By DAVIS MULENGA –
The conventional wisdom by the national power utility company, Zesco Limited, is that the way for the energy sector to flourish was to implement cost-reflective tariffs.
Hence, the implementation of a massive 75 per cent energy tariff hike.
But consumers; from domestic, agriculture to industrial; are concerned about the adverse effects of the development.
It is not hard to understand their concerns.
The lifeblood of any marketplace is liquidity.
One of the effects of the recent power hike will be the generation of a phenomenon called galloping inflation.
This would ultimately push down production output by industries as consumer demand declines.
“Everything whose production involves electricity; this includes agriculture; will see its price up.
“With the price of everything going up, we will have a phenomenon called inflation that will push production down,” says Richard Mbewe, a financial analyst and management expert.
This forces the need to seek alternative approaches that provides real economic value rather than destruction – something that will require Zesco to achieve cost-reflective tariffs without creating shockwaves in the economy.
For context, one hallmark of Zambia’s economic development has hinged on the steady availability of power at competitive rates.
This competitive tariff offsets some of the cost disadvantages, which emanates from Zambia being a landlocked country.
Therefore, it is not in contention that a regular supply of electricity is essential for maintaining a strong national economic growth.
For illustration, some estimates show that for every percentage of economic growth, power generation capacity needs to grow three to four times to sustain the levels of growth for years ahead.
It is not also in dispute that for Zesco to efficiently provide energy to industrial, commercial and domestic users, it needs massive investment in power generation.
This could be achieved by attracting investors to a mix of economically feasible options such as hydro, thermal and renewable sources of electricity generation.
The fact that the massive investment required in increasing power generation demands a more predictable market where demand grows and is underpinned by solid social and economic factors.
Herein lies the conundrum of the massive power hike. Is there going to be consumer growth under such circumstances?
The answer is a resounding no.
Business behaviour would so confirm this as manufacturers, who include millers of the national staple food – mealie meal – increase their prices to recoup the high investment in production.
Now, given that the primary goal of businesses is to cut the cost of production so as to profitably offer the consumer affordable prices, this would be unattainable under the circumstances.
Although a review of power purchase agreements with private power producers (PPP) represents a big opportunity to gradually move to cost-reflective tariffs without causing shock-waves in the economy, it has hardly got on the agenda.
According to the proponents for a gradual and less aggressive power hike, who include, among others, the Zambia Association of Manufacturers (ZAM), the review would inform what the real cost of power is.
Relying on figures suggesting that Government purchased power from PPPs at prices that ranged from US$0.09 to US$0.11 per kilowatt-hour (kWh), the proponents have made startling revelations.
What is even more revealing is that the proponents researched into thermal power production that was more costly than hydro.
A perspective on India offered compelling findings.