Govt shelved 2017 Cost of Service Study because it exposed Zesco’s inefficiencies – NDC

The National Democratic Congress (NDC) has urged government to release the Cost of Service Study that was conducted by Economic Consulting Associates of the United Kingdom before proceeding to increase electricity tariffs.

And the NDC’s policy and research department’s preliminary findings suggest that government resolved to shelve the orginal release of the 2017 Study because it would expose Zesco’s inefficiencies.

In 2017, then-Energy Minister David Mabumba launched the Cost of Service Study and expressed optimism that Zambia would finally have the much-needed document to guide the setting of electrify tariffs based on empirical evidence of the cost of generating, transmitting distribution and supplying power.

The study, which was funded by the African Development Bank (AfDB), was undertaken by the Economic Consulting Associates in partnership with a Zambian firm called Utilink Zambia and was to be completed within 12 months at the time.

However, last month, the Energy Regulation Board (ERB) announced that they had only finally concluded the procurement process of a consultant for the Cost of Service Study as at October, 2019.

The regulator settled for Energy Markets and Regulatory Consultants (EMRC), a UK company with presence in Europe, Asia, South America, and Africa, and was procured under the AfDB procurement guidelines at a total cost of US $592,120.

In a statement released, Thursday, NDC spokesperson Saboi Imboela demanded that government produced the Study, saying it would help in determining the actual cost of producing hydro, solar, wind, coal and thermal-powered electricity.

“We are demanding the immediate publication of the Cost of Service Study that was funded by Development Bank of Zambia (DBZ) and executed by Economic Consulting Associates of the United Kingdom. It is worth noting that on Wednesday, 11th October, 2017, by way of a ministerial statement, the former Minister of Energy, Honourable David Mabumba, announced in Parliament that the electricity cost of service and determination of economic cost of reflective tariff was launched on 13th April, 2017. He said it was being undertaken by Economic Consulting Associates of the United Kingdom. The Minister further announced a 75 per cent increase in electricity tariffs on residential customers, which subjected the already suffering masses to more misery, as the cost of living skyrocketed,” Imboela recalled.

“As though that was not enough, in December of 2018, Zesco also made a proposal to the ERB to increase the residential tariffs averaging 113 per cent, which they planned to implement before the end of 2019. It is in view of this looming tariff hike that, as NDC, we strongly urge government to produce the Study on the cost reflective tariffs funded by DBZ before increasing the tariffs. We believe that the results of the Study will help in determining the actual cost of producing hydro, solar, wind, coal and thermal-powered electricity; and by implication, how efficient this cost is compared to international benchmarks.”

And Imboela revealed that, based on the findings of NDC director of policy and research, Zuwa Sinkamba, the party had reason to believe that government had perhaps resolved to shelve the Study because it would expose Zesco’s inefficiencies.

“Based on the findings, stakeholders should then be allowed to negotiate the new cost reflective tariffs. We are of the view that government has shelved the report because it was going to expose the inefficiency on the part of Zesco, as this report would have brought to light the unnecessary cost centres within the management of Zesco, mostly the wage bill that Zesco incurs. The Study would take into consideration; Performance Appraisal; Job Analysis and Job Evaluation. These tools would expose the many PF cadres who are on Zesco,” stated Imboela.

“The questions that we are asking, therefore, are: firstly, what necessitated the increase of operational costs from K2.2bn in 2013 to K13bn in 2018, while the total turnover increased from K2.3bn in 2013 to K9.5bn, according to the proposal Zesco presented to ERB? Secondly, why has government failed to share the findings of the Study on cost reflective tariffs?”




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