Lusaka, November 04, 2019
ZESCO has applied to increase electricity tariffs, including on residential customers. The average proposed increase between 2018 and 2019, across different tariff bands, is over 100%. This proposed increase comes on top of large increases already introduced in 2018. Taken together the average increase in tariffs if the 2019 proposals are adopted in full will be more than 200% – that is electricity prices for consumers will be three times higher on average. The implications of these steep increases are:
- Between 2018 and 2019 a 12.7% reduction in disposable incomes (“purchasing power”) for the poorest third of Zambians who are on the grid.
- Taken together the 2018 and 2019 changes will reduce the disposable incomes of the poorest Zambians on the gird by more than 20% (20.4%)
- Even “middle income” Zambians on the grid will experience a 12.6% hit to their incomes.
- Poorer Zambians will be hit more than twice as much as the richest.
- The cumulative effect of the (already implemented) 2018 and (proposed) 2019 increases will push 240,000 people into poverty.
- The 2019 changes alone will increase poverty by 165,000.
There is a good rationale for increasing tariffs. For example, it can help attract much needed investment into the energy sector. However, the rate of increase and the failure to protect poorer Zambians is not good policy. The rate of increase should be phased in more slowly and the poorest Zambians should receive better protection from the changes. Based on the foregoing household survey-based analyses, we make the following recommendations:
- ZESCO’s proposed tariff increases should be revised downward to sustainable levels.
As shown, the proposed residential tariff increase (i.e weighted average residential price of 106%) is likely to significantly decrease household real expenditure and cause increases in poverty. This is therefore simply unstainable particularly in a struggling economy like Zambia.
- Any price increases must be phased-in gradually, and only effected in manageable and small increments.
The weighted average residential price increase of over 100% is too steep and could potentially completely kill off residential based small and micro enterprises such as hair salons and also likely fuel inflation on the other hand.
- Target the lifeline (R1) tariff band to only the poor and low-electricity consumers
Recommend that ZESCO explores ways of targeting the R1 to only those households that are poor as low-income consumers are not necessarily those who use the least electricity. As is, 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.
Please quote Ms Chenai Mukumba, Centre Coordinator, Consumer Unity & Trust Society
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