Proposed Tariff Hike by ZESCO

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Lusaka, March 26, 2019

The Consumer Unity and Trust Society (CUTS) wishes to express its deep concern with the proposed increment in electricity tariffs by the Zambia Electricity Supply Corporation (ZESCO) to the Energy Regulation Board (ERB).

While we agree that Zambia should indeed begin to gradually move towards cost reflective tariffs – particularly in light of Zambia’s precarious fiscal position – we are of the view that consumer interests should remain at the centre of all decision-making. CUTS is of the view that only following meaningful efforts towards internal reform of ZESCO should an increase in electricity tariffs for consumers be considered.

In 2016, the Minister of Finance indicated in the 2017 National Budget Address that a Cost of Service Study (CoSS) needed to be undertaken in order to ensure that consumers do not pay for inefficiencies within ZESCO. This pointed to the recognition that there are existing inefficiencies within the parastatal and that if these remained unaddressed consumers would be the ones to carry their financial burden. These concerns have long related to staff numbers and their costs.

While the Cost of Service Study has indeed been delayed, we are opposed to a revision of prices before this is released as it is imperative to make sure that consumers are not being unfairly penalized for inefficiencies within ZESCO. As such, before shifting the burden towards consumers, ZESCO should first and foremost look to resizing the structure of the institution to achieve efficiency.

In 2017 we applauded the Government for lifting the life-line electricity tariff for consumers from 100 kWh to 300 kWh. We noted however that quantity-based subsidies were not the most efficient way of targeting the poor as low-income consumers are not necessarily those who use the least electricity. We indicated that there was a need therefore to firstly, increase the coverage of electricity in Zambia, particularly in rural areas, and secondly, identify ways of better targeting subsidies to ensure that subsidies accrue to those most in need. This new proposal put forward by ZESCO may therefore have negative effects on large poor households that make use of more that 100kWh/month.

Another of our key concerns remains the effect that the proposed increased tariffs will have on the provision of goods and services in both the economy and social sector. This proposed tariff hike will mean that we will see an increase in the cost of production of all goods and services. With this increased cost of production, we expect a rise in the prices of commodities despite the fact that disposable incomes for most households have remained largely unchanged. Further to this, social services will also be hard hit by this increase. The proposed tariffs for schools, hospitals, and orphanages, have more than doubled thus this will have an impact on the provision of basic social services such as education and health.

It is therefore imperative that ZESCO finds additional alternative ways of reforming the energy sector without passing the brunt of the burden onto the consumers. Rather than increase the tariffs, we are of the view that ZESCO needs to improve its efficiency levels and eradicate wastage in some of its internal operational areas. Only following meaningful efforts towards internal reform are we of the view that an increase to electricity tariffs should be considered. It is important to ensure that consumers are protected and that in instances where the private sector, particularly those in the mining sector, may not be paying cost-reflective tariffs, they pick up their own bills.

For more information contact:

Mr Ishmael Zulu, Policy Analyst, Consumer Unity and Trust Society (CUTS) at isz@cuts.org or +260 97 77979981

Njavwa W. Simukoko,  CUTS Communications Officer at nws@cuts.org or +260964905611

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