Board (ERB) offices
By Michael Chishala
The current mess at ZESCO with load shedding and all the politically induced problems there can be solved if courageous people can bite the bullet and make the right choices. I don’t know why we are beating about the bush and trying to complicate things.
The very simple answer to load shedding is to increase prices of electricity. More precisely, to stop government price controls in the energy sector by completely removing the power of the Energy Regulation Board (ERB) to approve changes in prices of electricity and leaving pricing completely and totally to market forces.
It baffles me why governments the world over think they can defy the most fundamental law of economics (Demand and Supply) by controlling prices. Economics 101 says that the price of goods and services fluctuate in order to bring demand and supply into an equilibrium. Tampering with the equilibrium by keeping prices artificially low causes shortages.
There is load shedding in Zambia because the price of electricity in Zambia is too cheap, relative to the demand for it, with supply not significantly increasing. There are too many households who can afford it and this high demand should ordinarily cause prices to rise until some households reduce their usage or else stop using it altogether, such that demand drops and eventually the supply becomes enough for those that can afford the higher price. But the government has fixed the price too low through ERB so there is not enough electricity to go round, hence load shedding.
The results are there for all to see. Industries have reduced production by up to 30% in some cases. No more heavy industries like mining or manufacturing are likely to open or expand in this scenario. They will be forced to scale back at some point. People and companies who could have been more productive are forced to periodically halt production and at night people end up sleeping. The result is reduced economic growth for the foreseeable future and ironically, a reduction in the ability to take electricity to more people in Zambia.
A rise in electricity prices and reduction of demand will mean industries and businesses will have enough electricity to produce and the economy can still grow. This would in turn lead to more investment in the electricity sector since the high prices would attract new players who want to make a killing. Ultimately, the increased competition would causes prices to fall and quality of service to increase.
Now, things in reality are not so clear cut because a reduction in demand for electricity also has consequences for productivity in other areas of the economy. For example, if the poorer households are consuming less electicity because they cannot afford the increased prices, they will be less productive, buy fewer goods and services and pay less taxes. They shall contribute less to the economy.
A rise in electricity prices will also mean prices of many goods and services will increase, including the price of copper produced in Zambia. Workers will begin demanding higher salaries and the result is increased inflationary pressures. Zambian copper exports will become less attractive which means less foreign exchange earnings and a weaker more unstable Kwacha. This is likely to translate into reduced government revenue.
We are in big trouble without a dramatic increase in electricity production, which is the ultimate solution. Keeping the status quo is bad, but increasing prices is also bad. I think the latter is a lesser evil and it will enable more investments in the energy sector to meet the current huge demand. It will also make alternative energy solutions like solar or gas more viable because the pricing will become comparable to power from the grid.
The current model of price controls is not sustainable because shortages are always worse than high prices. During the terrible UNIP days in the late 80s, you could not find essential commodities in the shops like sugar or soap, not matter how much money you had. Then in the MMD period after 1991, everything was available in the shops. All you had to do was make more money and this was a far better situation than the alternative.
Moreover, keeping electricity prices artificially low means there is effectively a subsidy from government which of course comes out of taxes. Subsidies are not sustainable in the long run. They are a waste of public resources which can be put to better more efficient use.
ZESCO needs to be split up into Generation, Distribution and Retail. The three companies should be privatized so that the new owners have an incentive to be more efficient and more responsive. Anyone should be able to start an electricity company and rent the grid from ZESCO Distribution to supply their clients after buying power from generation companies.
ZESCO Distribution being a separate independent company should not favour anyone thus ensuring good competition. It can operate under a law that prohibits it from favouring any electricity company in terms of pricing or any other practices that would give an unearned advantage to anyone.
Some Zambians fear privatization but I believe the case of Zamtel should put most arguments to rest. It was a huge mess, making millions of Dollars in annual losses under government until 2010 when it was sold to LAPGreen who turned it around in just a year. The monopoly of Zamtel was killed and prices of phone calls reduced. The successful privatization of Zamtel can be replicated in ZESCO. Zamtel was nationalized by the PF government in 2012 and has never made a profit since then.
Let me end with a slightly paraphrased quote from Albert Einstein.
“Insanity is repeatedly doing the same thing while expecting different results each time”.
The solution is to “kick” Edgar Lungu and his team out in 2016. He has no vision and does not inspire. I listened to Christopher Yaluma on Radio Phoenix yesterday and now understand why we are being Lungu-shed and why his Ministry is ordering wrong fuel for Indeni that has caused damages worth K10 million. Mr Yaluma is just dull, plain and simple.
