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Zesco justifies tariff hike

ZESCO managing director Victor Mundende has revealed that the power utility’s total operating costs increased from K2.1 billion in 2011 to K13.46bn in 2018. Addressing the media at Radisson Blu Hotel in Lusaka yesterday, Mundende attributed the increase to an upsurge in both cost of sales and other operating costs over the period of time. He further said the cost of sales increased from K0.81billion in 2011 to K9.64 billion in 2018 per annum.

Mundende explained that the increase in cost of sales was driven largely by an increase in the cost of local purchases and importation of power. He added that other operating costs increased from K1.33 billion in 2011 to K3.82 billion in 2018. Mundende, who was flanked by strategy and corporate services director Patrick Mwila, MacRobby Chiwale, director-legal, and finance director Sayd Chimya said the change in other operating costs was largely driven by inflationary increases in costs incurred by the company over time. And in giving a background, Mundende said in December 2018, Zesco made an application to the Energy Regulation Board for a tariff increase. He said the application was made in conformity with the Electricity Act and was for a weighted average retail tariff adjustment. Mundende clarified that the retail tariff adjustment of 91 per cent for the year 2019 excluded mining and exports.

“This proposed adjustment will enable Zesco Limited to achieve and maintain an average cost reflective tariff over the next two years. The adjustment is expected to generate revenue of up to ZMW 16,061 million in the first full year of its implementation that will enable the company to fulfill its key performance indicators, and implement its capital investment portfolio,” Mundende said.

He further revealed that the power utility was currently constructing additional power generation capacity, and carrying out transmission and distribution power system expansion and reinforcement sitting at an estimate expansion cost US$5 billion. Mundende elaborated that the ongoing system expansion and reinforcement would enable the company to improve the quality of its service, and meet the anticipated increase in demand for electricity from existing and new customers.

“Zesco has continued to support the government of the Republic of Zambia in its quest to achieve the Sustainable Development Goal (SDG) of eradicating extreme poverty and halving poverty in all its forms by the year 2030 through increasing access to electricity for the Zambian populace,” he said.

He added that the utility would continue with the construction and extension of hydro power stations at Chishimba Falls, Lusiwasi Lower and Mujila Falls in 2019.

 

“In its quest to diversify the national energy mix, Zesco has reserved resources for the commencement of the development of a 450MW of solar and wind power projects under the Zesco/MASEN programme in its 2019 budget. The Corporation will also continue undertaking general maintenance works in all its power generation stations as well as the major maintenance project of the 330 KV cable replacement at Kafue Gorge Power Station,” Mundende said.

 

Mundende also elaborated on the benefits of the tariff adjustments, which he said saw an improvement of service delivery by the power utility.

 

He added that the proposed tariff adjustment, if approved was expected to result in an increase in Zesco’s revenue and ensure it continued to run independent of government support, as all businesses should.

“There will be a direct benefit to the Zambian economy as securing electricity generation, transmission and supply is vital to economic development. Zesco will be able to improve the delivery of safe and reliable electricity to domestic and commercial customers. The proposed tariff adjustment if approved is expected to result in an increase in Zesco’s revenue and ensure it continues to run independent of Government support, as all businesses should. The increase in revenue will enable the corporation to meet its rising cost of operations and attract additional private investment into the electricity supply industry thus making it more competitive and efficient.”

And Mundende noted that the consequences of not having tariff adjustments among others would include under-investment in the electricity sector. He further said not having tariff adjustments would see an insufficient capacity to support accelerated growth in the economy as well as unreliable quality of supply of electricity. Mundende further explained that perpetual load shedding and adverse impact on social services due to insufficient power would be experienced if tariff adjustments were not effected.

“Other consequences would include failure to attract investment in other economic sectors such as mining, industrial, agricultural, tourism; derailment of planned developmental projects; and higher energy costs to the entire economy (e.g. costly imports, use of gensets etc);

Zesco not attaining cost reflectivity with operating costs higher than revenue,” said Mundende.

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