Zesco is financially unviable - IMF

Zesco is financially unviable - IMF
By Chiwoyu Sinyangwe
Thursday May 08, 2008 [04:00]

ZESCO is a financially unviable company that is incapable of mobilising resources for the necessary expansion of power generation and the electricity grid, the IMF has stated. According to a recent summary paper titled, "Electric power in Zambia - potential obstacle to growth by the International Monetary Fund (IMF)", Zesco would have a hard time raising the needed finances for investment even if it raised electricity tariffs due to its track record and weak balance sheet.

"Zesco is a troubled company, beset by inefficiencies and high costs and the company's inefficiencies and high costs are well known. This has undoubtedly contributed to the strong resistance to increases in electricity tariffs," IMF stated.

"Zesco has accumulated substantial tax arrears, while a number of government agencies and parastatals, particularly water utilities, have failed to pay their electricity bills on time. At current revenue and cost levels, Zesco is a financially unviable company that is incapable of mobilising resources for the necessary expansion of power generation and the electricity grid.

"Even with an increase in tariffs, Zesco will continue to have a hard time raising the needed financing for investment because of its track record and weak balance sheet."

Zesco Limited has in recent times engaged in mobilisation of funds for its power rehabilitation projects aimed at improving its existing power plants as well as construction of new generation facilities.

And the IMF also stated that the government should also re-evaluate the role of Zesco in the expansion of the country's power sector and explore more fully the role that the private sector could play.

The Fund also supported calls for unbundling of the power utility company, stating that the move would enhance Zesco's efficiency as well as encourage private sector participation in the country's energy sector.

It also reiterated that the only way to encourage private sector investment in the electricity generation sector was by raising electricity tariffs to cost recovery levels.

"Once a decision has been taken to raise tariffs to cost recovery levels, it should be possible to attract private interest in investment in the power sector. This would require guaranteed access to the transmission network and suggests that the unbundling of Zesco's generation, transmission, and distribution operations could be necessary," the Fund stated.

The IMF further observed that although the government had shown reluctance to privatise Zesco, it should continue exploring the role the private sector could play in helping to alleviate the power shortage that has rocked the country.

Recently, a number of stakeholders called for the unbundling of Zesco Limited into three segments namely generation, transmission and distribution saying the move would improve efficiency of the country's monopoly power company.

However, Ministry of Energy declared that the government had no immediate plans to implement the decision, arguing that the current inefficiency at the power utility company was not management-related, but a result of inadequate funding.