It is comforting to note that the write in not part of our national think tank.
THIS IS NOT ONLY A FOOLISH IDEA, BUT ALSO A SELFISH ONE. HOW DO YOU THINK YOU SOLVE A PROBLEM BY INFLICTING MORE PAIN AND MISERY ON THE VULNERABLE CITIZENS WHO HAPPEN TO BE THE MAJORITY IN THE COUNTRY BY CHOCKING THEM FURTHER WITH HIGH ELECTRICITY TARIFFS. GIVE US ANOTHER BRIGHTER THOUGHT PLEASE, NOT THIS USELESS ONE.
It is very true that Mr. Yaluma is very dull although he has a degree in electrical engineering from Idaho University and having worked for ZESCO and ESCOM in South Africa. He doesn’t think like a seasoned engineer or creative engineer. Christopher Yaluma is a totally liability to Ministry of Energy and Water Development. He has totally failed in his duties. I would therefore conclude that to him being a minister is just a job, not a leader so is Mr Mukanga Yamfwa who is a mechanical engineer by profession and had worked for the mining industry. Having such people as leaders makes it impossible for Zambia to be industrialized. These guys think borrowing money anyhow is a way to industrialization. They do not even feel sorry when people are subjected to load shed due to bad planning.
The theory behind the article is great. However, recent growth in power demand has been brought by business and not normal households. Therfore households should pay tariffs that maintain the old infrastructure while the new businesses, including the new mines, should pay at new tariffs that can find new power infrastructure. We should do the obvious and simple, instead of complicating matters.
And how is this so called plan going to affect development in the country? Not even half of Zambia has access to electricity and you want to further hinder the poor access to power? Because let’s face it, increasing tariffs leads to this.
Think of brighter ideas to increase generation and distribution. Not this. This, in turn, increases productivity across the nation
And increase of the cost of electricity will result in increased level of productivity and lowering of prices in the supermarkets?
Simple idea of “simpleton” expert.
Please do not insult human intelligence Mr. Simpleton.
Its a good idea but how do you expect the public who have been used to using cheap electricity to reprocate? Notwithstanding, it sounds the best option as things stand now.
whoever wrote the article doesn’t live in zambia or he is out of reality.Increasing the price of electricity that not a solution, think of the majority citizen, only 30 per cent have excess to electricity. You should be looking at how the government can increase electricity supply, eg build more hyro dams, thermalpower, windmill Solar etc.
hydro dams will not be constructed if zesco does not have the money!
I totally agree with the writer of this article, we need to harmonize zesco and make it a source of revenue for the nation in the long run.
The writer is living in dreams or ideal theory of demand and supply. We have too many paper tigers who seem not to be in a real world, esp. Zambia. Think, some Zambian families spend less than a 1 dollar for meals per day. Increasing tariffs would indirectly affect these people so is increasing fuel price.
Guys, domestic consumers make up 10%< of the electricity generated. This economic model is a non-starter. A single SAG mill in a concentrator can consume over 7.5MWh of electricity (that is per hour). Kansanshi, Lumwana and Kalumbila all have SAG mills. Smaller ball mills consume between 0.5MWh and 3.7MWh. Those are the major consumers of electricity in Zambia. In addition, they have poor power factors, which results in "wasted power".
Finally we have someone that understands the truth of the matter!
When the price of something is cheap, people waste it.
If these clowns we call “leaders” understood the problem, they would do this immediately.
What would happen is-
1. People would immediately move to alternative energy, solar, wind, and generators.
2. Investors would find it profitable to build new hydropower plants.
3. All users would tighten up their efficiency. And
4. Zesco would have increased revenues to use for the development of new generation capacity
5. There would be enough power for essential users that are productive.
Shame that these Poor Fools are too dull to understand such simple concepts?
If the mines and little factories we have pay more for power, zambians copper and other goods will be too expensive.
the passage sim to be contradicting itself mwe.
Of course Patrick, you are spot on.
My latest estimate was as follows:
Power = 20%
Diesel = 15%
Explosives = 15%
Mill balls = 10%
Labour = 20%
Other consumables = 10%
Overheads = 10%
Of a typical Zambian mine’s operating cost. This will vary slightly from mine to mine.
The problem is a lot less economics but more a management and strategy/planning issue. Part of the problem is also government interference in managing Zesco.
Price hikes will not solve this problem.
