REGONAL MULTI-STAKEHOLDER CONSULTATION ON “FINANCING ACCESS TO UTILITIES FOR ALL”

ENSURING SUSTAINABLE ACCESS TO ELECTRICITY FOR THE POOR THROUGH

INTERNAL REVENUE GENERATION

PRESENTATION BY MOSES E ZULU

DIRECTOR OF FINANCE, ZESCO

24 APRIL 2007

INTERCONTINENTAL HOTEL, LUSAKA

PRESENTATION OUTLINE

• WHO ARE THE POOR?• LOW NATIONAL ACCESS RATES• CAUSES• POSSIBLE SOLUTIONS• MINIMISING COST OF ELECTRICITY• RECOVERING COST OF OPERATIONS• NEED FOR SUBSIDIES• BEYOND COST RECOVERY• CONCLUSION

WHO ARE THE POOR?

• BY PER CAPITA INCOME

• BY RESIDENCE– URBAN/RURAL– HIGH COST/LOW COST RESIDENCE

• BY OTHER MEANS

NATIONAL ACCESS RATES

• DEFINITION OF ACCESS:-

-INDIVIDUAL CONNECTION

-ACCESS TO FACILITIES E.G. SCHOOLS, CLINICS, CMMUNITY CENTRES WITH ELECTRICITY

• ELECTRIFICATION STANDARDS-INIHIBITION TO ACCESS– CANT ELECTRIFY THATCHED HOUSES– MUD HOUSES– ETC

ZAMBIA ACCESS RATES

• NATIONAL AVERAGE 23%– URBAN 44%– RURAL 2%

ACCES: WHY NOT 100%

• SIZE OF ZAMBIA 752,000 SQ. KM

• POPULATION DENSITY– HIGHER COSTS PER CONNECTION $1000– HIGHER COST FOR O&M

• LOW PER CAPITA INCOMES– $300 UP TO 2005– ROSE TO $800 BY END 2006

• POOR PAYING CULTURE

D R CONGO

TANZANIA

MA

LA

WI

MOZAMBIQUE

ZIMBABWE

NAKONDE

KASAMA ISOKA

CHINSALI

MPOROKOSO

LUWINGU

MPIKA

PENSULO

SERENJE

CHIPATA

CHIRUNDU

LEOPARDS HILL

KARIBA SOUTH

MUSONDA FALLS (5MW)

LUSIWASI(12MW)

MULUNGUSHI(20MW)

MSORO

LUNDAZI

MFUE

AZELELUNSEMFWA(18MW)

CHISHIMBA FALLS

LUNZUA(0.75MW)

MBALA

SAMFYA

KASHIKISHI

PETAUKE

MOMBUTUTA

CHIENGI

LUAPULA RIVER

To Sumbuwanga

KALUNGWISHI RIVER

MPULUNGU

NAMIBIABOTSWANA

ANGOLA

KALABO MONGU

SENANGA

SESHEKE

SOLWEZI

ITEZHI – TEZHI(120MW)

VICTORIA FALLS(108MW)

MUZUMA

MICHELO

LUANO

KITWE

MAPOSA

KANSUSWA

KABWE

KAPIRIMPOSHI

MPONGWE

LUSAKA WEST

KAFUE WEST KAFUE TOWN KAFUE LOWER(750MW)KAFUE GORGE

900MW(1080MW)

KARIBA NORTH(600MW(750MW)

LAKE KARIBA

MAZABUKA

MUMBWA

MANSA

MAMBILIMA

KA

FUE

RIV

ER

ZA

MB

EZ

I

RIV

ER

CHAMBESHI

RIVER

WEST LUNGA at West Lunga River(2.5MW)

KASEMPA CHIKATA FALLS (3.5MW)

