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Tuesday, January 11, 2022

Plans To Unbundle ZESCO Ltd Should Not Be A Rushed Process But A Product Of Consensus Building

Columns Plans To Unbundle ZESCO Ltd Should Not Be A Rushed Process...

By Hon Yotam Mtayachalo

First and foremost it is a fact that state utilities have been the major players in the electricity sub-sector in Africa although some countries are also pondering changing their business models in line with global trends.

Therefore plans to restructure the Zambia Electricity Supply Corporation ( ZESCO) LTD by the Industrial Development Corporation (IDC) which may eventually lead to the unbundling of the power utility looks good at face value however there is a need to be extra cautious as electricity drives the engine of economic development and as such in my view the process should not be rushed but should be a product of consensus-building among key stakeholders to avoid repeating the mistakes of privatization which looked very good on paper in initial stages but the post-privatization era was not a success story to write home about as its scars are still visible especially on the Copperbelt.

I remember during our time in the union the National Energy Sector and Allied Worker’s Union (NESAWU) took a strong stance against privatization and unbundling which was being spearheaded by the IMF and the world bank and as such we strongly opposed plans by the then MMD government to either privatize or unbundle the power utility based on the experiences we gathered from other countries such as Uganda which was the pioneer country in sub-Saharan Africa to unbundle it’s power utility but we instead supported commercialization benchmarks as an alternative business model and the same were endorsed by the world bank and for the first time in many years ZESCO declared dividends to the government.

Although Uganda has registered some success in terms of improved revenue collections, connections and investments just to mention but a few the same has not been replicated in countries like the Ivory Coast while currently, South Africa is also debating whether to unbundle its state power utility ESKOM or not

While unbundling of the Zambia Electricity Supply Corporation (ZESCO) LTD MAY lead to improved efficiency, revenue collection, and promoting investment opportunities however the same will come at a great cost to a Zambian consumer as the cost of electricity shall go up because of the anticipated increase in overhead costs.

Even assuming that ZESCO is unbundled as being proposed by the IDC we expect possibly three companies to be born out of such a process namely; generation, transmission and distribution thereby lengthening the electricity supply chain and as such these companies will have their independent management structures and board of directors to manage these firms and this, of course, will come at a great cost to Zambian electricity consumers.

Further in 2005, the Mwanawasa government made a bold decision to integrate Kariba North Bank Corporation (KNBC) into ZESCO, and in fact, the union supported the move because it was made in the national interest because before the move, ZESCO used to buy power from KNBC which was never the case after the two companies were amalgamated therefore the question to ask ourselves is did the integration of KNBC into ZESCO bear positive results or not?

It is my considered view that the challenges facing ZESCO today are well-known facts and the cure lies in depoliticizing the firm and as such, I don’t think unbundling is an answer to the current challenges the company is facing as the only cure is divorcing politics from the company and thus the only sure way the company can run as a business entity and ensuring that the best human capital is appointed to management positions to run the firm efficiently and profitably.

Furthermore, during the UNIP government, ZESCO was one of the best run power utilities in Africa that even engineers from some European electricity utilities used to come and learn something from Zambia but over the years the company has been run down because of political interference as the company does not run as a business entity and above all appointments to the position of managing director and directors respectively are no longer done on merit as it used to be during KK’s reign because during the UNIP government it was not easy for someone to rise to the position of managing director and director as one had to have a proven record of competency and experience and rising through management structures but the system changed after the fall of the UNIP government in 1991.

Fellow countrymen and women you don’t need to be a rocket scientist to tell that nowadays it depends on who you know in government to be appointed to top management positions at ZESCO and this should not be the case where appointments are largely driven by political, tribal and regional considerations which is retrogressive more importantly in this day and age.

I keep wondering why the position of managing director and directors at ZESCO and other state-owned enterprises are not advertised in line with corporate good governance principles so that well-deserving Zambians regardless of their political, tribal, and regional affiliations applies for these jobs so that the best brains are appointed to top management positions in order for the firm to run efficiently and profitably.

