Zambia Plans to Revisit Power-Tariff Increase After Reversal

  • Electricity subsidies strain the budget amid low metal prices
  • Zambia buying expensive emergency imports to cushion deficit

Zambia still plans to raise power tariffs to levels that reflect the cost of supplies after calling off intentions to more than triple them this year, Energy Minister Dora Siliya said.

State-owned electricity supplier Zesco Ltd. withdrew its application to increase charges for households, businesses and factories this month, after the regulator approved it in December. The move was meant to help the company pay for emergency imports as the southern African nation faces a supply deficit, as well as to attract private investment in generation.

“We are trying to balance economic issues with social issues and clearly the political leadership feels if there are public complaints, we have to respond,” Siliya said in an interview in Johannesburg. “Now, that does not in any way mean that we have shifted from the idea of moving the tariffs from cost-reflective levels -- no. We just said that maybe we need to do it in another way and move them progressively.”

The government would need to provide about $340 million in support to Zesco in 2016 without higher prices, according to the World Bank. That will further strain the budget of Africa’s second-biggest copper producer, which is already struggling amid plunging metal prices and a power crisis that has slowed growth. The government is reluctant to cut subsidies too sharply ahead of elections set for August.

Dams Drained

While low rainfall and Zesco’s overuse of water in hydropower dams that account for almost all of Zambia’s generation are the main contributors to the severe electricity deficit, low tariffs and a lack of investment in new plants have exacerbated the situation. The country remains committed that “to sustain the energy sector, we have to have cost-reflective tariffs,” Siliya said.

Pricing has been the main challenge in encouraging solar-power projects in the southern African nation, she said. Zesco had rejected the 12 cents to 15 cents per kilowatt-hour potential solar-energy providers were offering three months ago, Siliya said. The utility has indicated it would only be willing to start talks with solar companies if the price was less than 12 cents per kilowatt-hour, she said.

Powership Supplier

The government has made a down payment of about $22 million to Karadeniz Energy Group, the Turkish supplier of powerships, for a vessel that will dock off the coast of Mozambique and provide Zambia with 200 megawatts of emergency electricity, Siliya said. The ship is on its way and a transmission line is almost complete. These supplies will cost $18 million a month, she said.

The barge will arrive at Nacala port Feb. 19 and be operational 10 days later, making it the first such vessel to supply power across national boundaries, Patrick O’Driscoll, sales director at Karadeniz Holdings, said in reply to e-mailed questions. Nacala is on Mozambique’s north coast, about 1,330 kilometers (827 miles) east of Lusaka, Zambia’s capital.

The government subsidizes power for most users, who pay about 7 cents a kilowatt hour, according to Siliya. Zambia raised charges for mining companies that account for 55 percent of demand to 10.35 cents a kilowatt hour effective Jan. 1, an increase that wasn’t factored into the World Bank’s calculation of how much government support Zesco will require in 2016.

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