REGONAL MULTISTAKEHOLDER CONSULTATION ON FINANCING ACCESS TO UTILITIES

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

ZESCO GRID (66 – 330 k. V) To Sumbuwanga KAPUTA 8 o TANZANIA CHIENGI MPULUNGU LUNZUA (0. 75 MW) KUNDABWIKA (101 MW) KASHIKISHI MPOROKOSO Kawambwa Town KALUNGWISHI RIVER KAWAMBWA TEA MAMBILIMA CHISHIMBA FALLS ISOKA KASAMA ER Chambasitu LUWINGU SH IR MUSONDA FALLS (5 MW) MUYOMBE MWINILUNGA WEST LUNGA at West Lunga River (2. 5 MW) ANGOLA CH A M BE CHINSALI MANSA MICHELO KANSANSHI SAMFYA LU AP SOLWEZI LUMWANA KABOMPO Gorge (Mine) UL A MOMBUTUTA RI VE R LUANO KANSUSWA PENSULO (34 MW) BWANA MKUBWA KITWE CHAVUMA MUFUMBWE MAPOSA CHIKATA FALLS (3. 5 MW) ZAMBEZI KABOMPO KAPIRI MPOSHI MPONGWE R RI VE KABWE MUMBWA NAMPUNDWE ROMA ZAMBEZI MONGU KAFUE WEST KAFUE TOWN RIVER ITEZHI – TEZHI (120 MW) SHANGOMBO Mkushi Central Mkushi Farm Block MSORO MUZUMA LAKE KARIBA KAFUE LOWER (750 MW) KATIMA MULILO SESHEKE NAMIBIA VICTORIA FALLS (108 MW) KATIMA MULILO CHIRUNDU KARIBA SOUTH BOTSWANA PETAUKE 33. 5 o East MOZAMBIQUE EXISTING POWERSUBSTATIONS AND POWER LINES 330 k. V 220 k. V 132 k. V 88 k. V HYDRO POWERSTATION 18 o SUBSTATION ZIMBABWE PROPOSED POWERSUBSTATIONS AND POWER LINES 330 k. V 66 k. V DEVILS GORGE (800 MW) BATOKA GORGE (800 MW) AZELE LUANGWA MAAMBA 22 o East CHIPATA LEOPARDS HILL KAFUE GORGE 900 MW(1080 MW) KARIBA NORTH (600 MW(750 MW) KARIBA NORTH EXTENSION (600 MW(750 MW) MAZABUKA SENANGA MFUE LUSIWASI EXTENSION (40 MW) MULUNGUSHI (20 MW) Luangwa CHONGWE Bridge LUSAKA WEST COV. KALABO LUNDAZI LUSIWASI (12 MW) LUNSEMFWA (18 MW) FU E KA KAOMA SERENJE Mkushi KASEMPA LUKULU CHAMA MPIKA MALAWI MBERESHI NAKONDE KABWELUME (62 MW) NCHELENGE IV DR CONGO ZESCO MBALA DIESEL STATION 66 k. V PROPOSED HYDROPOWERSTATION PROPOSED SUBSTATION PROPOSED DIESEL STATION

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 27 Cents/k. Wh – TARIFF IS 3. 1 Cents/k. Wh • 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

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

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 PERIURBAN 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