Zambia Chamber of Mines (ZCM) president Nathan Chishimba says the country’s failure to determine the exact cost of energy production is a national problem that can discourage potential investors in the sector.
Delivering a presentation at the ongoing CEC sponsored capacity building workshop for media practitioners in Kitwe, Chishimba noted that would-be investors were discouraged to invest in Zambia because there was no possible way to determine their returns.
“We haven’t determined the exact cost of producing energy in Zambia and that is a national problem. The investors we are encouraging to come and invest in electricity have no basis for determining their returns because no one knows how tariffs are set. I want to emphasise a point the former Minister of Finance, Mr Felix Mutati made in his 2017 budget speech, ‘in the last few years, there has been a cry for Zesco to charge cost reflective tariffs. Under line that statement has been a certain push that these cost reflective tariffs must be higher’. But this statement in my view sounds damn. [Because] cost reflective tariffs does not mean that consumers should end up paying for inefficiency… And talking of the cost of service study, the last cost of service study we know was done in 2007, so you and I don’t know how Zesco is operating by global standards. We cannot bench mark them, we have certain informal information but we have not been given the information as to how they are operating,” Chishimba said.
Chishimba observed that there was lack of transparency in the manner in which electricity tariffs were set in Zambia.
“There is a complete lack of transparency about tariffs in Zambia. It’s basically a black horse, so we don’t know how tariffs are arrived at. They will just tell you ‘you will pay 10.3 cents’, they will even convince politicians that ‘we need 10.3 cents to survive’ and that’s what you will be charged. We don’t have a formal basis for which we can determine that electricity actually does cost 10.3 cents. Zesco will just announce a number and all the politicians will be singing that number without verifying whether it’s an objective number or if it conforms to global standards and that is what our problem is. In the mining industry we sign agreements with our utilities. So you would sign with Zesco but next thing you find the Minister of Energy calling you and asking you to revise the tariffs. But how does he come in? We have not been shown any numbers. If we are showed numbers of how much it costs to provide a certain service and we compare it with international bench marks and it’s verified, why would we not comply? But the reason why we get these differences is that we are not privy to how Zesco arrives at their costs of providing reserves. This unfortunately affects other utilities like CEC. So this is the source of the friction that you see everyday,” Chishimba said.
Meanwhile, Chishimba observed that mining companies seemed to be taking up a larger proportion of energy consumption as compared to households because the country has failed to invest in the electricity generation sector.
“There is a perception that Zambians are deprived of electricity by mining companies. But it’s not necessarily that Zambian mines use more power, but what causes that is that the installed capacity is very small. The fact that we haven’t invested in our electricity generation sector for a very long time is what has caused this proportion to be much larger than otherwise would be the case if Zambia was to double it’s capacity. Load shedding also came in a couple of years ago because we had not been investing as the economy was growing. We were not investing in more generating capacity. So as the economy was growing, we suddenly found that we didn’t have enough power. But even as we did realise that, we invested very hastily in some new projects but our own research, according to the energy industry shows that these new projects are excessively priced. They are coming in about 20 per cent plus, above global bench marks. That’s the problem for the country, because going forward, those projects will need to pay back. And then they need the revenue that will give them that pay back at 20 per cent premium to the global bench mark, which is sad for the country. This is the elephant in the room, which is very active,” said Chishimba.
“Therefore, the logical way forward is that we need to conclude the cost of service study tomorrow. Then on the basis of that, we can efficiently cost the price of power. Based on that, we can formulate tariffs that are transparent even when they have to be adjusted, it would be clear and based on those tariffs, we can be able to formulate what manner reforms we do in the electricity industry. And that way, there will be no quarrels, no debates, no unnecessary arguments about tariffs costs because then, everybody will know how the cost of power is being derived. But right now, it’s an elephant in the room which we don’t know.”