Mtesa expresses reservations on Zesco’s service delivery

CUTS-International executive board chairperson ambassador Love Mtesa has expressed great reservations on whether or not Zesco Limited will improve its service delivery even after being offered the 25.6 per cent electricity tariff hike.

And a Zambian economist based in the United States, Kelvin Kamayoyo has said the debate on the hike of electricity tariffs is not that other countries are expensive but that Zesco Ltd has not fully exploited its comparative advantage in the electricity sector.

According to ambassador Mtesa, every time the power utility company is authorised by the Energy Regulation Board (ERB) to increase tariffs, there is less improvement in the service delivery.

“This can be attested from the continued load shadings in most places across the country even after being authorised to hike electricity tariffs last year,” ambassador Mtesa pointed out. “We would therefore like to urge Zesco Ltd to also consider cutting personnel staff costs which are very high at 51 per cent and this needs to be done immediately in order to make the utility more efficient.”

He also urged Zesco Ltd to not only rely on tariffs to finance projects but look at alternative sources of generating funds like the Lusaka Stock Exchange (LuSE).

He said there were a number of companies such as Lafarge and Copperbelt Energy Corporation (CEC) that had greatly benefited from listing their companies on the stock markets.

“Zesco Ltd should learn from CEC which has listed on the stock exchange. As of 2008 CEC raised about K110 billion when it floated about 250 shares to the public,“ he said.

Ambassador Mtesa added that the purposeful and simultaneous increase in energy tariffs in the past seven months would have inflationary effects especially the single digit inflation rate that the country is boasting of today.

“The positive effects that have been seen from the fall in inflation from about ten per cent to a single digit during the past few months will not be of any effect. It is like taking two steps forward and then suddenly five steps backwards. Already we have seen that cement which was falling and even started retailing at K52,000 has suddenly risen to K55,000 and it might even go up again,” he said.

Ambassador Mtesa said the likely increase in inflation due to the hike in electricity tariffs would affect other sectors of the economy like transportation and the cost of other goods and services.

And Kamayoyo said Zesco Ltd should exploit its comparative advantages unlike the power utility company always comparing itself with other countries that may not be as endowed with water for power generation as Zambia.

“It is alleged that Zambia possess approximately 40 per cent of the available water resources in the southern region yet we still want to increase tariffs in order to attract investment,” he said.

Kamayoyo wondered what type of investment Zesco Ltd needed for it to become more efficient and utilise its comparative advantage.

“Is it money or expertise that they need?” he asked. “Therefore, instead of Zesco Ltd board chairman talking about farmers, he should be explaining the achievements of Zesco Ltd as regards to Key Performance Indicators (KPIs) subject to ERB requirements and also how the company’s strategic plan is responding to the ever growing demand of electricity in the economy of Zambia.”

Kamayoyo said instead of Zesco citing other countries as being expensive, it could exploit those same markets through electricity exports.

“Zesco Ltd seems to lack supply elasticity because when demand rises the company fails to cope with such demands in terms of equilibrating demand and supply fundamentals and as such only finds comfort in imposing tariff hikes as a way of restoring market equilibrium in the electricity market,” he said.

Kamayoyo said tariff hikes leave consumers vulnerable especially in an economy like Zambia where there are no substitutes and the purchasing power is weak.

He said the farmers were justified in complaining about the hike in electricity tariffs as it increased their production costs.

“When you increase electricity which is Zambia’s comparative advantage, agricultural investors will move to other countries where electricity is marginally expensive but there is no load shedding, easy access to profitable markets of their produce, good geographical product reputation and have easy access to highly mechanised agriculture systems such that their productivity would significantly improve and benefit from economies of scale,” he said.

Kamayoyo said on that basis, Zambian agricultural products would not be able to sell because they would be uncompetitive in the region.

“Therefore, before such a decision is made, we must be able to establish the causal link to most of the happenings in the downstream markets to identify why Zambia is not participating fully in both regional and multilateral trade,” said Kamayoyo. “As has already been stated, Zambia has a high cost of production.”

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