By Jeff Kapembwa
Lusaka -Plans by Zambia’s energy provider, Zesco, to review energy tariffs by 91 percent, a migration to cost reflective levels as demanded by the Southern African Power Pool, has raised debate with players expressing different opinions.
The power provider, in its application to the Energy Regulation Board (ERB) for review of the commercial and domestic retail tariffs, seeks an average US$0.47 cents/kilowatt hour to US$1.94/kilowatt hour under the country’s Electricity Act.
Under the proposed tariff rates, commercial tariffs are upped between US$1.07/KWh and US$1.85/KW/h from an average US$0.54 cents KWh. Social service tariffs are proposed to rise to an average US$1.19/KWh and US$203/KWh from US$0.49/KWh and US$82.84/KWh respective by 1 May this year, barely a year after the company increased rates by 75 percent.
Bulk distribution tariffs have been proposed to fetch US$64.02/KWh and US$0.58KW/h respectively as new tariff to be introduced. Zesco projects to generate up to ZMW 16,061 million (US$1.3 million) in revenue in the first full year of its implementation for the company. It hopes to generate US$5 billion in the next few years if tariffs are executed.
Zesco argues the reviewed tariffs would defray operational costs and service its debts. The company wants to raise its profile as a regional power hub by the year 2025, and lure all regional member states to import power from Zambia.
The company owes independent power producers about US$770 million, and it seeks to offset various debts accrued from projects underway or completed using debts secured from various creditors.
The proposed tariffs, it argues, were not done out of “sheer greed but the need for resources to undertake capital projects, including procurement of machinery”.
It needs to undertake construction and refurbishing energy projects as demand for power within and outside Zambia rises above the generated 2,300 megawatts, says managing director Victor Mundende.
In a submission to ERB, Zesco says the review has been necessitated by the need to raise an average US$2 billion to raise resources and contribute towards the US$6 billion Batoka Gorge power station and raise capital for the Kafue Gorge project planned for completion in the next two years, all needing to assist bolster power capacity.
This, Mundende argues, will assist the company migration to cost reflective tariffs by this year as demanded under the SAPP average limits and raise to at least US$0.10/KWh from the current US$0.6 KWh. The energy sector has failed to attract investment since 1996.
Zambia has been operating at an average US$0.6 KWh compared to neighbours, fetching an average US$0.12-US$0.16 KWh. Zambia’s tariffs are among the lowest in Sub Saharan Africa and like Angola, charged around US$0.6 KWh.
Rwanda charges an average US$0.16KWh, Tanzania, US$0.14/KWh with Namibia and other regional neighbours charging between US$0.16/KWh-US$0.19 KWh, far lower than Southern African Power Pool (SAPP) set benchmarks.
But some players have accused the power company of failing to sustain itself financially because of its bloated workforce. They claim Zesco is the government’s “cash cow’, but the company has refuted this. Players have since demanded the belated Cost of Service Study report to determine the real cost.
Patrick Mwila, director for strategy and corporate services, argues that the call for revision of tariffs is urgent and the company could not wait for the delayed CSS report as it would risk plunging the country into darkness and affect its sustainability.
“We said we would wait for the CSS which we expected to be finalised by December last year. The nation cannot wait. If we did that, perhaps you would even say we are being irresponsible,” he says.
Zambia is a developing nation and its population does commensurate with what is produced. Districts are now beyond 100 and the company is expected to raise energy output to 51 percent of the people before 2030-all needing money.
“We need people, we need resources, so Zesco is not a static business; at every moment, we are looking at the needs of the economy and we must expand, hopefully to meet the requirements,” Mwila argues.
But various players have maintained the review was not justified in the absence of the CSS. President Edgar Lungu has since directed the company to defer the proposed tariff review to allow for consultation.
Proposals were immature at the moment and needed to be waived until further notice to allow for broader consultation, said President Lungu, in a statement issued through Energy Minister, Mathew Nkhuwa.
Johnstone Chikwanda, one of the energy experts, has defended Zesco’s intentions owing to the escalating cost of energy equipment and the need for the company to provide reliable power.
Although he does not understand the parameters leading to the company’s adjustments, Zambia’s tariffs were unattractive to attract credible investments to partner with and provide additional solar, biomass and other forms of energy and raise the profile to over 5, 000 MW provided capacity.
Zambia National Farmers’ Union (ZNFU), the country’s largest farming group, said it was worried at the proposed tariffs, fearing it will increase cost of production of irrigated crops including cabbages, tomatoes, kale, and wheat, among others.
A knock-on effect on all major inputs and commodities was expected and in turn could lead to some farmers failing to produce and running out of business.
“We shall remain open for consultation as we together strive to grow our agriculture and economy,” Jervis Zimba, the farmers’ boss, said in a statement.