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Kamanga urges urgent reforms of Zambia’s energy sector

NOW that a new administration is in place, Zesco Limited needs reorganisation, says energy expert Andrew Kamanga.

And Kamanga, who is North-Western Energy Corporation (NWEC) managing director, says there is nothing stopping Zesco and the Copperbelt Energy Corporation Plc from re-engaging each other over the now-lapsed Bulk Supply Agreement (BSA).

Meanwhile, Kamanga says Zambia’s energy sector needs urgent reform, but could only happen once the Energy Regulation Board (ERB) finally releases the Cost of Service Study.

Speaking during the Frank on Capital radio programme recently, Kamanga argued that Zesco needed unbundling to make the national power utility more commercially viable and responsive to the changing dynamics of the country’s energy sector

“We need to try and see if Zesco can be reorganised…there are words you don’t want to use like ‘unbundling’ because it sends a different message. But we need to reorganise the power market, and how do you do that? If I was a policymaker, my view, you would need to say, ‘yes, Zesco can concentrate on generation and transmission. In the new Act (Electricity Act No.
11), we even have a provision for ‘open access’ and this is where everyone who is generating power is free to use the infrastructure and this is the part where the regulator (Energy Regulation Board) has a role to play because they can now say, ‘the wheeling charge’ or the use of the open infrastructure, is regulated and whoever is generating should now be free to go and sell their power to wherever they think the market is,” Kamanga told Ambassador Frank Mutubila in Lusaka.

“So, the biggest opportunity, now, if government is thinking of making Zesco efficient, they need to change the market structure of the power industry, and I say that with a lot of conviction because it’s been done elsewhere, it’s working and we can do it even here. But most importantly, for government, if they have intentions of creating your so-called ‘private sector entrepreneurs’, particularly Zambian businessmen, you could create opportunities by transforming the power sector where you now say, ‘in each province we can have different distributors’. But the basic idea is that Zesco will not lose out because for argument sake, if Zesco is producing 3,000 megawatts, they’ll sell the 3,000MW to the same distributors, but they’ll not get involved in distribution in terms of cost because running a distribution network is the most expensive part of the chain. Even payments, Zesco will become cash rich because they’ll be dealing with distribution companies who will be paying upfront.”

And Kamanga bemoaned Zesco and CEC’s commercial dispute that culminated in the issuance of two controversial Statutory Instruments, but said that there was nothing stopping Zesco from re-engaging CEC if the lapsed agreements were not favourable to them.

He was responding to a question relating to why energy sector reforms in the power subsector were slow despite having the relevant legislation to support implementation.

“Today, as we speak, the (National Energy) Policy, the Act, they are all in place, but I think we are falling short on implementation, and I think this is where the real work is. We saw earlier in the year issues of Zesco and CEC, which even led to the (former) energy minister (Mathew Nkhuwa) signing a Statutory Instrument to take over the infrastructure of CEC. But my view has always been: if the agreements between CEC and Zesco were not commercially attractive to Zesco, there’s nothing, which would stop Zesco and CEC from re-engaging and ensuring that there’s win-win for both. Unlike a scenario where you now have to use the political advantage to disadvantage a private investor, especially that CEC, for all intents and purposes, is a listed company,” he said.

Meanwhile, Kamanga said Zambia’s energy sector needed urgent reform.

He noted this could only happen once the ERB finally releases the Cost of Service Study.

According to the ERB, progress on the much-anticipated Cost of Service Study had stalled due to COVID-19, with the appointed consultant having completed only three tasks out of the required 12 by the end of last year.

The Cost of Service Study has faced repeated suspensions in the last two years, first because of delays in the appointment of a new consultant to complete it, and now because of the COVID-19 pandemic.

Its delay has resulted in Zesco Limited’s controversial unprecedented tariff hike application, approved by the ERB in December 2019.

And according to the newly-enacted Energy Regulation Act No. 12 of 2019 and Electricity Act No. 11 of 2019, the ERB now has power to declare an emergency, which allows for a tariff consideration without a public hearing.

“Up-to-date, we’re still waiting for the ERB to give the Cost of Service study, which will give an idea of what tariffs will be applicable, even to the new investors. Looking at the 2019 National Energy Policy, it’s very clear; it’s open for new investment. But that new investment will only come if you are able to, first of all, bring in the funding for the projects and the lenders to those projects are going to be guaranteed that, yes, ‘if I invest, I’ll get a return and I’ll be able to pay back the loans’. And I think this is the real crux of the matter; you can have all the possible projects. But ultimately, every project has to go through a feasibility study, then it moves to a bankable feasibility, then, it goes to commercial operation. This is why the power industry normally operates on a cycle of 15-20 year agreements, and that, I think you need a little bit of patience to be able to realise,” he said.

Kamanga further said that the ERB’s tariffs for distributors within the electricity subsector must be embraced because new commercial opportunities were being realised.

The NWEC entity operates in North-Western Province, which buys power from Zesco in bulk to supply to its retail and commercial customers.

“But most importantly, beyond transmission, and this is where the bottleneck is because the biggest problems we’ve had in the power sector is the distribution, and I think this is where we’re involved. We (NWEC) are the only private distribution company; we do have an agreement with Zesco to buy in bulk, and the ERB recently came up with a tariff for distributors, which is a very good signal. It means that the market is ripe to allow for more players into the distribution space, and these are the changes we need to embrace,” said Kamanga.

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