Zambia’s ZESCO demand 75 percent electricity tariffs hike

Apr 18, 2017
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By Jeff Kapembwa

Lusaka – The Zambia Electricity Supply Corp (ZESCO) is hastening to raise over US$9 billion to develop new power plants to ensure power security in the copper producing country.

Energy Minister David Mabumba said the power utility company is broke and is relying on state subsidies to sustain operations. Hence the urgent need for ZESCO to raise the money to construct new energy infrastructure including the Batoka Gorge, Luapula River Gorge and the US$2 billion Kafue Gorge Lower by 2024.

As a result, ZESCO seek to urgently implement cost reflective power tariffs, starting with an increase of 75 percent. The increase will be introduced in phases with a 50 percent hike taking effect on May 1, and the remaining 25 percent on September 1, 2017.

The power company has submitted proposals to the Energy Regulation Board (ERB) for permission to migrate to cost reflective tariffs. Meanwhile, mining companies and other industry operators have been asked to start paying for power at an average US$0.9 cents a kilowatt hour as of January this year from about US$0.4 cents a kilowatt hour.

In justifying the massive hike, Minister Mabumba contends that ZESCO, is relying on the depleted Government treasury for subsidies to remain sustainable and has not built any new hydro power plant since 1976 “hence demand is outstripping supply”.

The power company is banking on various power projects including the 2, 400 megawatts Batoka and the Luapula River power plant with 1,200 megawatts, both scheduled for completion in 2025

ZESCO Managing Director Victor Mundende contends that plans to migrate to new tariffs have been spurred by the increasing demand to re-invest in the sector and replace various ageing equipment and make Zambia an energy net exporter in the region and beyond.

Estimates by ZESCO shows that it needs to raise an estimated US$502 million to buy 4,543GWh of energy from Independent Power Producers (IPPs) this year alone.

But it is lacking resources to undertake that as the average cost of these purchases is US cents 11.04/kWh, against an average selling price of US cents 3.3/kWh hence the need for new tariffs that will also attract new independent power producers.

“The high cost of power from IPPs needs to be supported by an adjustment in tariffs so that ZESCO can continue to make these purchases,” Mundende said, while justifying energy Minister’s argument that the company cannot rely on “begging” from the treasury which is already helping with an average US$40 million monthly on power procurement to sustain industrial operations.

“ZESCO is broke right now, it can’t even borrow money from any bank because it will not be able to pay back the debt,” he said, while arguing that a proposal to the Energy Regulation Board to adjust electricity tariffs by 75 percent is therefore progressive.

But several players are gnashing their teeth over the planned revision of tariffs claiming that it will lead to joblessness and increased poverty levels in Zambia should the new tariffs come into effect.

Many companies have already indicated desire to downsize their labour to remain sustainable.

The Civil Society for Poverty Reduction, Millers Association of Zambia and some mining companies expressed their opposition to the impending review of tariffs next month.

African Consumers Union has described the proposed tariff review “suicidal” noting that consumers should not be burdened with other high costs as they are already bearing the high cost of living, says its First Vice President Muyunda Ililonga hinting that people are already struggling to survive.

Energy expert Johnstone Chikwanda has supported ZESCO’s intentions saying the measure will boost the country’s capacity to produce and supply power sustainably.

Chikwanda, a renowned energy expert and leader of the Energy Forum Zambia argues that ZESCO’s migration to cost reflective tariffs would significantly cut Government electricity subsidies, enabling the treasury to channel resources to other needy sectors.

Without energy sector reforms, he said it would also be difficult for the country to attain the United Nations sustainable development goal number seven on universal access to clean, sustainable and affordable electricity by 2030.

“Zambia’s electrification rate still remains one of the lowest in the world although it has been improving,” Chikwanda further argues adding: “This is more the reason energy sector reforms must be supported”.

The amount in subsidies Government had been spending on electricity has gone to supporting industries more than households, hence the subsidies had not significantly assisted in increasing access to electricity at household level.

CSPR advocacy and communications officer Maxson Nkhoma has cried out loud noting it was unfair to impose such high tariffs on already facing a lot of economic hardships to survive.

“If allowed, it will bring about job losses for many Zambians…ERB should only allow the increase in tariffs in a phased manner that leaves consumers with space to develop survival strategies,” Nkhoma is further cited as saying by local media.

 

 

 

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