Maravi

Govt should have avoided power shortages, says Konga

Govt should have avoided power shortages, says Konga
By Joan Chirwa and Chiwoyu Sinyangwe
Tuesday March 11, 2008 [03:00]

GOVERNMENT should have taken necessary measures to avoid the electricity shortages in Zambia as experts advised, energy and water development minister Kenneth Konga has said. And the World Bank has said it will be impossible for Zambia to attract private sector investment into power generation as long as government fails to put right policies in place.

Meanwhile, Zesco Limited has predicted Zambia's power demand to sky-rocket to 2,500 mega watts (MW) in the next five years from the current estimated 1,300 MW.

In an interview, Konga said experts had projected a power shortage several years back, saying the government should have put in place necessary strategies for increased investments in generation to avoid an electricity deficit.

Konga said Zesco Limited should therefore not entirely be blamed for the current power shortages as the government should have put come up with incentives to attract investments in the sector.

“The truth is that experts advised us that there would be a power shortage and this is exactly what is happening. So to entirely put the blame on Zesco’s management for the current power shortage is far-fetched,” Konga said.

“The projections that were made about 10 years ago indicated that Zambia, like many other countries in the region, would have a power shortage and government should have then taken measures to ensure that there were investments in the energy sector to avoid electricity shortages.”

Zesco Limited has intensified its load shedding programme, as demand for electricity continues to outstrip supply.

The company's current generation capacity stands at around 1,000 mega watts of electricity against a peak demand of over 1,400 mega watts.

Load shedding has now become more intense following the suspension of electricity imports from neighbouring countries due to the region’s power deficit.

Several manufacturing companies have begun to feel the impact of the power shortages, with Parmalat Zambia Limited announcing a decline in production of dairy products for the Zambian market.

Zamanita Limited, a wholly-owned subsidiary of Zambeef Products Plc, also indicated that over K1 billion had been lost due to reduced production of edible oils as a result of power outages.

According to recent statistics compiled by the Southern African Power Pool (SAPP), power demand in the SADC region has been increasing at a rate of about three per cent per annum over the last 15 years.

But there have been no corresponding investments in generation and transmission infrastructure to match the increase in the demand, and as a result, generation surplus capacity has been diminishing steadily over the past few years.

The total installed capacity in countries included in SAPP is about 53,000 mega watts, but available capacity is only 45,000 mega watts due to technical limitations.

The dependable capacity is further reduced to 41,000 mega watts as the available hydro capacity varies depending on season and other constraints.

The peak demand in 2006 was 42,000 mega watts resulting in load shedding in some extensive parts of the region.

Zambia's power utility Zesco Limited is currently carrying out rehabilitation works on all its major generation and transmission plants, a project that is likely to take the next four years before it is completed.

Up-rating of some equipment is also in progress, the exercise that is likely to increase Zesco’s total installed capacity to close to 2,000 mega watts in the next few years.

During last year’s SADC meeting held in Lusaka, it was noted that the power deficit would negatively affect the economies of the region and potential investors, considering that electricity is a critical component in production.

SADC countries were therefore urged to urgently implement the main power generation and transmission projects in view of the region’s power deficit.

The rise in regional power demand has been largely on account of economic expansion in member states requiring more power to supply the new industries, increase in population of most SADC countries, non-economic tariffs in most member states that do not support re-investments in power generation as well as insignificant capital injection into generation and transmission projects from either the private or the public sectors.

The South African government recently announced that it would invest millions of rands into Eskom’s operations for efficient power generation and supply to the country - one of Africa’s largest economies.

And Konga further said the government was concerned with Zesco staff costs, which he said were currently high and needed to be looked more critically.

“The limited investments being made in Zesco also has to do with the company’s performance were staff costs have been quite high,” Konga said. “Government is currently looking into the issue of staff costs that are being incurred by Zesco Limited.”

A recent independent study conducted by the Norton Base, IPA Energy Consulting and PB Power revealed that staff costs had been Zesco's major expenditure item in the company's income statement, which accounted for 50 per cent of the total costs three years ago.

The study stated that staff costs, that include basic pay, over-time, allowances such as housing, travel, medical, hardship, inducement, transport, standby and shift allowances, leave pay, pension contributions, funeral grants, and retirement benefits were a major expenditure for Zesco Limited.

The report stated that Zesco's staff costs were growing rapidly even though the power utility was reporting that staff numbers were decreasing.

