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Tuesday, August 16, 2022

The Truth About The Proposed Increase in Fuel and Electricity Prices

Columns The Truth About The Proposed Increase in Fuel and Electricity Prices

By Sean Tembo – PeP President

1. In seeking to justify why they need to increase pump prices of fuel as well as electricity tariffs, the New Dawn Government has been peddling the narrative that they are merely removing subsidies on these two commodities so that they can become “cost-reflective”. Well, we are here to tell you that that’s one big blue lie. There are no subsidies on either electricity nor fuel at the moment. Government simply wants to increase prices so that they can make a bigger profit on these two key factors of production. Allow us to expose the lies which Government has been peddling, one at a time.

2. Firstly let us start with fuel. The way fuel pricing in Zambia has been operating for the past few decades is that the Energy Regulation Board (ERB) has what they call the Fuel Stabilization Fund. When world prices are low, the profit which ERB makes is deposited into this fund. And when world prices of oil are high, the deposits in this fund are used to subsidize the cost. The whole idea is for pump prices to remain stable so that we don’t have to increase pump prices up and down every time in response to changes in oil prices on the world market.

Due to the COVID-19 pandemic, the world prices of oil have been at an all-time low on the world market for the past two years, and traded below $0 (negative) per barrel for a while in 2020. What it meant for oil prices to trade at negative prices is that instead of us paying the producers of oil, they had to pay us so that we could collect their oil and prevent their oil fields from flooding!!

However, even when these world oil prices were negative, there was no reduction of pump prices here at home, which meant that ERB was putting all these supernormal profits into the Fuel Stabilization Fund, to be utilized when world oil prices rise. The next obvious question is; have world oil prices risen so much in the recent past such that the ERB has exhausted the reserves which had been accumulated when oil was trading at negative prices on the world market?

The answer is a definite no. As a matter of fact, even at current world oil prices and current fuel pump prices in Zambia, ERB is not in a deficit but still records a healthy surplus. Here is some basic mathematics to prove this point. Current average world prices for Brent crude oil are $72 per barrel. A barrel is made up of 159 liters of fuel, which gives an average cost of $72/159 liters = $0.45 per liter. Using the current exchange rate of K18 per US$, this gives us a cost of K8.10 per liter of fuel. Of course there are other incidental costs such as insurance and freight, but these are not supposed to be more than 50% of the cost, and if we added them, the cost per liter of fuel comes to about K12.15, which is still way below the current pump price. This means that ERB is still recording a surplus for its Fuel Stabilization Fund, which it is supposed to add to the huge surpluses recorded when world oil prices were negative.

3. Secondly, let us look at electricity. The Government has been peddling a false narrative that the current cost of generating electricity is 11 cents per kilowatt hour (KWH) and that the electricity is then sold at 7 cents / KWH thereby making a loss of 4 cents / KWH, which they claim to be subsidizing. Fellow countrymen and women, this is completely false. Here is the truth;

4. Let us start with the 11c/KWH alleged cost of generation, transmission and distribution. This inflated cost is based on the highest price that independent power producers (IPPs) sell the power to ZESCO. Now, we have several IPPs in Zambia and they include Maamba Collieries Limited, Ndola Energy Limited, Lusemfwa Power etcetera. Each of these IPPs sell power to ZESCO at different prices with the lowest that l know of selling at 5.3c/KWH and the highest at 10.7c/KWH which some people round off to 11c/KWH and use to make their false argument.

However, whatever the average price IPPs charge to ZESCO, the bottom line is that the power from IPPs constitutes less than 20% of the total power which ZESCO sells. The bulk of the power sold by ZESCO is generated, transmitted and distributed by ZESCO itself. The latest available cost of supply study information puts the average cost of generation for ZESCO at 3.4 cents per kilowatt-hour. That is inclusive of all the inefficiencies at ZESCO. This means that even if the power is sold to consumers at an average of 7c/KWH, ZESCO is still able to make a decent markup.

5. Let us now go to the 7c/KWH price which Government has been using to make its argument that existing electricity tariffs are too low. You may be aware that tariffs are graduated, which means that we have different tariffs for different consumers and at different levels of consumption per month. The 7c/KWH which Government has been using to make their argument is the lowest tariff for domestic consumers for the lowest level of consumption per month.