MUFUMBWE

LUKULU

KAOMA

220kV

22o East

33.5o East

8o

18oKATIMAMULILO

ZAMBEZI

LUANGWA

132kV

88kV

66kV

330kV

EXISTING POWER\SUBSTATIONSAND POWER LINES

PROPOSED POWER\SUBSTATIONSAND POWER LINES

330kV

220kV

132kV

88kV

66kV

HYDRO POWERSTATION

SUBSTATION

DIESEL STATION

PROPOSED HYDROPOWERSTATION

PROPOSED SUBSTATION

PROPOSED DIESEL STATION

CHONGWE

CHAVUMA

KABOMPO

MWINILUNGA

KANSANSHI

LUMWANA (Mine)

KAPUTA

NCHELENGE

CHAMA

KUNDABWIKA (101MW)

KABWELUME (62MW)

KAWAMBWA TEA

MBERESHI

LUSIWASIEXTENSION(40MW)

KARIBA NORTHEXTENSION(600MW(750MW)

BATOKA GORGE(800MW)

DEVILS GORGE(800MW)

BWANA MKUBWA

ROMA

COV.

NAMPUNDWE

MAAMBA

KATIMAMULILO

KABOMPO Gorge(34MW)

LuangwaBridge

Mkushi

MkushiFarm Block

Mkushi Central

Kawambwa Town

Chambasitu

SHANGOMBO

MUYOMBE

ZESCO GRID (66 – 330kV)

ZESCO

POSSIBLE SOLTUIONS

• ACCELERATE NATIONAL DEVELOPMENT– INCREASE PER CAPITA INCOMES– DEVELOP PRO-POOR POLICIES

• ELECTRICITY KEY TO NATIONAL DEVELOPMENT– MOST BUSINESSES REQUIRE ELECTRICITY– MINING– AGRICULTURE– COMMERCIAL– INDUSTRIAL– TOURISM– SERVICES (EDUCATION, HOSPITAL, ETC)

• ELECTRICITY SUPPORTS ALL THESE BUSINESSES AND SERVICES– THUS SUPPORTING THE POOR

MINIMISING COST OF ELECTRICITY

• NEEDS OF THE POOR– FOOD, CLOTHING, EDUCATION, WORK,

HEALTH, ETC– LIGHTING, COOKING, STUDY

_ INCOME GENERATING ACTIVITIES (SMALL SCALE INDUSTRIES)

ALL SUPPORTED BY ELECTRICITY

RECOVERING COSTS

• CONNECTION COSTS• OPERATIONS AND MAINTENANCE COSTS

– GENERATION, TRANSMISSION, DISTRIBUTION, SUPPLY COSTS

– SYSTEM MAINTENANCE & STRENGTHENING COSTS

• NEED TO RECOVER ALL COSTS • QUALITY OF SERVICE DEPENDS ON COST

RECOVERY • COST RECOVERY PLUS MARGIN

NECESSARY FOR NEW INVESTMENT • OTHERWISE NO SYSTEM EXPANSION, NO

INCREASED ACCESS

RECOVERING COSTS

• NEED FOR APPROPRIATE TARIFFS– DIESEL PLANT COST 27Cents/kWh – TARIFF IS 3.1Cents/kWh

• CURRENT ZESCO TARIFFS BELOW COST RECOVERY– LOWEST IN THE REGION

• LOW TARIFFS DISCOURAGE INVESTMENTS– RECOGNISED IN GRZ/ERB COST OF SERVICE

STUDY– SOME PRIVATE SECTOR IPPs WANT TO SELL TO

ZESCO AT TARIFFS HIGHER THAN ZESCO SELLING PRICE

COUNTRY DOMESTIC COMMERCIAL INDUSTRY900KWH 5000 2500KVA@80%LF

ANGOLA 0.059 0.042 0.033BOTSWANA 0.070 0.068 0.047KENYA 0.104 0.105 0.068MALAWI 0.034 0.060 0.039MOZAMBIQUE 0.165 0.160 0.053NAMIBIA 0.090 0.089 0.069SOUTH AFRICA 0.063 0.051 0.025UGANDA 0.119 0.116 0.035ZAMBIA 0.031 0.048 0.034ZIMBABWE 0.010 0.044 0.060

