Was the Energy Regulatory Board expected to defy Edgar Lungu’s will and reject Zesco’s request to increase electricity tariffs by 75 per cent? No! It doesn’t have independence and courage.
Reacting to workers’ calls at Labour Day celebrations that electricity tariffs ought not to be increased by 75 per cent, Edgar refused to yield to such pleas. “There is need for us to increase electricity tariffs. It is a painful decision but we have to take it, even if it means me being voted out. Otherwise our economy will totally collapse. There will be no jobs to protect [and] there will be no economy to talk about. I will ensure that this is done; we just have to agree on the modality. But to say we cannot increase the electricity tariffs…,” said Edgar.
But Zesco’s 75 per cent electricity tariff hike will further cripple the already bleeding Zambian economy.
Business and households are no longer able to absorb further electricity tariff hikes, particularly given the impact on an already weak Zambian economy.
This further tariff increase will certainly have a massive compounding effect and will be baked in the base forever. We shouldn’t forget the compound effects of previous years increases because these should be more than sufficient for Zesco.
These electricity tariff increases have the potential to perpetuate the poor management and planning issues at Zesco. Here, tariffs are being easily used as a convenient release valve rather than Zesco being forced to find innovative ways to address their issues.
It can also not be ignored that Zesco is one of the most politically abused state enterprises in this country. Zesco has over employed because this is where the ruling Patriotic Front sends its cadres and relatives of its leaders for employment. It is also the company that they are using to fund all sorts of political activities or projects. Supply contracts to Zesco are a preserve of ruling party leaders and cadres and it is done at very exorbitant prices.
In the absence of a competitive market for electricity supply in Zambia, the Energy Regulatory Board is obliged to play the highly important role of protecting the consumer from Zesco and Edgar merely increasing electricity tariffs.
The reasons being advanced by Zesco and Edgar for their 75 per cent tariff hike do not warrant a recovery or development through tariff increases.
Electricity supply has to be competitive as it is an essential input cost for industry. Zesco’s 75 per cent tariff hike is unaffordable and will create investment uncertainty, particularly for the energy intensive business activities. Zesco is clearly not efficient and is being abused by the politicians in power. And this is where the problem lies and not in the level of tariffs.
Many businesses have been struggling over the last few years owing to fierce competition from other economies, increasing production costs and power outages, among other factors. It would be suicidal to further increase these costs by electricity tariff hikes. We therefore appeal to the Zambian workers, consumers, businesses and their representatives not to accept these electricity tariff hikes and continue to resist, oppose and reject them because they will have a debilitating effect on the economy and on their lives.
And if a stop is not put to Zesco’s arbitrary tariff hikes, this will continue until the whole economy is totally crippled. The cost of Zesco’s electricity has been increasing over the years without a corresponding increase in the company’s operating efficiency. And if nothing is done, we expect Zesco to keep on increasing electricity tariffs in the foreseeable future. These electricity tariff hikes do a lot more than just affecting the consumers’ pockets. They affect the entire economy. Of course, we fully understand and appreciate that on the one hand, a power utility needs revenue to maintain or replace assets and to expand its capacity to cover the growing market. One way to secure additional revenue is to increase the tariff. Increasing tariffs is the easiest way to do it. But it is not the only and probably the best way to do it. Increasing efficiency and ensuring effective and orderly operations can achieve much better results.
Some of the most important parts of the economy that are most influenced by the price of power are mining, manufacturing and industrial sectors. Changes to the economic activity in these sectors is a big contributor to overall growth of an economy.
As the price of electricity increases, mining and manufacturing industries can no longer ignore the impact on their businesses. And when we talk about energy-intensive and energy-dependent industries, these are the industries we are talking about, the industries that use a lot of power and where the cost of power is a significant part of their cost of production.
For energy-intensive industries, this strong link between the cost of power and production is greatly magnified by the large amount of power consumed.
Electricity is an essential input to production and economic activity in general. Changes in electricity prices impact each and every individual in Zambia, as well as industry. The cost of electricity will change the demand as people become more energy efficient or in the worst case where a company becomes non-competitive and closes its doors.
This directly affects a power utility’s core business. Less power being bought removes revenue even though the unit cost increases. In the extreme, increasing the unit cost of power can result in lower total revenue for a utility.
When one takes all these concerns or issues into account, it goes without saying that Zesco’s 75 per cent electricity tariff hike will be detrimental to the Zambian economy in general, but much more so to industry and manufacturing sectors.