ZAM demands cost of service study before Zesco hikes tariffs again

Diggers News , November 05, 2019

Consumer Unity Trust Society Society (CUTS) centre coordinator Chenai Makumba says government still needs to disclose details of its structured payment plan for the importation of power from South African power utility, Eskom.

And Zambia Association of Manufacturers (ZAM) vice president Chipego Zulu has called for a completion of the Cost of Service Study before any electricity tariff is implemented.

Nearly two weeks ago, Energy Minister Mathew Nkhuwa announced that the long-awaited power imports from from South Africa and Mozambique were set to arrive into the country this week, and that government would pick up the bill.

But speaking during a joint-press briefing in Lusaka, Monday, Makumba said Zambians needed to understand if they will be required to pay extra costs to cushion the cost of power imports.

She feared that there was still uncertainty regarding when and how much local consumers would be subjected to pay for the expensive power imports anticipated to be around 400 megawatts – 300MW from Eskom, and 100MW from Mozambique.

“At the end of the day, if the consumer does not need to pay for anything, that is good news, but our concern, ultimately, if we don’t pay now as consumers, will we pay later? What we had called for is transparency in the way which we will be paying for the electricity that is going to be imported. We aware that the payment has already been made to Eskom. Again, something that is no secret is that we are currently finding ourselves in debt situation that is affecting the cost of production between business, it is affecting our economy as a whole. We need to be carefully treading into spaces that may see us worsening our debt portfolio; I think openness in terms of how that payment has been made,” Makumba said.

“Ultimately, at the end of the day, consumers may celebrate that they are not paying now, but I think my concern is that when we do pay; how much are we paying? I think there was a figure that was floating around about a 200 per cent increment, of course. We completely opposed to that! We did some numbers, actually, indicating that a fair potential increment for the importation of electricity could have been close to about 50 per cent. Whatever decision that needs to be made needs to be done in a transparent manner. You can’t be putting place a tariff that is so high that it completely does away with competitive advantage of our manufacturers and their cost of production.”

She cautioned that around 150,000 energy consumers may plunge into poverty if electricity tariffs were hiked to 100 per cent.

“We will be providing for submission tomorrow (today), where the ERB has called for different stakeholders (to make submissions). We have done an analysis, which we can share. Our concern here is that, first and foremost, the 100 per cent increase for electricity, we are going to see a negative impact not only in cost on the part of manufacturers, but even on households. Based on some of our preliminary findings, almost 150,000 people will essentially be plunged into poverty,” she observed.

And Zulu called for the completion of the Cost of Service Study before any electricity tariff was implemented.

“We do understand that the Energy Regulation Board (ERB) is carrying out public hearings on the proposed tariff hike from Zesco management. An increase in electricity tariffs does have to be accompanied with the necessary evidence to support the level of increase. I think we did experience in 2017 an increase of 75 per cent in a space of one year, which came as a shock to the manufacturing sector. Of course, it was split into two. 75 per cent in a space of one year is still considered quite high,” Zulu said.

“I believe the tariffs are falling in and around average 100 per cent increase, which raises a concern for the manufacturing sector in terms of energy. We do have to recognize the fact that increasing the tariffs will not necessarily solve the problem, which is a steady supply of power. So, we do need to adopt a consistent approach and a sustainable approach to addressing the energy deficit. On the one hand, the discussions around the electricity tariffs have to be informed by the Cost of Service Study. We need to know how much it costs to generate power; how much it will cost the Zambian consumer to utilize this power. Ultimately, that has to be informed by evidence. So, we do call upon ERB and Ministry of Energy to ensure that the Cost of Service Study is released and so that the discussion on how we move to cost reflective tariffs can actually be earned…transparency and accountability is important,” said Zulu.

“We recognize that the Zesco team had actually been put under strict austerity measures with regards to enhancing efficiency in the management of the utility. We welcome the consultative process from ERB with regards to the proposed tariffs; I think we have a lot of work to do with regards to establishing the actual cost of generating hydro power and in the interim we do have a lot of work in ensuring that alternatives of energy are being promoted and adopted so as to reduce the pressure on the main grid.”

And Zulu warned that the worsened load shedding may deprive Zambia from benefiting from the Africa Continental Free Trade Agreement.

“And we look at it on the continental perspective; the ability of Zambian products to compete, not only on the domestic market, but on the regional market as well; the cost of energy is actually a very key discussion. Electricity is actually a major input to manufacturing processes and if it is not priced in a manner that will promote competitiveness, then you stand to lose out when we are looking at the Africa Continental Free Trade Area,” said Zulu.

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