Investors shun Zambia’s energy sector . . . Want to know true cost of producing electricity

By Jeff Kapembwa

LUSAKA – Mining companies are not ready to invest in the Zambian power sector until its true cost is established to ensure investors make real returns, the country’s chamber of mines has expressed.

Zambia has in recent years been grappling with power deficit, which resulted in the country’s power utility ZESCO rationing energy to consumers, including the mining sector.

The Chamber of Mines of Zambia’s president, Nathan Chishimba, says despite repeated calls for private power producers to enter the energy sector, it would not be feasible to do so unless the cost of power production is determined to establish the real returns on investment.

He stated that while the country has managed to produce about 770,000 tonnes of copper in 2016, falling short of the one million target envisaged spurred by various challenges including policy shift, power outages and the unfavourable copper prices, Zambia’s electricity costs remains a “defining issue”  for the mining sector this year and              beyond.

The mining companies in Zambia consume over 50 percent of the 2,317 megawatts of power generated in the country. The country is second only to the Democratic Republic of Congo in red metal production in Africa, and among the top 10 copper producers in the world.

Last year, Zambia rose to seventh position from an initial ninth top global producer, having mined 708,000 tonnes as at August, with DR Congo having mined 850,000 tonnes, according to Invest News.

Chishimba says while the mines are keen to agree on the proposals by the Government to migrate to cost-reflective tariffs and ensure the sector pays a premium for power usage, “there is need to know the latest findings on the cost of producing power”.

“At present, the cost of producing electricity in Zambia is not known, as the last study done for ZESCO was 10 years ago, in 2007. However, a new study, funded by the African Development Bank, is expected to commence in the course of 2017.”

Chishimba says it was “absolutely crucial” that the findings of this study be the basis for both tariff reform and sector reform.

“Zambia needs a revitalised, reformed power sector able to deliver cost-efficient, competitively priced electricity to grow the economy, employment and disposable incomes,” says Chishimba. “Bringing this about is a mammoth strategic task whose effects with be felt decades from now. It must be done properly.”

Currently, mining companies are in discussion with the government regarding high higher energy tariffs.

Finance Minister Felix Mutati in his budget statement noted that while the government planned to raise electricity tariffs to reflect production costs by the end of this year, it would be folly to let consumers pay for production inefficiencies.

Mining companies contend that while the government sought to revise the current cost of providing power, the proposed electricity tariffs at Zambia’s newest power projects were more than 20 percent above global benchmarks established by the US Energy Information Administration.

“This now suggests that Zambia’s electricity is not being produced efficiently by global standards, or there is a lack of transparency around the way in which tariffs are calculated,” Chishimba says.

According to the chamber of mines, Zambia needs a revitalised, reformed power sector that is able to deliver cost-efficient and competitively priced electricity to grow the economy.

Meanwhile, Zambia has spent a staggering US$480 million to import power, including from Mozambique to meet the shortfall, Energy Minister David Mabumba has disclosed.

Mabumba says plans are underway to review energy tariffs in the sector to lure foreign capital from the private sector and entice investment from outside power financiers using bankable measures including debt financing, grants, loans and other sources of funding to construct and develop new hydro power plants as well as bio and solar energy projects to bolster energy generation.

March 2017
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