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Saturday, May 1, 2021

ZESCO’s 66% tariffs hike: Recipe for Poverty Enhancement

Columns Feature Column ZESCO’s 66% tariffs hike: Recipe for Poverty Enhancement

By Beston Chitala

ZESCO, a monopolistic power utility, has consistently asserted that it does not operate profitably on account of low tariffs to justify the tariffs hike. The 66% tariff will be introduced with “approval” from the Bank Governor and ERB in spite of opposition from ZACCI and a Professor of Economics at UNZA.

The Bank Governor and ERB should understand that raising tariffs will have implications on a fragile economy. The Governor’s argument is that raising tariffs would attract investments to the electricity sector. When the same thinking was applied to the mines and the new tax regime introduced in 2008, accruing mining tax revenues were expected to stimulate economic growth. Unfortunately, the Government recently reneged by suspending the new mining tax policy. While the idea is intended to prevent greedy mining companies from closing shop, it is also envisaged that lower tax regimes will act to stem capital flight as mining companies scale down their operations and in some cases cease operations completely. In the same vein, one would expect similar economic rationale to be applied in the case of ZESCO tariff increases.

It’s common knowledge that the cost of electricity generation in Zambia is one of the lowest in the region but Zambians pay higher tariffs than those obtaining in neighbouring countries whose cost of generation is higher. This is expected where operational inefficiencies and personal interests are factored into the equation. However, one wonders what economic model is applied to arrive at such an exaggerated 66% increase. It is shameful that ZESCO is allowed hike tariffs to cover their inefficiencies and also as a scheme to award themselves unjustified salary increments and benefits.

It is indisputable that the 66% tariff hike will negatively impact the economy, especially consumers at household level. These consumers will be required to shell out 66% more than they have in the past. Overall, spending will be hit hard enough to cause possible reduction in total household expenditure on food. Further, the new tariff will make electricity more expensive and less affordable, especially for the majority of households currently struggling to pay for electricity. Eventually, some consumers will be compelled to make hard choices: a meal on the table or electricity in their homes. ZESCO’s Managing Director has the audacity to ask Zambians not to construe the proposed tariff hike as a way to financially disadvantage them

Finally, the proposed tariff will affect business and commerce alike. As a consequence, upward price adjustments to offset the new tariff are inevitable. Such myopic and ill-conceived tariff hikes are more likely to exacerbate poverty than stimulate economic growth.

The Alternative

Zesco’s must expand its revenue base by connecting more consumers to a supply and also make the current erratic supply reliable. A larger customer base will aid in the attainment of economies of scale and also accord room to tinker with the tariffs to make them affordable and beneficial to consumers too. Once this is achieved, it will be possible to effectively distribute the cost-recovery tariff among a larger customer base.

It will be meaningless to attempt to achieve economies of scale alone without instilling necessary fiscal discipline in the manner revenue is utilized. Therefore, the government must introduce a heightened degree of fiscal oversight to ensure that revenues are spent on important infrastructural power projects. While government oversight must be exercised to ensure financial discipline, temptation to tap the power utility’s revenues as a source of salaries for civil servants must be avoided.

32 COMMENTS

  1. Good observation. The hike is just too much for now taking into consideration the job losses and anticipated wage “freeze”.

  2. Zesco management must be changed. People with different ideas and ambitions must be brought in. Sisala has only one way of thinking at the moment which is increase tarifs and has managed to convice key people including the president. we need a new face who might come up with new ideas. At the moment sisala knows that all he has to do is increase tarriffs, give some money raised to MMD as a donation then he can keep his job Zesco is top heavy and only a new MD can change things. ZRA was top heavy but some positions have since been ambolished, like ther is no more VAT Commissioner and Finance Commissioner. we need the same at zesco

  3. Zesco must consider restructuring instead of hiking the tariffs.The Govt is supportive of Zesco’s move because not only is it getting excise duty it is also anticipating more funding to the party in power. Twa chula.

