Power tariff hike inevitable
Published On November 11, 2015 » 1661 Views» By Administrator Times » Opinion
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THE proposed hike in electricity tariffs by Zesco may seem outrageous, but given the power problems Zambia is facing – due to natural causes – it is imperative.
Truly, there is a huge need for investments into the hydro-electricity production as well as in the provision of the alternative sources of energy.
To achieve that, Zesco needs more funds, which at the moment can only be through increased tariffs, as no Foreign Direct Investment (FDIs) can be attracted to the sector given the current low tariffs.
Over the past few years, experts, including those from within Zesco, have been belabouring the point that, to attract more local investments and FDIs into the sector, there was need to arrive at cost-reflective tariffs.
This is the only way other potential players could be motivated to stake their funds into the sector.
Electricity tariffs have remained below the cost-recovery levels for far too long and that reduces any incentive for long-term investment in generation and transmission.
At $0.03–$0.04 for a kilowatt per hour (kWh), Zambia has some of the lowest power tariffs in Africa.
For instance, the neighbouring Namibia charges as much as $7.83/kWh while Malawi’s end-user tariffs are around $4.47/kWh.
Currently, neither local investors nor foreign ones can be attracted into the sector in Zambia at the current low electricity tariffs.
Having remained low for some time now, Zambia’s power tariffs are capturing only about 40 per cent of the historic costs.
Hence, the power sector today is subsisting on the investments of the past.
The Government is reportedly keen to change this scenario by considering a significant rise in the prices charged to consumers – which are currently being effectively subsidised – to enable the power company invest in more power projects.
This matters because as the power crisis unfolds it compounds the macroeconomic challenges like the fiscal deficit, currency depreciation and low copper prices.
It is also correct that direct revenue losses for Zesco are estimated at over $170 million from reduced sales to customers and distributors.
This figure is still rising as more and more power is imported.
At this alarming rate of loss of income, Zesco’s future investment capacity is definitely affected. The situation also potentially exacerbates the firm’s existing funding deficit.
Since Zesco has began importing power to cushion the deficit, following Government authorisation, it is estimated that over US$60 million more than its present funding gap is to be spent  by end of December 2015.
This means that the overall financial loss to the Government is over US$300 million.
Equally, if Zambians want Zesco to survive and continue providing the power, which is needed for continued national development, there is no option but to support the proposed increase.
The electricity revenue is Zesco’s only sustainable source of income.
The sad reality is that, as long as electricity tariffs remain below the cost recovery levels, the private investors will continue shunning the sector, fearing that the investment will generate losses.
Therefore, the tariffs have to go up to cost-reflective levels in 2016 and beyond!
Crucially, the new prices must be put forward as part of an overall policy package.
We feel that the increment is, therefore, not debatable, but what could be, is the implementation of the increment.
Probably, as a cushion and an attempt to enable the productive sectors of the country, like the agriculture, not to collapse, Zesco could consider the request to effect the increment in a phased manner.
We agree with the Consolidated Farming Limited (CFL) and the Zambia National Farmers Union (ZNFU) who requested the Zesco to increase the tariffs gradually.
This will allow the productive sectors in the country to effectively adjust and avoid economic shocks.
Otherwise, the increment is inevitable! OPINION

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