The Cost of Service Study was conducted over 12 months in collaboration with Zesco Limited and the ERB as part of the government's commercialization programme for the power utility.

And World Bank country manager Kapil Kapoor said while most players in the private sector were willing to invest in power generation, they felt discouraged by the sector’s low profitability in Zambia.

“Private sector participation in the energy sector is not only possible but there is a great deal of interest in it - but the policy environment must be right,” Kapoor stated in response to a press query. “Let me just take one policy issue, which has been discussed quite a lot recently, which is the tariff issue.

“According to most observers, a conservative estimate of the cost of generating 1 kilowatt per hour (kwh) of electricity is 4-5 US cents; it is not unusual to find costs going as high as 9-10 US cents per kwh in various parts of the world. The tariff in Zambia is under three US cents per kwh, even after the recent increase. Why would investors come and invest in generation if they cannot make a profit?”

He stated that electricity tariffs in the country had lagged behind the inflation rate, adding that Zambia had also one of the highest petroleum prices on the continent.

“Twenty years ago, the price per kilowatt hour of electricity in Zambia was 5 US cents per kwh,” Kapoor stated. “Over the years, tariff adjustments have not kept pace with inflation. So, today you have a situation in Zambia where the price of petroleum is one of the highest in Africa, while the price of electricity is among the lowest.”

He further stated that an increase in electricity tariffs should correspond with Zesco’s efficiency levels in service delivery.

“But increasing tariffs is only part of the solution. This has to be accompanied by improvements in efficiency, which means reducing technical losses, aggressive metering;

improving billing and collection; reducing the arrears that are owed to Zesco; reducing Zesco staff costs and helping Zesco invest in updated plant and equipment,” Kapoor said.

He also stated that privatizing the power utility was not a major solution to the current problems in the sector, stressing that policy reforms in the industry was paramount.

Kapoor however stated that privatising Zesco was only one way of the options of achieving efficiency in the electricity sector.

“Privatising Zesco is not necessarily the solution because privatisation without any change in the policy environment will also result in the private provider operating at a loss and they will have to stop operations,” Kapoor explained.

“From my point of view, what is critical is to make sure that Zesco operates in a policy environment that allows it to deliver energy services efficiently, at the lowest cost possible - while at the same time generating revenues that allow for the expansion in capacity so that the nation's energy needs can be met.”

Kapoor observed that there were several other options that could be considered, based on international experience.

He stated that World Bank and other institutions were willing to render both financial and technical assistance towards the development of the energy sector in Zambia.

And responding to a press query, ERB communications officer Kwali Mfuni said while the new electricity tariffs provided a good return for Zesco, they also addressed needs and concerns of consumers such as local industries, farmers and domestic users.

“The Energy Regulation Board (ERB) has adjusted electricity tariffs 11 times between 1998 and 2007. In all those adjustments, the ERB has been guided by the need to strike a balance between consumer interests and utility interests,” Mfuni said.

“It must be noted, however, that until 2007, the actual cost of providing electricity was not known. Thus, a study was commissioned in 2006 by ERB to determine how much it cost Zesco to provide a unit of electricity to various customer categories. This study was very important in determining what cost reflective or economic tariffs would be for each customer category.”

She explained that the essence of commissioning the Cost of Service Study was to provide a basis upon which economic tariffs would be determined and that ERB tariff decision of 2007 was largely based on the Cost of Service Study.

And Zesco Limited says power demand in Zambia is expected to reach 2,500 MW in the next five years as investments in major economic sectors increase.

“The installed capacity of the Zambian electricity grid is 1,600 Mega Watts, of which 450 Mega Watts has been taken out for rehabilitation and up rating. Two machines from Kafue Gorge, each with a capacity of 150 Mega Watts and one machine from Kariba North Bank Power Station with a capacity of 150 Mega Watts, giving a total machine outage of 450 MW,” said Monica Chisela, Zesco Limited’s senior marketing and public relations manager.

“The current maximum demand is estimated to be 1,300 MW and it is anticipated to reach 2500MW in the next five years. We also need to keep a reserve of 150 MW as a safety measure to prevent total black out in the event of system disturbance. During the evening peak, 300 MW has to be shed off in order to save the machines from total collapse should the demand exceed available supply.”

Labels: ENERGY, SADC, ZESCO

posted by MrK @ 5:52 AM