Maravi

‘Proposed monitoring of Zesco is a threat to ERB’

‘Proposed monitoring of Zesco is a threat to ERB’
Written by Chiwoyu Sinyangwe
Saturday, July 25, 2009 7:28:51 PM

FINANCE minister Dr Situmbeko Musokotwane’s proposed monitoring criteria for Zesco’s performance threatens the relevance of Energy Regulation Board.

According to the Letter of Intent to International Monetary Fund managing director Dominique Strauss-Kahn, Dr Musokotwane stated that the government wanted to improve the performance of Zesco because it was aware of the current shortage of power and the risk it posed to sustained growth.

“Although the completion of the power station rehabilitation project will restore generating capacity and reduce load shedding temporarily, new capacity is needed to meet increased demand over the medium term.

Policies will be strengthened to ensure that sufficient electricity generation capacity is installed as quickly as possible,” Dr Musokotwane stated “To this end, the government has adopted a new electricity strategy with measures to adjust electricity tariffs to reflect the cost of service; (ii) attract private investments and competition in the sector; increase the operational efficiency of Zesco and strengthen its governance; and ensure that Zesco has sufficient resources to implement the planned rehabilitation and new generation projects.”

Dr Musokotwane stated that specifically, a revised electricity tariff schedule that would raise the average tariff significantly for 2009 would be adopted and a public announcement would be made of the indicative tariff levels for 2010-11 consistent with the policy to reach cost-reflective levels by 2011, with end of last month being put as structural benchmark.

He stated that the announced indicative tariff levels would reflect the cost of the planned large-scale investment in new generation and other electricity structure, and take into account the tariff setting for the mining sector.

Dr Musokotwane told IMF that in order to encourage more private sector participation in electricity generation, the government would submit the necessary legislation to Parliament for the Zambian Grid Code, which would set out rules and procedures for the operation and pricing of the transmission network by end of this year.

“Further, the management of Zesco will, by June 2009, enter into a performance contract with the Government designed to improve the efficiency and corporate governance of Zesco. The contract will stipulate a number of efficiency enhancing and cost cutting measures with the purpose of reducing Zesco’s operational expenditures, including on wages and salaries,” he stated. “It will also require Zesco to submit semi-annual reports on its overall operations to the committee of ministers tasked with implementing the electricity strategy, in order to monitor progress in implementing the agreed cost cutting measures.”

Dr Musokotwane’s approach has unsettled some senior electricity experts within ERB who have called on the government to clearly state the relationship between the ministerial committee and the energy regulator.

“I don’t think ERB is aware of that because it sounds like usurping the powers of ERB. What that basically means is that by taking over the regulatory regime of ERB amounts to passing a vote of thanks,” the source within ERB who asked not to be named said without giving much information on the matter. “But the best approach you can take is that since the announcement came from honourable Musokotwane, protocol does not allow that we comment, so maybe get in touch with honourable Konga, our minister.”

ERB uses the Key Performance Indicators (KPIs) to monitor the performance of Zesco.

The principle behind KPIs, which are intended to address areas of concern such as quality of service and institutional efficiency among others were for Zesco to implement self-enforcing incentives embedded in the electricity tariff structure.

During the last assessment by ERB, Zesco scored 42 per cent in the first quarter, 41 per cent in the second quarter and 51 per cent in the third quarter of 2008 in implementing KPIs.

KPIs were agreed upon between Zesco and ERB in 2007 and the indicators aspect of the evaluation of any consideration for tariff adjustment by the power utility.

And when reached for a comment, Konga said there was need to ensure that Zesco adhered to good corporate governance principles and that the exercise was being done by ERB.

Konga said being a public institution Zesco was supposed to be benchmarked so that the output was as per expectation.

The idea is that ERB is supposed to set the benchmarks regarding the financial, technical and customer performance so that Zesco lives up to the expectations of stakeholders and financiers

Konga who seemed surprised said: “Regrettably, I have not yet seen that letter you are talking about but by and large, there is need to ensure we bring to live and perform to customer expectation and the investor.”

Konga requested Business Post to send him a copy so that he could respond competently and by press time, the minister had not.

Recently, the government announced that it is this year going to borrow on nonconcessional terms US$ 400 million for international financial institutions to enable Zesco deal with the current bottlenecks in the energy sector.

Currently, the government through Zesco is seeking financing to carry out two hydropower investment projects namely the Kariba North Bank Extension and the Itezhi-Tezhi Power Station.

It is understood that Zesco required US $800 million for new projects and rehabilitation of existing infrastructure.

Labels: CORRUPTION, DOMINIQUE STRAUSS-KAHN, ERB, SITUMBEKO MUSOKOTWANE, ZESCO

posted by MrK @ 6:29 PM