Man, you are lost, to do anything, their must be a preparation, a foundation for you to reach your aim, we zambians including you , we have shown again and again that we lucky the need to prepare for something before coming into effect all we hope is that when we do this, hope this happens. It should not be the increase in Electricity that leads into inverting other sources Energy like Gus, but instead, prepare to have it, then afterwards, you increase the use of electricity, that will not be torture to us, but if you increase electricity,hoping someone will open up a gas plant, what if it will take 7 or 15 years to be functional?, people suffer?
When I was Connecting Power to My House, Connection Fee Was 1,780 kwacha. But Ruphia Banda Reduced it 50 Kwacha, meaning that all those fake or useless unplanned houses in the Compounds which can’t qualify for Power has Power now with a Prepaid Meter. How Many house holds Connected Power when it was reduced? The answer is plenty, hence this high demand of electricity. Some leave about six bulbs on the whole day. And Ruphia is Back bakolwe Batunde nafuti.
chali the engineer is right. mines and manufacturing industries are the major consumers of power in this country. our small SAG mills operate at 12MW per mill. A typical demand for one mine is between 100 to 150 MW. domestic consumers don’t need much. simple example, the population of zambia is 14,000,000. if the water requirement for one person is 1 lt per day, then u need 14,000,000 litres for all to be serviced. if u only produce 2,000,000 lt per day leaving a deficit of 12,000,000; even if you increase the price you will never meet the demand if you do not produce the required amount.
Monse nimwe mbuli,the simple solution is diversify,source source for fund to invest in solar farms and wind farms.Ni yanyoko Zesco
Ba Chishala give examples of where what you have just said has worked and everyone is happy. Energy price changes have an effect on everything this will trigger a spiral uncontrollable effect on all things.
I cant resist to comment on this one – Is the author of the article aware that the mines pay less than the domestic consumer? this is done on the pretext that the mines buy in bulk(Wholesale) while the domestic consumer is considered as a retailer.
There is also the issue of concessions for the mines which dates far back in the 50s when the mines put their money together to help the construction of Kariba dam which unfortunately has been passed on to the new mine owners now . This brought the middle men like Copper belt power company.
Has the author considered an ordinary person running a chicken run,barber shop etc.
They say You might be okay but think of others . The author is a very selfish person
Capitalism is for the very selfish
It looks like you have more knowledge on the issue than the empty tin chileshe.
Whoever wrote this article ni chipuba and do think using his brain but from behind.
Ba Chishala I read the first few paragraphs of your article and abandoned it. You are speaking the tired old demand and supply argument as if we all dont know it. The fact still remains that a developing nation cannot rely solely on demand and supply laws.
The government has to assist development and entrepreneuralship. Therefore the government subsidises energy because this is a major driving factor in GDP. Also for similar purposes, it MUST subsidise tele-communications. Zambia is not the only country facing loadshedding even africa’s most advanced economy South Africa is loadshedding-seriously so your reasons for Zambia’s loadshedding fall flat.
Interesting article though. Sounds good if only it could work without making a common man suffer.
The name of the author tells it all!
Increasing the price of electricity will not fill up the dam with water. It will even be more annoying if the price were to be increased while we are experiencing load shedding.
The solution is to:
1) Get rid of cadres in Zesco and bring in qualified people to run it.
2) ZESCO stops being the government’s cash cow.
3) Accountability of funds.
4) Reduce the number of employees in ZESCO.
5) Govt stop political appointments of the top position so that the MD is neutral.
6) Diversify sources of electricity.
Okay, but your question still stands. Will the water level increase with your solutions? Maybe I got him wrong but I thought the author meant that higher charges will lead to less demand and therefore no load shedding. However am not sure that would be the outcome.
In that case, your solutions will not fill up the dam either.
…this is an example of articles I do not wish to waste my precious time reading…just the title is enough to give me the drive to comment….surprisingly its that long… I wonder what is in it……but what ever it is, it full of rubbish I know…
….ZESCO and govt stand is that the reason for power shortfall is because of lower levels at kariba dam….a natural factor beyond their control….which they shamelessly sing about everyday……
…and someone thinks increasing tariffs shall automatically increase the water levels….and the blues shall end…how f00lish can that be…??
….the quickest solution is to cut off all exports of power…period..
…once upon a time, family cars, telephones, electricity used to be considered luxuries…now they are necessities..
The writer has good ideas and only the learned can appreciate that! There is nothing for free because someone somewhere will always have to work for in order to generate it!!
