By Kennedy Mupeseni –

HAVING cost-reflective electricity tariffs has the potential to attract a lot of investors in the energy sector.
But how is this attainable considering the country’s household ability to access electricity if the cost reflective factor is at play?
Stakeholders in the electricity industry have long been calling for cost-reflective tariffs in the country to attract more investment in the sector.
In Zambia, Zesco carries almost all the functions in the electricity value chain.
Experts say the public electricity company, has continued to have one of the lowest electricity tariffs in the Southern African Development Community (SADC) region and yet it is viewed by domestic consumers as one of the most expensive.
They contend that the low tariffs have been a stumbling block for the entry of Independent Power Producers (IPPs) as well as continuous maintenance of Zesco’s infrastructure.
The relatively low tariffs have hindered investments in new generation and transmission projects and thus affected energy supply and security.
It is important to understand the challenges that Zesco faces in balancing its roles as a viable commercial, revenue making entity on one hand and as a public service provider on the other.
This requires profit generation as well as providing adequate electricity to satisfy the nation.
Statistics have shown that electricity demand outstripped supply and this led to power deficits during peak hours, hence Zesco resorting toloadshedding.
Recently, former Zesco managing director Cyprian Chitundu presented the proposed commercial tariff increase with frozen domestic consumer tariffs to President Edgar Lungu to achieve cost reflective tariffs.
Mr Chitundu said that mining companies should be compelled to purchase their power at a new and current cost but noted that existing bulk supply agreements prevented the power utility from achieving that goal.
President Lungu approved the proposals by Zesco to freeze domestic consumer tariffs for the next 24 months and to adjust commercial consumer tariffs to make them cost-reflective.
He said Zesco should proceed quickly to implement the proposals because the suggestions were pro-poor.
On the other hand Mr Chitundu appealed to Mr Lungu  to allow the company enforce commercial agreements and enable it recover US$110 million that Konkola Copper Mine (KCM) owes the power utility.
He Says KCM was adamant to pay the outstanding electricity bills.
“The company’s revenue base had been affected due to failure by some mining companies to settle their bills. Some development agreements that were meant to attract foreign investments were against the commercial interests of Zesco.
“The situation where mining firms pay low electricity tariffs at the expense of domestic consumers is one such example because it affects the financial viability of the company.
“Your Excellency, also it is unacceptable that the mines are being subsidised by domestic consumers,” he said
Zesco has further revealed that the company is spending about $5 million annually to subsidise commercial entities including the mining industry, which are the largest consumers of electricity in the country.
Zesco director finance Rodgers Chisambi says the company spends $5 million every year to subsidise commercial entities such as the mining industry who consumes 50 per cent of electricity in the country.
Mr Chisambi says the only way to achieve a sustainable cost reflective tariff, was to resolve the price differential system for electricity tariffs to stop subsidising commercial and industrial entities in the country.
“We are buying power from independent producers at a very expensive price and selling it at half price to the mining company.
It is this risk that we need to share with you the Member of Parliaments that is why the issues of tariffs have to be resolved now.
The price differential has not being resolved and we cannot continue to subsidise the commercial entities including the mining companies,” he said.
He says this would enable the commercial entities to catch up with the domestic customers on the tariffs.
Domestic customers consume only 20 per cent of the electricity generated by Zesco.
The proposed commercial tariff increase has been necessitated by various factors including inflation, the need for system and customer base expansion as well as the high cost of importing equipment.
It is believed that cost-reflective commercial tariffs would allow Zesco to earn additional income hence improving on generation, distribution and transmission infrastructure.
This will lead to improved electricity supply for the nation.
Striking a balance between domestic consumers and commercial entities in terms of tariffs adjustments is going to be a challenge.
A local think tank, the Policy Monitoring and Research Centre (PMRC) thinks the adjustment of Zesco commercial electricity tariffs should be accompanied by intensive monitoring and evaluation.
This will increase access to reliable energy and revenue for the power utility company.
PMRC head of monitoring and evaluation division Salim Kaunda states that should be supplemented by communication of how the expected increase in revenue will translate into increased access of reliable energy to the citizenry.
“The Energy Regulation Board (ERB) should strictly assess Zesco’s operational efficiency and performance based on Key Performance Indicators (KPIs) and targets of increased supply, thus providing adequate electricity to consumers,” Mr Kaunda says.
This would promote steps towards cost-reflective tariffs, which provides an attractive environment for IPPs and other investors.
With adjustments in commercial tariffs, the challenge for Zesco will be to ensure that the increase in revenue translated into significant
increase in generation, transmission and distribution as well as better delivery of services.
Economic growth is synonymous with energy access and the ability of a country to meet its wider development objectives is largely determined by access to reliable energy.
The Government’s decision to allow Zesco to freeze electricity tariffs for domestic consumers for two years is a commendable policy decision.
PMRC believes that adjusting commercial tariffs to cost-reflective levels will have a positive bearing on the energy sector and the
nation as a whole.
Mr Kaunda hopes that the hike of the electricity tariffs will not be used as an excuse by commercial entities to increase prices of goods and services because electricity is just one input into the production process.
Commercial entities have also been benefiting from the reduced fuels prices and this has slightly relieved the transport costs.
PMRC further states that Government and all stakeholders involved should ensure that the development agreements with commercial entities support the business interests of Zesco and this will allow for an enabling operational environment.
Electricity Information Agency (EIA) on cost-reflective tariffs are unit charges set to reflect the economic cost of producing power.
This implies that an electricity utility company can set an end-price to the consumers that reveal the true cost of producing the power.