  4. I agree with some of the things in this article but I do not however agree with the alternative offered.

    Increasing the base will mean new investment in capital. Capital is expensive and will also have to be maintained which is also costly to the company.

    A better solution would be to go ahead with the proposed hike but to reduce taxes so as to make the proposed hike more affordable. This would mean reduction in business as well as consumer taxes. Maybe that is why the windfall tax was phased out.

  5. We cant support such calls. There is no way they can increase the tarrifs by 66%. Let them think about it again, otherwise RB is headed for doom

  6. Makes interesting reading. the hike indeed is too high! once this is increament is effected, everything will go up! there are many things Zesco need ed to put into consideration before hiking their tarrifs.Aint fair!

  7. Zesco must be careful. Electricity is not like fuel. People have alternatives and if zesco is not careful it will find itself with few customers as people opt for charcoal. Also zesco is likely to find itself with illigal connection

  8. In every economy, the Energy sector plays a vital role. Production costs will definately go up and various commodities, especiary foodstuffs will be increased for the producing companies to bring even. Already pipo are using less of stoves, gysers in preference of charcoal, gas and solar for lighting. The main problem is monopoly, mismanagement and polical interference when they obtain money for campaigns.

  9. I hope the text does not fall on deaf ears.Coming amidst economic turmoils,when people in their thousands are losing Jobs and some still struggle to pay their bills. The withdrawal of mining companies and others from investing in Zambia resulting in an upswing in power surplus, although for sure it reduces on the utility revenue base. However, should people be over burdened ,sujected to bearing Zesco staff salary increaments and heavy projects the utility is trying to embark on. We pay taxes on almost any thing even toilet paper. A zambian employee is heavily taxed and the reasons are so that goverment can realise money to fund developmental activities. Zesco’s projects included

  10. The cost of electricity is way to high at the moment.
    Feel for me a avery poor fellow in a very low income (VLI)
    Income Between 450pin to 700pin
    Rent 250pin
    Electricity 116pin
    Mealie meal 170pin 50kg
    School fees 300pin
    Alternative amalasha 3bags in a month 35pin per bag
    So this average person is not remaining with anything at the end of the month. He/ She cannot even by relish and other basic necessity such soap washing powder etc. Now considering this increment the average Zambian will not afford. Give people a break, we do not expect the government to accept such nonsense. The people have lost there jobs.
    They need a breather

  11. Goodmorning bloggers. I think we’ve discussed this matter on countless occasions and my opinnion remains the same. As long as >ZESCO has no competitors, the prices will continue rising. And why should investors invest in Zambia when the prices in the rest of the region are higher? So it’s a vicious cycle that will keep a hike on the tariffs UNTIL the government introduces a favourable policy to allow competition in the energy sector.
    I also disagree with Beston Chitala who is comparing this situation to the problems affecting the mines. I will later explain why.

  12. For a long time,Zesco has resisted competition coz they know they will be outdone just like what happened to its sister company Zamtel.A mozambican power utility company offered to supply the eastern part at a cheaper price than Zesco citing its close proximity to the region,but Zescolo protested to Cabinet abd the move was blocked.These guys know they are really incompentent.secondly,there is to much political play in the running ot the utility abd worse still middle and lower level managers have no authority to carry out their duties diligently.

  13. This behaviour by ZESCO is ancient and archaic. Why should Zambians be pushed to go back to the use of coal, charcoal and firewood for light and heat. By the way these can not power our PCs ladies and gentlement. The cost of electricity production in this country remains one of the lowest in the entire Southern Africa

  14. There is no need to increase the prices, a lot of pipo can not afford to pay for anything anymore. Every thing is going up. With this Global Recession or credit crunch, the poor countries are the most hit hard Even the donors have stopped to help . The last thing we need is the increase in fuel.
    Get a grip.