That is the problem with calling yourself an economist just after doing a first year introductory course. The law of supply and demand will only apply on private goods. ZESCO and Kariba have over the years been sponsored by the tax payer and the taxpayer will continue to benefit at a reasonable rate. If ZESCO is to charge economic rates, let them first refund us our contribution to its establishment and maintenance. The problem at ZESCO is not about the Keynesian or adam smith or michael todaro economics that you selectively apply to all situations. Its about management at ZESCO which has over the years been alleged to be chocking with cadre presence
Ok the Idea is ok, as your main worry beeing increased production costs and comodity like copper,, why not impliment your Idea side by side with development of industries to process the copper into fininshed products instead of relying on row material export, as has been the case, , It will take time but will be ‘long term’ profitable for Z.
The gap in the supply chain opens an opportunity for tomato selling graduates to exploit. WAKE UP AFRICA. DYNAMO manufacturing and equivalent innovatios. BUSINESS MEN and women preferring to fundpolitical activities can find such innovations for Africa TO move.
Ba chishala revisit your approach. When Zesco was set up, it was meant to provide a service to the zambian people not to exploit them with exorbitant tarriffs hence it being a statutory corporation. Simply because you are now an economist should not make you heart less. Zambia needs to grow in so many sectors and produce more economists probably better than you. Let the young ones also go to school like you did and even enjoyed cheaper power than it is today. In the mean time do a study on statutory corporations and there importance not just waffling and baffling.
The analysis leaves a lot to be desired and very misleading. Goods that are elastic in demand (that is to say if demand goes up and supply remain the same will cause the price to go up and vice versa if supply goes up and demand either remains the same or even go down then prices will come down to try and encourage people to buy the good). However, electricity has now become an inelastic good meaning it has come to be part of our daily lives especially with the rural electrification program that has been ongoing in Zambia for a long time now. In the inelastic situation the demand for electricity will still be the same even if prices goes down because the majority of Zambians have electric goods and thus must have electricity. So increasing prices so as to reduce demand is a fallacy
How do you connect low water and price increase.
Ask Kaunda what we did in 1988. We will remove PF by force if they push us.
On the ERB being abolished, tell me a country in the world that don’t have an Energy Regulatory board in some shape of form? As stated before, there some goods that cannot be left to just market forces due to being inelastic goods that does not diminish demand even if prices go up. To avoid Energy companies exploiting the masses for profit the regulators are in place among other to protect the customers and ensure that they behave as per the laid down procedures. South Africa regulators recently rejected a request from the Electricity company to increase prices – the ERB is important but possibly ours need to be aligned to professionalism by distancing it away from party cadres that most of these board seem to serve in Zambia
This is the stupidest idea I have come across on providing affordable energy to consumers anywhere in the real world. By implementing this idea, we will be asking people to go back to the forests and cut down our trees, with devastating effects.
We need proper management plans at ZESCO. What they lack is not money, but brains to make plans for years when we have plenty rains and for when we have a drought. ZESCO also needs to plan for expansion that will meet developmental demands. If ZESCO management is stuck, Government should retire the bosses in the interest of national security and bring in fresh and innovative leadership at ZESCO.
ZESCO’s problems have not started with Lungu or PF. They had them in the good and bad years of the MMD led Government.
That is foolishh suggestion never. What happens after? Hunky dory as usual
Simple and moron solution indeed.So cut out the poor and you have a ‘solution’?
Remember HITLER? He recommended a simple solution, Kill Jewish people in gas ovens so Arians got more pies.This extremist is doing the same.
And that in a nutshell is what UPND and various armies of Zambian Terrorists are about. That’s not a harsh thing to call them. They are introducing thought processes that are alien to our culture and repugnant in the world of fairness, equality for all.
If they flash a qualification, they are righteous but not others. It’s good they expose their agendas in this way. The gov’t should step up their awareness campaign of these loose cannons in our country. Heaven forbid they are allowed into power.
Problem with most “Intelligent” people Zambia can boast of HH included they do not live in a real world. They are from a none existent planet made of dreams. In the real world that includes developed, developing countries, human beings and animals, what these guys suggest do not happen.
Stop exporting our power to SA as they are doing now. all Zambians rich or poor have the right to power.
Only if they pay for it!
It costs money to produce, why should they expect it for free?
Grow your Customer base and reflect a marginal contribution per client rather and diversify your energy sources in renewable and non renewable at the same time profiting in interconnections in the neighbouring countries
plus harnessing your hydro potential
Your efficiency in generation sent out in the two power plants in kariba and Kafue does not reflect the current trends and performance of world class utilities Forget about being the lowest cost and tariff utility amongst the highly operational leveraged utilities in fixed and financial costs Work on the total energy sector and avoid competing
Current work by minister and road map to electrification gives real options
Solution like someone above has said is to increase sources by diversification and private involvement. Not pricing it out of reach
Ba chishala read on the importance of a country having statutory corporations and how they are meant to benefit zambians. You are one of the beneficiaries and to just become heartless and call for an increase is rather immoral. revisit your thought rather than waffle and baffle.
