Lusaka, December 27, 2019
On 26 December the ERB indicated that effective 1 January 2020 they will be increasing tariffs for electricity. The Consumer Unity and Trust Society (CUTS) is deeply concerned with the implications that the increase in the price of electricity will have on poverty and the cost of living for consumers.
Earlier this year CUTS shared its analysis with both the ERB and ZESCO on the potential impact of tariff hikes. CUTS recognised that there is a need to move to cost-reflective tariffs as Zambia needs to create a conducive environment to crowd-in the private sector in order to meet the country’s long-term energy needs. However, in line the with the principle that consumers should not unfairly carry the burden alone, we recommended that there is a need for wider reforms to the energy sector and improved targeting of energy subsidies.
Earlier this year the President of Zambia halted the tariff hike due to his concern that the increase would adversely affect the poor. Indeed, according to our research, the proposed tariff hike at the time would have seen 165 000 people fall into poverty. The recently approved tariff hike however is likely to see even more Zambians fall into poverty with estimates at 182 000 even with the removal of the fixed monthly charge.
Addressing Zambia’s energy crisis requires much more substantive reforms. Government needs to take steps to improve the financial viability of ZESCO so that the cost of improving power generation is not passed solely onto consumers. Without addressing inefficiency in ZESCO’s current operations the current solution as proposed by the President is not sustainable. In order to implement more substantive reforms ZESCO needs to:
- Undertake restructuring of its operations and employee benefits to increase efficiency and reduce costs.
- Renegotiate its purchasing power agreements, refinance its debt, unbundle its power functions and dispose of assets to raise revenue and improve financial viability
- Devise ways to minimise financial losses using the tariff structure and implement targeting of the lifeline benefits to only the most poor households.
On the last point, while we applaud ZESCO’s decision to remove the fixed charge to mitigate the impact of these revisions on low-income households, there is a need to do more to protect the poor. The President’s indication that he along with various senior public officials will take salary cuts to cushion the impact of the increase tariff hikes is unclear on how it will cushion the poor. Rather, there is a need to develop proposals for improved targeting of energy subsidies so that they are applied to the poorest households, which would save government money while cushioning the impact of tariff increases on the poor.
The proposed salary cuts for the President and various senior public officials points to a larger problem within our economy. Due to the country’s growing debt burden, reducing expenditure is necessary to put the economy on a sustainable path. This means that wider cuts to spending on government operations need to be undertaken. Government has announced that it intends to make these decisions but they still need to be enacted with transparency to restore confidence in the economy. Until the government goes beyond making statements about addressing both ZESCO and the country’s debt, citizens will continue to be the ones bearing the brunt.
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For further information please contact: Njavwa Wilanji Simukoko, Communications Officer. Email: nws@cuts.org or phone: +260964905611