  15. Firstly, I would like to commend #13 for a nice outline of model spending in Zed. On the Article, most comments make sense, but I have an alternative for ZESCO.

    About “It is shameful that ZESCO is allowed hike tariffs to cover their inefficiencies and also as a scheme to award themselves unjustified salary increments and benefits”, I totally agree with this statement.

    A graduate worker in GRZ earns about 1.5 mitas per month while his/her ZESCO counterpart gets paid 6 mitas per month. How then can a ZESCO employee seek to have more pay by increasing the monthly expenditure of his GRZ working counterpart? Where are the morals? This “the rich getting richer while the poor poorer” way…

  16. I hope all the minister of energy is going to put some sense into the Zesco pipo. they only care about themselves, I blame Dora with her crew, there selfish so and so.

  17. 18 continued.
    … way of doing such things is very unfortunate.

    The alternative is that let ZESCO increase the electricity tarriffs by 10% for the next 6 months and see who this will work. If people manage, then ZESCO can increase then electricity tarriffs by another 10% and check how things go. Eventually with respect to a considerable time frame, step-size increments of electricity tarriffs for specified periods of time will yield positive and needed results.

  18. With this Global recession m, most countries have frozen their Electricity or even reduced the prices, but ba Zesco is doing the oposite, why?

  19. I now support ZECO, increment is not even high, it is very small. Let ZESCO increase up to 100% so that investment in the energy sector can flow .This is the new investment paradigm. This will also help us to be energy innovative as Zambians. We will look for other cheap alternative sources of energy than always depending on ZESCO…that’s why ZESCO atumpila mukulunda ama bills. The other point is that Zambia needs to be turned into a desert so that we can develop like our friends-the Arabs who live in deserts. ZESCO don’t listen to us, just go on dear so that we start using solar and charcoal energy.

  20. Do these pipo evn know what they are doing, one says Chibamba Kanyama says inflation so high, while ba Zesco is busy increasing the Electric Tarifs, This doeas not make sence. If inflation is high, then prices should go down, thats how it wokrs

  21. WHERE ARE THE OPPOSITION PARTIES AND NGOs THAT CLAIM TO STAND FOR THE PEOPLE OF ZAMBIA ??? THEY WERE SUPPOSED TO HOLD DEMONSTRATIONS AGAINST THE PROPOSED ZESCO TARIFF HIKE. UPND AND PF WERE SUPPOSED TO BE IN THE FORE FRONT FIGHTING FOR THE COMMON MAN. WAKE UP ZAMBIANS!!!!

  22. Mwe Bantu, the THE OPPOSITION PARTIES AND NGOs are at home waiting for the pipo to walk and talk for them , the so sick.

  23. No electricity tarriff increase has benefited the common man in this country. So, why should it do so now? I support the article in its entirity and without reservations. Do you realise just how much 66% would mean on the already cash strapped Zambian?

  24. Pa zed?
    Kayamwe?
    Guys can someone kind enough explain to me the “improving economy:”Does it mean manslaughter,hunging to poverty or hunger till you die or some kinda animal to be fattened?Fatening calves?Am so sorry.This word called economy might have its own meaning in my land,so the educated dudes still follow the dictionary.Please search for the new one,it might be offering quite define definitions.This would lead to various side effects like,kuyambana,misunderstaanding the gov,and the like ooops

  25. This issue has been debated for a long time. The Opposition are quiet because they know we need higher tarriffs. It is better to tighten our belts now and invest in power generation than to let the situation get worse. Already we have rationing. There isnt enough electricity for everyone. We just need to face the facts and bite the bullet. Yes households will be hard pressed but doing nothing is not an option here. No one has offered a viable alternative. We all want a brighter future for our children. We blame KK & FTJ for not investing in power for today. Let not our children accuse us of the same. Tough times require tough decisions and strong leadership. Not wimps.

  26. Let them Hike. Who will pay the bill currently there is more outstanding with customers who are not paying with the hike more will join.

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