The there is need to manage the load and demand side in Zambia The population and industries are no so complex and often the weather is right to optimise and export to make a return when its right
Increasing the tariff is not way and with coming on board IPP given the definition of the grid code will make it more complex for our tight utility that is insufficiently capitalised with little market access in financing simply break even
You will see innovation in supply of power has reduced the cost per watt or mega in generation transmission and distribution the best utility refurbishing and doing away with Fixed plant have innovated to make it in cash flows
Micheal Chishala, good effort. Please contact me urgently if you are serious and want to be part of the solution. We have to fix this urgently. My email [email protected]
Micheal Chishala, good effort. Please contact me urgently if you are serious and want to be part of the solution. We have to fix this urgently. My email [email protected]
when u talk about unbundling you need to understand the cost structure of various segments Generation Distribution and Transmission plus other services supporting the cable You will then do a contribution analysis in sales per segment and absorb those common overheads in support services to reflect the transfer tariff between segments and make a return
You will see that it becomes costly in increment cost per watt or mega therefore the blanket recovery current with increased generation and client base works the tariff scenario is only a minor issue but a best case should be to break even and recover within industrial normal
The commentary above should been discussed first
The best way is to make Mines and other large conglomerates pay for their electricity at a higher rate. They only contribute 3% to our GDP, so why are they allowed free electricity? They are not making much difference to our economy. Never mind, they don’t even pay proper tax and their dividends only cover Gov’t Ministerial allowances.
Well using the central argument of disallowing the poorer citizen from accessing power by out pricing them, may I suggest a quicker way to go about it?
How about we kill all those who are poor (and are benefiting from low prices); that way we create a new society of Psychopaths who can then be legalised to kill each other off as a new affordable ceiling is set?
Do see how morally derelict this writer is? In case you have not got it; one is saying neither is good enough. Electricity is a vital product for all citizens, putting people into the dark ages (cooking from campfires), is a primitive solution.
This character has no conscious.
Remember HITLER? He recommended a simple solution, Kill Jewish people in gas ovens so Arians got more pies.This extremist is doing the same.
Then when you look at Africa electrification rate statistics from world bank or IMF you see Zambia below 10% its so the case in the energy efficiency in value derived
For you to un bundle also you will need solid defined business units and cost centres carefully worked and made visible in financial statements segments It may not be easy for utility like Zesco to isolate units and associate costs directly it requires some absorption costing and assignment according to activity and contribution
Do not follow world bank blindly understand your energy sector and see how many utilities are in private hands in the world and how they are simulated
Look at GRZ ultility in…
Indian the Indian Electricity Ultility and See how its structured
and also Myanmar which is endowed with significant hydropower potential of around 100000 MW but look at the poverty situation in their and the beauty of their electrification
we are ored paying a lot thru unwarrented monthly fixed charges which discourage consumers from saving on usage of power. with the advent of pre paid meters this cost shud be done away with. besides we shud enjoy the fruits of our national assets. does the writer of this article know about the sacrifice employees then went thru when the victoria falls power station was gutted in the 1970s or is it 80s.
Interesting and thought provoking article. However, there is no easy long term quickfix solution to this problem. Certainly, the solution does not lie in penalising the poor. The problem started some time back, but has now matured. As someone suggested previously, long term solution lies in having a case study of the past, to see why we are in this situation. I am not commenting on short term measures as others have already done so.
We need more generation capacity to power the expanding industry. The deficit stands at 1000MW. This can be solved by establishing two reasonably sized thermal coal power plants. We have enough coal in the country. Already the mines are being load sheded and this is not good for the economy as thousands of jobs are on the chopping board.
Simple solution? Yangu! You want to deny people an essential commodity such as electricity to avoid load shedding? Thats a solution that causes problems
The Zambian GDP and taxi revenue has its backbone on the SME and middle class, hence contributing largely to our development. Rural electrification is another means through which production wheel are turning into the rural part of Zambia.
Major consumers of electricity contributes to our economy in a smaller ratio.
Therefore suggesting to kill the SME and the middle class is equal to foolishness.
Load SHEDDING now.
LUNGU SHEDDING 2016!
PF CLOWNS have destroyed Zambias economy!
Kick the ID!OTS OUT!
Are we experiencing power crisis coz of low price or natural cause ?