Lusaka, May 07, 2019
The Consumer Unity and Trust Society (CUTS) is pleased to hear of the suspension of ZESCO’s proposed tariff increase. Our research indicated that if implemented ZESCO’s tariff increase would have significantly squeezed Zambian household budgets, particularly among the urban poor, and increased the number living in poverty. ZESCO’s proposed tariff hike was unsustainable for ordinary Zambian households who are already struggling with economic hardship and higher costs of living.
As was indicated in our submission to the Energy Regulation Board, such an increase would have significantly reduced household incomes of ordinary Zambians particularly in light of the large increases that were already introduced in 2018. Taken together the average increase in tariffs if the 2019 proposals were adopted in full would have been more than 200%.
- The dire implications of these steep increases would have been:
Between 2018 and 2019 a 12.7% reduction in disposable incomes (“purchasing power”) for the poorest third of Zambians who are on the grid. - A reduction in the disposable incomes of the poorest Zambians on the grid by more than 20% (20.4%) taking the 2018 and 2019 changes
- The “middle income” Zambians on the grid experiencing a 12.6% hit to their incomes.
- Increasing poverty by 165,000
CUTS is not opposed to tariff increases in principle. We recognise that tariffs can help attract much needed investment into the energy sector. Given Zambia’s low electricity penetration rate especially in rural areas which stands at less than 5 per cent this is important. However, the rate of increase proposed by ZESCO and the failure to protect poorer Zambians would have severely undermined household budgets, and to do so at a time when Zambia’s projected economic growth as indicated by the IMF stands at 2.3 per cent and Zambians are struggling to make ends meet such a decision would have been untimely .
As the ERB and ZESCO consider next steps we urge them to consider the following recommendations:
1. Complete the Cost of Service Study. It is imperative that this be undertaken and completed to ensure that consumers are paying for the true cost of producing electricity and not paying for inefficiencies within ZESCO as well as subsiding private sector institutions such as the mines.
2. ZESCO’s proposed tariff increases should be revised downward to sustainable levels. The proposed residential tariff increase of over 100% will significantly decrease household real expenditure and cause increases in poverty. ZESCO’s proposed tariff increases should be revised downward.
3. Any price increases must be phased-in gradually, and only effected in manageable and small increments. The average residential price increase of over 100% is too steep and could potentially completely kill off residential based small, medium and micro enterprises such as hair salons and also likely fuel inflation on the other hand.
4. Target the lifeline (R1) tariff band to only the poor and low-electricity consumers. ZESCO should explore ways of targeting the lifeline tariff so that only those households that are poor benefit from subsidised electricity.
By continuing to provide the R1 to all households in Zambia, ZESCO continues to subsidise even the wealthier and high electricity consumers. This practice is inefficient as it does not promote electricity conservation, and contributes to financial losses at ZESCO.
CUTS’ submission to the ERB is available at: https://cuts-lusaka.org/pdf/zescos-application_for_the_upward_adjustment_of_residential_electricity_tariffs.pdf
For further information contact:
The Centre Coordinator, Chenai Mukumba, at 097 8055293 or cm@cuts.org
Policy Analyst, Kangwa Muyunda, at 8500628 79 062+ or kmu@cuts.org