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Sunday, February 5, 2023

Ncube warns against accelerated migration to cost-reflective electricity tariffs

EconomyNcube warns against accelerated migration to cost-reflective electricity tariffs

ZESCO board chairman Vickson Ncube says implementation of cost reflective tariffs for electricity will be an academic exercise which defeats the main objective of the government if it starts to impact on the ability for industries to work efficiently, create jobs, pay taxes and meet government’s objectives.

During a plenary session at the 10th Zambia Mining and Energy International Conference (ZIMEC) in Kitwe last week, Ncube said there is need to strike a delicate balance between achieving economic tariffs for power in the country and ensuring electricity supports economic growth and the drive to increase number of Zambians with access to electricity.

He said the cost-reflective tariffs should be balanced with the need for ordinary Zambians to access power and economic growth.

The Energy Regulation Board is undertaking countrywide consultations with key stakeholders and the general public following the issuance of the government green paper on the findings and recommendations of the 2021 Electricity Cost of Service Study.

The study which focuses on establishing an electricity tariff that reflects final cost on the consumers, encompassing all costs from generation, transmission to distribution, was undertaken by United Kingdom-based Energy Market and Regulatory Consultants (EMRC).

Ncube observed that an accelerated migration to cost-reflective tariffs could result in an increase in deforestation for a country that is already experiencing an upsurge in the number of indigenous trees being cut for charcoal production.

“If I were to increase the cost of consuming electricity in Zambia today, people will limit what they use that power for and use partly the charcoal, and then we are defeating the whole push for green energy and also efforts to protect the environment,” he said.

Ncube said the country needs to have a “holistic approach” when deciding the direction of the cost of selling electricity to consumers.

“We want to heat up this economy so that it drives more jobs, but should the cost reflective tariffs start to impact on the ability for industries to work efficiently and create jobs and pay taxes and meet government’s objectives then that cost reflective tariff becomes an academic exercise which defeats the main objective of the government,” he said, according to a statement from Zesco corporate affairs.

He called for an integrated approach where the government was moving from end to the beginning, and beginning to the end until it reached a point of equilibrium.

“Where we become efficient for the whole economy and not just the energy sector,”he said.

Ncube said the new dawn government’s focus was to make electricity a catalyst for economic growth.

“We must understand that investments are not only to be attracted in the energy sector; it must be attracted throughout the chain. More mines should come, but if they are going to find that the cost of energy is an inhibitor to opening a mine, they won’t come,”

he said. “In the 8th National Development Plan, energy has been classified as an enabler and not an end itself. We must run Zesco efficiently. At the same time let us be careful not to have a situation where because we want to attract so much investment in the energy sector, we kill the rest of the industries in Zambia.”

He said the country should take a futuristic approach to the migration towards cost-reflective economic tariffs.

“I am not going to say a cost-reflective tariff means we must absorb that cost of the power station from the existing customers alone. It must be a projection to say in the next so many years there is that capital cost that forms the base that should not be included in our cost-reflective but rather you grow your customer base to reduce the ultimate cost,” said Ncube.

12 COMMENTS

  1. Mr Ncube raises an important point about the ability of the economy to afford cost-reflective tariffs. However, a discussion needs to be had about the opportunity cost of continuing subsidies of electricity by the government. What are we foregoing by subsidising businesses and wealthy domestic consumers? We could be spending this money on incubating start-ups and supporting innovation in SMEs, for example. Creating more jobs might generate the income necessary to pay cost-reflective tariffs. A balance needs to be struck but the evidence available suggests that the current set-up has not yielded significant economic benefits to the majority of Zambians. A change is needed.

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  2. “…electricity tariff that reflects final cost on the consumers, encompassing all costs from generation, transmission to distribution…”
    Some organisations don’t care about reducing operational cost knowing too well it will be offset by clients, especially that Zesco has no competition.
    In Mr. Hichilema’s puba c campaigns, he promised to separate Distribution from Generation to streamline efficiency. Are getting there? Let Zambians benefit from their electricity. Real costs will shatter citizens further since waivers and subsidies are dead.

  3. Cost reflective tariff is a myth that Zesco has failed to solve because it’s poorly managed and lacks accountability. In a developing country like Zambia the cost of power must be as close to the break even point as possible apart from efficiency. For example, at a time Zesco was producing 1,500mega watts of electricity, Govt spent US$20M to buy 300 megawatts from Eskom but that only covered Zesco’s wheeling losses which stand at 20%!

  4. #1 Roy Moobola I agree with your proposal for debate on the subject. I also acknowledge your well researched article that you shared here some time ago

    • Thank you for your comment now and earlier on my article.

      We need a multi-sectoral systems analysis on the kind of development we are seeking. Electricity cannot remain the preserve of the relatively well to do and the urban dwellers. How shall we develop the rural areas without electricity? Unless tariffs are cost-reflective investment won’t be forthcoming. No business will set up to make a loss. ZESCO might try to defy normal business models by selling its product at a loss but that is unsustainable. ZESCO needs to reduce its costs if it ever wants to make a profit again. That’s what Mr Ncube should be advocating.

    • 5.1, Your proposal on micro grids should have been considered before Zesco embarked on the US$66M grid to Chama. We seem to be moving in one direction despite the multitude of challenges. We shouldn’t only engage whenever there’s a proposal to adjust tariffs because it limits the scope of discussions

  5. The question I beg an answer for?? Dont we have experts in energy that evaluate tariffs locally? we need someone from the UK with no Hydropower to tell us how to conduct business in our own country? Let us not always think that foreigners will tell us the truth, they are rippers please Zambia we don’t need this already things are expensive for the ordinary Zambian

    • In everything we need a foreigner, why. Time there was an audit at the mine I worked, the so called experts only reproduced what I and my team gave them. They walked away with tens of thousands of dollars.

  6. If we remove all those high salaries in zesco and cut down on corruption involved in purchasing parts and machinery for the same then tariffs would actually be half of what they are today.

  7. To defray the cost of production, energy bills must be cost reflective as long as :
    1. It is benched marked correctly not just saying it is the lowest in the region.
    2.it is not inflated by n over bloated and top heavy ZESCO. (how many zesco employs per 1KW produced and delivered? vs industry standard)
    3. Should the cost go up or deal with internal inefficiencies first?

    Clearly, the ZESCO board and the energy board besides the company itself are not reading the same script.

  8. Well articulated Sir and it is very easy to de-campany for yourself, and for ERB continue plying your part of decapaning.

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