The tariffs for higher levels of domestic consumption, commercial and industrial consumers are double, triple and quadruple this rate. And for purposes of establishing the weights to be used for calculating the average tariff per kilowatt-hour, l want to put it on record that commercial and industrial use accounts for more than 60 percent of overall current consumption, and the average current weighted tariff across the board is about 15.6 cents per kilowatt-hour. This means that ZESCO is making a decent markup even with its current high levels of inefficiency. There is no subsidy here whatsoever.

6. Therefore Government should not lie to the people that by increasing fuel prices and electricity tariffs, they are just removing subsidies in these two key factors of production. There are no subsidies on fuel at the moment. ERB is still recording a healthy surplus in addition to the huge reserves that they accumulated when fuel was selling at negative prices. Equally there is no subsidy at ZESCO. Even at current tariffs, ZESCO is recording very healthy markups.

The Government should just say the truth as to why they want to increase electricity tariffs and fuel prices, instead of trying to apply cotton wool in the eyes of the Zambian people. In fact, they need to make public the conditionalities of the IMF bailout loan, so that the Zambian people can see for themselves what other punishment they have to endure as a result of Government’s insatiable appetite to borrow.

45 COMMENTS

  1. I don’t think anyone reads Sean Tembo’s numbered lamentations.
    If somebody was a fan of Sean, then he could have got 2 votes in the General Elections, but he got 1 vote.

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  2. We prepared the bed, let’s just lay in it. Reality is different from dreaming.

    Oh have got yourself vaccinated? I wanna be the last one. Next story please.
    Nanga ni forcing matter?

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  3. Sean is assuming that crude oil goes straight to pumps at filling stations!! Where is the cost of refining at Indeni in his calculation?

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  4. IT IS NOT ABOUT HOW MANY VOTES SOMEONE GOT DURING THE IMMEDIATE PAST ELECTIONS BUT CRITICALLY LOOKING AT REALITIES AS THEY UNFOLD ON THE GROUND. Adjustments to fuel and electricity will have obvious negative effects on the cost of doing business in Zambia. For example transporters are patiently waiting for government’s position on the issue of fuel and electricity. You will see what will happen to transport costs in the event that the pump price is adjusted upwards. Will it reduce the cost of doing business in Zambia?

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  5. The difference between the old prices and the proposed prices will go to servicing the anticipated IMF loan. The poor will be hard hit in many ways.

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  6. Before I ventured into farming I used to wonder why a person would perpetually be on FISP. Now I know the truth. You get the inputs cheaply from GRZ but other factors make the venture very expensive. At the end of the day your net profit is nothing to write home about. Only consolation is you don’t need to know the price of mealie meal. And you are happy that you have contributed to National food security.

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  7. #6 People will only realize that this ZERO MAN is talking sense when things become not only expensive but unaffordable.

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  8. According to current law and practice, the price of electricity to consumers cannot just rise administratively although the PF did it during their time in office. The ERB will hv to call for public hearings at which people like Sean Enock Tembo would turn up and make their case for agreeing or opposing the proposed price increase. Tembo has made a good argument here and I hope he can forward it to ERB for them to respond. After all, they hv a spokesperson.

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  9. It’s unfortunate that UPND cadres/supporters have been brainwashed by the HH show.

    It’s there for all to see, electricity and fuel price hikes are a condition from the IMF.

    IMF only cares about the economy and numbers not the poor citizens.

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  10. These upward adjustments were long over due and PF did not implement them because they thought they were going to become very unpopular being an election year. Fellow citizens whether we like it or not lets brace for some tough times to fix some of teething problems. Its just a matter of taking a bitter pill if we are thinking of economic recovery.

  11. HH is a capitalist just like the IMF.

    IMF is a Bank and their mandate is to make a profit on their investment.

    IMF comes up with all these conditions to make sure a country/client doesn’t fail to pay back.

    IMF have always targeted Zesco, actually if they had their way Zesco should be owned by the private sector.

