Maravi

Zesco proposed hike is a threat to economy – Saasa

Zesco proposed hike is a threat to economy – Saasa
By Chiwoyu Sinyangwe
Tue 27 Apr. 2010, 15:30 CAT

THE proposed 36 per cent electricity tariff increase by Zesco is a threat to the local economy as it will hurt macroeconomic stability, Lusaka economic consultant Professor Oliver Saasa has observed.

And Zambia Chamber of Small and Medium Business Associations (ZCSMBA) executive secretary Maxwell Sichula has said the performance of Zesco continues to manifest inefficiency despite the power utility improved rating under the Energy Regulation Board (ERB) key benchmarks.

Zesco has proposed to increase electricity tariffs for 2010/11 by 36 per cent in line with the roadmap to reach cost-reflective levels.

Acting managing director Ernest Mupwaya stated that the current tariffs were still far below the cost-reflective levels required to maintain the power generation and supply infrastructure.

Last year, Zesco applied for 66 per cent tariff rise in electricity, but the ERB approved a 35 per cent average increase effective August 1, 2009 to 2010.

Commenting on the development, Prof Saasa said although the proposed electricity tariff adjustment was inline with the roadmap to reaching cost-reflective tariffs needed to ensure Zesco has enough revenues to invest in expansion of its generation and supply facilities as well as make the electricity generation sector attractive to private sector capital, there was need for a moderated approach to take care of the country’s macroeconomic targets.

Prof Saasa said there was need to balance between the need to achieve cost-reflective tariffs and macroeconomic stability in the country.

Prof Saasa said the proposed upward adjustment in power tariffs was a clear threat to the growth of the economy to targeted levels needed to make a dent on the high poverty levels in the country.

He cautioned that the tariff increase would lead to the country failing to contain the inflationary pressures, which recently were worsened by the increase in fuel prices.

Prof Saasa said the proposed 36 per cent electricity tariff increase would also lead to a surge in the cost of doing business.

Zambia's inflation accelerated to 10.2 per cent year-on-year in March from 9.8 per cent the previous last month, a jump the Central Statistical Office attributed to the increase in the prices of food products and public transport.

Most analysts predict that the country’s annual inflation rate for this year will close at around 12 to 13 per cent.

“I don’t think as Zesco continues with these adjustments, some of the economic targets will be met,” Prof Saasa said. “What we are going to see is that the producers in this country will pass on the increase to consumers and consumers will pass on to other consumers and this will certainly lead to a rise in inflation. And the consequence of all that is that the exchange rate will be affected, the interest rates will go up and so it will be difficult for the government to achieve even the economic growth target set for this year and that will definitely hurt our growth aspirations.”

Prof Saasa said there was need to ensure that electricity tariff adjustment targets were aligned to the country’s growth targets.

“Cost recovery levels are very important for any company to function in the free market but there is need to ensure the speed with which that is done is moderated because some sectors are strategic and any decision there do have ripple effects in all sectors of the economy,” he explained. “Whoever is doing that needs to be mindful that the graduation towards cost recovery levels needs to be done to moderate their impact on the general being of the economy.”

He called for a strong State to ensure there was an even platform for all economic interests in the country.

Prof Saasa said the government should either reduce the electricity surcharge costs borne by Zesco or outrightly provide some subsidies as a way cushioning the impact of this price hike on most key economic activities in the country.

He said the government subsidies in sensitive sectors were not entirely new as has been the case with fuel.

Prof Saasa said even the proposed uniform national pump price for fuel would only be achieved through Treasury subsidising consumers.

“In any case, ERB is owned by the government so they can instruct to say even as these people want a 36 per cent increase, only allow for, say, 20 per cent,” Prof Saasa said. “The government can also provide for subsidies through reducing the surcharges borne by the producer which, in this case is Zesco.”

Prof Saasa said there was need to learn from the time when the International Monetary Fund (IMF) and World Bank tailored economic policies of extreme liberalisation did a heavy damage to the local economy and almost ruined it down.

And separately, Sichula said although Zesco continued to score success measured against ERB Key Performance Indicators (KPIs), the reality on the ground was contrary.

ERB evaluates Zesco’s performance on KPIs on a quarterly basis in order to monitor its progress in improving efficiency and quality of service as agreed under the Multi Year Tariff Framework.

Sichula said there was need for improvement in the overall delivery of service by Zesco as the country moves towards cost-reflective tariffs.

He also said the proposed increase would impact negatively on the local businesses as it would increase the cost of doing business as electricity was a key input in the production line.

“We just hope that as they make these increases, they can become a little more efficient,” Sichula said. “People are still complaining…connection take months. So, we hope Zesco can offset these increases by becoming a little more efficient”

The ZCSMBA strongman also questioned the positive performance of Zesco against the ERB’s KPIs.

“I haven’t seen much from ERB and I hope they can keep a tab on Zesco,” said Sichula. “They maybe scoring on the estimation of ERB but on the ground, people feel a lot needs to be done.”

Labels: ECONOMY, ENERGY, OLIVER SAASA, ZESCO

posted by MrK @ 3:05 PM