REGIONAL ELECTRICITY PRICESUS$/KWH

RECOVERING COSTS

• LOOMING NATIONAL & REGIONAL DEFICIT• HUGE INVESTMENTS IN GENERATION AND

TRANSMISSION REQUIRED– REQUIRES SUPPORTING TARIFFS

• COST OF IMPORTS MUST BE RECOVERED –REGULATOR’S SUPPORT NECESSARY

• LOANS FOR PRP & OTHER PRIOR SYSTEM WORKS NOW BECOMING DUE– LOAN REPAYMENT DIFFICULT WITHOUT COST

RECOVERY– POOR PEOPLE WILL HAVE EVEN LESS ACCESS

INSTALLED CAPACITY vs ANNUAL MAXIMUM DEMAND

0

10,000

20,000

30,000

40,000

50,000

60,000

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

YEAR

MW

INSTALLEDCAPACITY

MW

Rapid Load Growth

Available Capacity

NEED FOR SUBSIDIES

• DEVELOPED COUNTRIES HAVE SUBSIDIES TO ELECTRICITY BY WAY OF:– GRANTS OR TAX WAIVERS– CONSUMPTION SUPPORT THRU WELFARE PAYMENTS

(FOOD, HOUSING, TRANSPORT, ELECTRICTY, ETC)

ZAMBIA DOES NOT HAVE WELFARE PAYOUTS– ONLY LIFELINE TARIFFS– ROLE OF RURAL ELECTRIFICATION AUTHORITY

• POSSIBILITY OF CROSS-SUBSIDIES– ONE CUSTOMER CATEGORY PAYS MORE THAN ITS COST

OF SUPPLY TO SUPPORT ANOTHER CATEGORY WHICH IS DISADVANTAGED

NEED FOR SUBSIDIES

• ROLE OF MINES & INDUSTRIAL CUSTOMERS– CURRENT TARIFFS AVERAGE 2.1 CENTS– REAL COST TARIFF 4.2 CENTS– IF THEY GET COST REFLECTIVE TARIFFS

BENEFIT CAN GO TO POOR CUSTOMERS

• POSSIBILITY OF MULTI-YEAR PROGRESSION TARIFFS– HELPS CUSHION THE IMPACT ON POOR

CUSTOMERS

NEED FOR SUBSIDIES

• USE OF ELECTRICTY– DEVELOPED COUNTRIES USE GAS FOR

COOKING– RECOMMEND THAT ALL NEW HOUSES TO HAVE

SOLAR PANELS FOR HEATING– DEVELOPED COUNTRIES HAVE LIFELINE UNITS

OF UP TO 50– ZAMBIA’S LIFELINE TARIFFS CURRENTLY 300

UNITS – SHOULD ADOPT LOWER UNITS AND RECOVER

FULL COST FROM NON-POOR

BEYOND COST RECOVERY

• ALLOCATING STATE REVENUES TO UTILITIES– CURRENTLY THRU ELECTRIFICATION LEVY– AMOUNTS RAISED NOT ENOUGH

• NEED FOR BUDGET SUPPORT– JUST LIKE AGRICULTURE (CATLE RESTOKING, FARMERS’

PACK, ETC– TOURISM DEVELOPENT FUND– WITHOUT SUPPORT, ALL GOVERNMENT INVESTMENT IN

OTHER SECTORS MAY BE AFFECTED

• INTENSIFY PPP– REQUIRES COST-REFLECTIVE TARIFFS– OTHERWISE NO OFFTAKERS

BEYOND COST RECOVERY

• WHAT HAS KEPT PRIVATE SECTOR AWAY FROM ELECTRICITY?

• DEAL WITH STRUCTURAL ISSUES

• DEAL WITH POLICY ISSUES

CONCLUSION

• NEED TO ACCELERATE RURAL ELECTRIFICATION (60% OF POP.)

• ALSO NEED TO INCREASE ACCESS IN PERI-URBAN AREAS

• FUNDING FROM INTERNAL RESOURCES MEANS FULL COST RECOVERY

• GRZ SIGNIFICANT SUBSIDIES THRU REA REQUIRED

• HUGE INVESTMENTS IN NEW GENERATION SOURCES AND RETICULATION NEEDED

THANK YOU