weeks
(d) Draft Final Report: M+12 weeks
(e) Stakeholders workshop: M+14 weeks
(f) Final Report: M+16 weeks
Duration
17. It is expected that study will be completed in four months duration starting from November 1, 2006 to February 28, 2007.
Stakeholder Workshop
18. The preparation of the report on infrastructure dialogue will require input from a wide variety of stakeholders, including service providers (consultants, contractors, and operators) as well as government officials, and sector technicians. The Consultant shall plan stakeholder workshop to take place after the Consultant has prepared his draft report. This shall be presented to stakeholders in a summary form. Inputs from stakeholders shall be systematically collected and considered in formulating the final draft on ZID.
111 19. The Lead Consultant (Team Leader) in liaison with the Ministry of Transport and Communication (MoTC), Task Force and the World Bank will organize a one-day stakeholders’ workshop at Harare. If considered necessary, MoTC can request Lead Consultant (Team Leader) to make presentations in the two round table meetings in Harare. MTC will be responsible for all logistical arrangements to be made for the workshops, and round table meetings.
Special provisions
20. Institutional and Liaison Responsibility: The consultants shall be hired using the World Bank procurement guidelines. The consultant shall report to the World Bank Task Team Leader. The Consultants will work in close collaboration with the Permanent Secretary, MoTC, the Task Force, and Working Group comprising key ministries, government agencies, civil societies, NGOs and private sector responsible for the management, financing, development and maintenance of infrastructure in Zimbabwe, The Lead Consultant will also work in close collaboration of the Task Team Leader of the World Bank, and other stake holders in order to determine priorities and constraints. MoTC will coordinate with other government agencies, autonomous organizations, urban council associations, rural road associations, NGOs, and civil societies and will establish a task force, who will be responsible for the overall management of the study. It is expected that the report will develop an action plan to implement the recommendation of June 2006 report on ZIAN for the roads, railways, and water sector. In addition, it will include an assessment note on Energy and Telecommunication sub-sectors. The consultants will advice and assist MoTC in the planning and organizations of the stakeholder workshops to discuss the findings and to reach a consensus of the recommendation of the report on ZID before it is finalized and presented to all stakeholders.
21. Relevant Reports: To facilitate the work of the consultants, MoTC, shall grant access to copies of any relevant reports prepared internally or by outside consultants.
22. Consultants’ Obligations: The consultant shall be responsible for meeting all costs of office operations, housing, accommodation, supplies, communications, secretarial services, document translation, and logistical services. The consultants shall provide their own computing and printing equipment and will be responsible for the photocopying, fax and other services. The services shall be carried out in accordance with generally accepted principles and standard of professional practices. Travel and transportation within Harare shall be the responsibility of the consultants.
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