    But look at the mines as an example for privatization.

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  12. Where in the world was crude oil price in negative? Meaning countries like Saudi Arabia were paying customers to pick the crude for free to avoid flooding? Really, is this man normal? Anyway, it’s social media entertainment, only the ignorant fund such rubbish amusing.

  13. Sean Zero does not have the slightest idea of what is going on here, we will un pack his lack of lack of understanding line by line tomorrow in a truthful and honest manner because with his article, some souls may be misled. UPND is on the right course, with this IMF deal, the idea is to stabilize the economy in the first one or two years then start growing it, PF did not leave any economy to talk about, a lot will need to be done to bring it to some acceptable level and that is exactly what UPND is doing

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  14. UPND wants to increase the cost of living of the people by stealing funds from the people’s pockets

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    • PF pushed hard for an IMF deal, they were not given, but because of jealous, shock and bitterness, even an uncouth guy is commenting

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  15. I can see why Sean Tembo is missing it, you can not just get a calculator, and say I will do a calculation running an economy is not as easy as that, an economy is complex and inter linked to so many things with many dynamics, so one can not express his ignorance by just getting a calculator

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  16. Does Sean Tembo have any branch, ward, section or constituency chairman anywhere in Zambia, He seems to be a very serious joker, and somebody is saying Sean gives good analysis, no ,the analysis is poisoned chalice.

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  17. I just want someone to explain how to get out of the debt mess the PF left the country with. How are we going to raise the monies to clear our debt obligations? Something is gotta give. And it is not having the lowest electricity tariffs on the continent nor the cheapest petrol in the region. Remove the subsidies and live in a real economy without distorted prices. No more freebies.

  18. Reading this article from Mr Sean Tembo coupled it with what former minister of commerce and also a former UPND member, Mr Bob Sichinga has said. When the youth of this country voted overwhelmingly for HH little did they know they were shooting themselves in their feet!! HH campaigned as a socialist but in actual sense he was hiding his capitalist tendencies. Has HH and the guy at the Ministry of Finance, SM, made a projection of the amount of suffering their voters will go through by their stubborn stance of charging the so-called cost-reflective tariffs on electricity and fuel (or the removal of subsidies on two these commodities? Of course they have done that!!! Their interest is to serve their capitalist friends at the IMF, period!!!
    As I conclude, may I appeal to the youths of this…

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  19. Its amazing how UPND members support anything their government does and rubbish any critical analysis. Yes the PF wanted IMF package but were unwilling to accept all the terms. If you do under graduate economics where the several assumptions including all things being equal (ceteris paribus) are the basis of your reasoning you don’t know economics yet. In the real world all factors come into play. Welcome to the real world

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  20. Sean Tembo should also learn to address or petition real institutions such as the ERB so that they can respond. It’s one way of being a real citizen and exercising checks and balances.

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  21. So why is Zambia owing fuel suppliers is it 200 or $400 million if ERB is banking money ??????

    Is HEHH and his GRZ telling lies when they say Zambia owesoney for fuel ???

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  22. Unfortunately this very simplistic analysis which seems to have been swallowed by the less analytical readership. A few pointers:
    The fuel issue is a complex one. It is a well known fact that Indeni adds many inefficiencies that add to the cost of fuel which has traditionally been the most expensive in the region. The Indeni plant is old, outdated and cannot refine fuels to meet the needs of modern ICE engines. Secondly, Indeni has been non operational for well over a year due to (allegedly) non payment of fuel suppliers. To mitigate this, the PF government reduced taxes on fuel imported by the OMCs to keep fuel prices low (this is technically a subsidy but no one complained!). The cost of fuel in South Africa which is more market reflective and has always been lower than Zambia is…

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  23. Call him names but the argument Sean is making is true.
    @Deja Vu nice one. I have a piece of land in Zambia too. I think when I come back, it will be farming through and through. Hh won’t feed me. I will just concentrate at looking at my interest. I think ekuta bwino going forward. Not ifi ifyama musokonomics and akaindenomics with dependance pali IMF. Zambia suffered under the prvious engagement nabamampolyo ba IMF.