Moreover, it is sad that every time there is a new head of state at state house or change of government there is a new managing director and directors at ZESCO and as the results, the staff turn over is too high and in such a scenario it is extremely very difficult for the company to effectively implement it’s business plans because of lack of continuity and in fact, already more than 30 highly trained management staff have been retired in the national interest or fired at the power firm following the ascendance of the new dawn government to power and most of these casualties have nothing to do with politics but fired based on rumour mongering which is synonymous with parastatal politics and surely where is the money going to come from to pay severance packages when the company has a backlog of more than 40000 unconnected customers who have paid capital contributions in full, cry my beloved country Zambia?

By and large, the end result is that the company has continued and will continue to lose highly qualified and experienced electrical engineers if this culture of hunting does not end because these men and women we trained at great cost to taxpayers money are now providing dedicated service in the diaspora and indeed it is true that a prophet is not respected in his own country which is a very retrogressive way of thinking.

It is in light of the foregoing that we need to put our heads together as to whether ZESCO is ready for unbundling taking into account the experiences in Uganda, Nigeria, and Ivory coast however the country should continue to invest in renewable and non-renewable sources of energy in order to meet current and future electricity demands.

Needless to say that Zambia is well-positioned in the region and is a member of the Southern African Power Pool(SAPP) it can become the net exporter of electricity in the sub-region and beyond therefore we must emulate countries like Ethiopia whose electricity state utility is building the Grand Renaissance Hydro-Electric Power Dam on the Blue Nile which will be the largest hydropower investment in Africa and upon completion, it will generate about 6450mw of electricity and as a country, we can also do it.

It is unfortunate that as a country there were no significant investments in the electricity generation sub-sector in the last more than 45 years apart from the then 900mw Kafue Gorge Hydro Power Station which was commissioned in 1977 and until now when the country has developed the 750mw Kafue Gorge Lower Power Project which is a single major investment in the power sector after so many years despite increasing population and economic activities, especially in the mining industry.

Lastly but not least I hope that the new dawn government will carry on the good works left behind by the PF government which includes the construction of electricity interconnectors to neighboring countries to enable the country to export electricity and accelerate the completion of the 750mw Kafue Gorge Lower Power Project which undoubtedly is a giant step in revolutionizing the electricity generation sub-sector in Zambia.

In addition, the new dawn government should also seriously consider investing in the 2400mw Batoka Gorge Hydro Power Project which is a joint venture between Zambia and Zimbabwe, the proposed 600mw hydropower project on Luapula river and many other pipeline investments while at the same time encouraging private sector participation in the electricity sub-sector such as Independent Power Producers (IPP’s) so that they can compete with the state power utility(ZESCO).

The author is a member of parliament for chama north and former General Secretary of the National Energy Sector and Allied Worker’s Union (NESAWU)

17 COMMENTS

  1. When something is broken, you fix it. Zesco is broken, and in order to get it fixed, it needs unbundling. That’s happening all over the world. No need for indaba’s, consensus or anything. It just needs ACTION. Certainly not another far toooooo long unreadable article that nobody reads!

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  2. Unbundling does not necessarily mean privatisation. But do we really understand if unbundling means more reliable power, no political interference in the energy business? Incidentally, the newspaper advertisement by IDC inviting qualified consultants to restructure Zesco has since been cancelled.

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  3. The author is very mistaken when he says three companies will be born. A minimum of 10 Zambian owned companies will be born
    1) Generation company will run and maintain the hydro power , solar power and other energy generating plants
    2) The Transmission company will be operating the high voltage transmission lines (connecting the national grid , Southern African power pool etc)
    3)Lusaka Electricity Supply Corporation(distributing power to residential and commercial consumers in Lusaka province)
    4)Southern Electricity Supply Corporation
    5)Central Electricity Supply Corporation
    6)Copperbelt Electricity Supply Corporation(CEC is already in existence)
    7)North Western Electricity Supply Corporation(NWEC is already in existence)
    8)Western Electricity Supply Corporation
    9)Luapula…

