You are currently viewing Proposed electricity tariffs: Pros and cons

Proposed electricity tariffs: Pros and cons

IN the world we are living, nothing happens without electricity. Companies cannot pump water or treat waste material without it.
Industries cannot use there machineries to make products, and people cannot communicate since batteries in vehicles and appliances such as mobile phones are charged using electricity.
So, it is inevitable that Zambia should implement tariffs that reflect the true cost of producing and supplying electricity, if the country’s economy is to continue experiencing double digit growth rates that have been recorded recently.
It is also an undisputable that even opponents of the proposed 75 percent tariff increase have realised the importance of having a cost reflective system that will attract huge investments from the private sector to ensure reliability and security of supply.
To sustain the positive economic growth rates, it requires energy to power the wheels of production, and this energy must be produced and supplied at its actual cost of generation, which has not been the case in Zambia since Government subsidises the production of electricity.
With an installed generation capacity of 2,600 megawatts (MW), and 99 percent been hydro [due to poor rainfall recorded recently], there have been interventions to embrace alternative sources of power, such as solar, geothermal, wind, biomass, among others.
However, even these alternative sources of energy will not attract investors if the tariffs remain low, averaging K0.15 (5.64 US Cents) per Kilo watt, which is among the lowest in the region whose average is over 10 US Cents. Therefore, Zambia’s electricity generation sub-sector has never been considered a lucrative business.
This partly explains why Zambia’s last hydro power station, the Kariba North Bank was built in 1976 with an installed capacity of 720MW and was upgraded in 2013 to extend its capacity to 1,080MW.
As a result of this inertia, to develop new power plants last year, the country experienced increased load shedding, forcing Government through Zesco Limited to import expensive electricity. Construction of new power plants was mooted.
Justifying the tariff hike, Zesco managing director Victor Mundende says the benefits will include among others the improvement of security of supply through attraction of investment in power generation and energy mix.
“The tariff increase will ensure that Zesco has adequate revenues to continue buying the electricity shortfall from the local independent power producers as well as imports from the region,” he says.
Mr Mundende argues that Government cannot continue subsidising Zesco because the company is capable of meeting its obligations if allowed to operate as a business by charging correct tariffs.
“If there is no tariff increase Zesco will not be competent enough to supply electricity at required quantities in an efficient manner. How does Zesco provide better services when it buys power at 10 US cents and sell at four US cents?
“This shows that someone [Government] is paying for the difference, yet the company can sustain itself if it charges the right tariffs and the public resources can be spent on other need areas,” he said.
Mr Mundende said economic activities in the country have outstripped power generation capacity.
“At independence, we had about three million people, but now we are over 13 million. And in 1992, Zesco had 200,000 customers but now it caters for 900,000, so the company needs to grow by meeting demand of customers,” he said.
Zesco has since applied to the Energy Regulation Board for approval to hike electricity tariffs up to 75 percent across various consumer categories, with an initial 50 percent increment to be effected on May 1, this year and an additional 25 percent on September 1, this year.
Off course, moving to cost reflective tariffs will devastate factories, farms, the mines, residential and commercial users since the proposed increase is too high to be absorbed, as evidenced by comments from the stakeholders.
Zambia Association of Manufactures (ZAM) president Roseta Chabala says the proposed hike will negatively affect the performance of the industry and make local products uncompetitive both on the local and international market due to the high cost of production.
“The association is not opposed to cost reflective tariffs but it should be done in an appropriate manner that allows industries to make adjustments and adapt without cutting down production,” she said.
And Zambia Chamber of Mines president Nathan Chishimba says knowing the true cost of producing electricity efficiently in Zambia is the first step on the road to cost-reflective tariffs.
“At present, the cost of producing electricity in Zambia is not known, as the last study done for Zesco was in 2007. However, a new study funded by the African Development Bank is expected to start this year.
“The mining industry has never shied away from the reality of cost-reflective tariffs. We are fully committed to tariffs that reflect the cost of providing electricity in an efficient, transparent, and internationally competitive manner,” he said.
And the Zambia National Farmers Union says the tariff hike will be too high to be implemented at once.
“We have farmers on a monthly fixed charge of K288, 000, but this will increase to K683, 000, which will be a big jump on the bill of farmers,” it stated.
And Federation of Free Trade Unions president Chingati Msiska says the increase in tariffs will pose serious financial strain on the workers.
Other electricity consumers have challenged Zesco to consider other options such as reducing staff costs instead of relying on increasing tariffs to finance company projects.
Zesco currently provides 2,000 monthly units freely to employees as part of the conditions of service.