  24. Sean Tembo is offering himself as witness should one want to know where the previous ERB and Zesco took the money he claims they made from their work. Why doesn’t Sean Tembo ask the previous ERB how much is in the fuel stabilization fund? Why doesn’t Sean Tembo ask Zesco where the decent markup money is? Why doesn’t Sean Tembo ask who siphoned off the ERB fuel stabilization fund and the decent Zesco mark up money? Start by questioning why previous ERB and Zesco management kept increasing fuel and electricity prices before claiming there are no subsidies. Sean Tembo is now shooting previous ERB and Zesco in his aimless attack at the new government decisions.

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  25. Who used to sing Soprano? Inonge. Who is singing Soprano now? Mutale. Who used to sing tenor? Lungu. Who is singing tenor now? HH. Who used to sing alto? Dora Who is siging alto now? Chushi.
    Ha Ha Ha Ha! Tembo is responding to what comes straight from the PF hymn book. Its exactly how the PF used to explain their fuel and electricity price increases.. Now only the choir has changed. The song remains the same

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  26. The reality is that ZESCO is subsidizing the IPPs. They are just mere leeches! We don’t need them. They are the ones raising the cost of electricity. ZESCO had the capacity to develop those Power Plants built by the IPPs but the previous governments, starting with MMD, deliberately tied ZESCO’s hands in favour of private operator. They signed long term Power Purchase Agreements which are absurd and utterly st.upid.
    ZESCO is a viable company even as a state enterprise; in the right hands. Don’t listen to IMF, not even to Sean Tembo!

  27. PF did not fulfill any of its promises for ten years. They promised more money in our pockets which was a hoax, why are they then harassing HH

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  28. PROMISES WERE MADE TO HOODWINK THE MASSES AND NOW REALITY HAS DAWNED.
    WITH A VENGEANCE.
    NEXT: KCM TO BE GIVEN TO ANGLO AMERICAN AND ZESCO TO BE PRIVATISED

  29. HH and UPND are very much on course. We are happy, PF left us in serious debt with over 100% of GDP in debt and UPND is trying to navigate through very limited options. So please stop posting blogs based on your very limited understanding of issues at hand. The very people who failed to fulfill their promises when in government are asking others to fulfill theirs

  30. Those criticizing Sean Tembo were either not born or were in their nappies when late MMD President Frederick Chiluba implemented the IMF driven SAP full-throttle. But unlike HH, Chiluba asked us at his famous POPE SQUARE RALLY and elsewhere whether we were ready to sacrifice and we all in unison said YES to him. For HH and his cronies, they deceived unsuspecting Zambian voters born after Chiluba’s IMF driven SAP by lying to them that they were going to reduce the price of fuel and electricity, mealie meal, fertilizer and what not. Today, the same HH and his cronies are telling us to prepare for hard times. But as they say lies have short legs; they do not go very far. In Bemba we say “ubufi bulabwela”. The lies HH and his cronies doled out to unsuspecting Zambians are coming back to…

  31. I used to ignore this man. I didn’t even see him on the ballot paper, honestly. But am now seeing very good sense out of the man. Experts should just respond. I think I may see his box the next election.

  32. Alinuwila December 7, 2021 At 7:25 am
    IT IS NOT ABOUT HOW MANY VOTES SOMEONE GOT DURING THE IMMEDIATE PAST ELECTIONS BUT CRITICALLY LOOKING AT REALITIES AS THEY UNFOLD ON THE GROUND……….

    Thank you. We have a lot of unschooled and dull Zambians who will defend anything that does no make sense. The other day, Musokotwane was saying landed cost of fuel is also high because of the high exchange rate and hence fuel price has to go up to cover this exchange loss. Come on, get the same calculator you used when you promised that the Exchange rate would come down to K10 ,apply this rate and your exchange losses will drastically drop and the landed cost will reduce and the pump price will reduce. But if BOZ is failing to make the dollar to kwacha rate to go down, you want to pass on this…

  33. Sight December 7, 2021 At 1:20 pm

    @Dunduzane you ‘ve made my day bro….

    He has also made my day with his shallow response..getting a calculator is just a metaphor

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