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  4. It’s called in Energy policy EQUITY I think we have been taught Energy Markets and performance global to confidently say unbundling doesn’t work in economies I am sure it’s not a secret why this wonderful integrated Zesco segments have remained a hold to support the Zambian energy in power developments and economies. I have watched former EIZ and colleagues speak read here certain comments most of which against and in line supporting Transformation stratergies within the current There is a world class ultility in American Electricity Power diversely vertically intergrated and portifolios of Investments and equity The Business still performs on NASDAQ recording superior performance It accepts Transformative ideas within it’s working model if unbundled it could disintegrate

  5. The issue is that the sector it’s regulatory infrastructure including human resource capacity as I see is not developed It’s a dis investments to the way the Energy sector is positioned to develop Some of those areas above have no control areas and network to effectively support this and to say councils or local ultility will arise is also not a good initiative The current sector is well defined to allow cost sharing in interconnected units unbundled the key is at generation and transmission then the tariffs structure and approvals It means also the planning in distribution and executions will be lost so is the support service like fabrication and other Not to define the access and ncc The corporate pools and support services it will be a draw back We don’t see to know the timeline…

  6. So what happens in network rollout and customer service in chansefu and Chama if you unbundle The small transformer and line to the hospital was possible because of the vertical intergrated ultility including the new line by sin hydro to Chama it’s because of working portifolios of debt and finances and debt making that possible when you unbundle those places will take an angel investor and not gov to increase access to electricity It not a right option unless all regions where fully interconnected and not grid islands with not so impressive MVAs and wires including human resource in some areas you tend to be blinded Sometimes until you look critically and see furthermore

  7. Restructuring from vertical to individual like I have said it’s a long-term energy power sector transition it’s something that should be rushed we have not created the environments and an independent transmission and system operator If it was another form of unbundling people would say okay it’s functional not Operational even Then we are different from developed countries You will need to consider the social economics impact Of all the 106 countries that have implemented unbundling Their power sectors have eventually lost it especially those that have given away Transmission assets to private Independent system apart from Zesco state Yalikosako it’s easier imposed but Management and sustainability that is the long-term issue it doesn’t work

  8. Okay renewables without a plan to connect eventually to some secure regional lines so what about storage it will be long Durations lithium batteries They Will be independent or distributed for our people It’s good but a mix is better in installed always with REA connecting to increased constructions in network by Zesco untill you have complete interconnection at all voltages as it it’s practically and competently not the right time and cost to unbundle When you unbundle what next it wi be like eskom or uganda or Kenya or Mexico to ground zero !!!

  9. Very well-written and balanced article, sir. For these articles to have substance, can you please include a bibliography for any references you make in the article? Thank you.

  10. WELL WRITTEN AND RESEARCHED ARTICLE. UNFORTUNATELY THE IMF, OUR MASTERS, HAVE ALREADY DECIDED, AND UN BUNDLING WILL BE DONE. THE ZAMBIAN CONSUMER WILL PAY MUCH MORE AND SOME VERY VERY RICH ZAMBIANS WILL BE LAUGHING ALL THE WAY TO THE BANK.
    WATCH THIS SPACE

  11. WELL WRITTEN AND RESEARCHED ARTICLE. UNFORTUNATELY THE IMF, OUR MASTERS, HAVE ALREADY DECIDED, AND UN BUNDLING WILL BE DONE. THE ZAMBIAN CONSUMER WILL PAY MUCH MORE AND SOME VERY VERY RICH ZAMBIANS WILL BE LAUGHING ALL THE WAY TO THE BANK.
    WATCH THIS SPACE!!

  12. The biggest and good thing is to achieve Financial Transformation but still retain the current working structure to develop the Energy sector we should not settle for the easier methods to refinance and reinvestment in the ultilities stratergies in network and capacity developments There are so many Financing methods to refinance and later Alone Government should continue funding support like eskom receives now also Government Funding support facility even when bailed out by climate facility Japan is creatively issuing renewable bonds at the same time keeping Investments in the power ultilities it’s a long-term Transformative sttatergy not a quick turnaround

  13. You may need to make it clearly in the mind of Zambians your Energy policy and how it fits into Zambians fiscal plans also say the 2030 because then people will see wether progress to ,2030 That includes the tariff structure that will impact also give fuel increases You need to see development long-term

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