By Mwaala Mwenzo
Why is Our Power Sector in a Bind?
As our airplane descended to make its landing in Zambia’s capital, something was different. I stared through my window and thought how dark Lusaka’s skyline was, as though a dark, thick blanket was draped over it.
Arguably, 2024 has etched itself in history as the darkest year for Zambia’s “urbanites” since electricity became widely available. Urbanites, in this instance, include anyone who consumes power supplied by the national utility, ZESCO, regardless of geographical location. Non-urbanites are excluded because for many electricity, especially ZESCO’s, is not the norm.
While the power scarcity in 2024 has been brutal, it is not the first. As a nation, we sure hope it is the last! If the 2024 power shortage and long hours of load shedding are not the first, or even the second or third, the question is why do we keep enduring the same painfully retrogressive experience over and over? What lessons haven’t been learned and why haven’t solutions been found?
The hard truth is that Zambia will continue experiencing power shortages every few years or every year unless a real awakening happens. Like cholera in the rainy season, power challenges have become cyclical chiefly because the necessary actions have not been taken—or not taken fast enough—to break the cycle.
Policy Positions
‘Promoting optimum supply and utilization of energy to facilitate the socioeconomic development of the country and maintenance of a safe and healthy environment, restructuring the electricity industry to improve service delivery, developing the country’s hydropotential, and taking advantage of Zambia’s strategic location in the region’ are aspirations and undertakings stated in the National Energy Policy. You would think it’s the current policy, 2019, but these words were written 30 years ago and are contained in Zambia’s first-ever National Energy Policy issued in 1994! Has anything changed?
At a policy level, the right sounds and movements have long been made, but all that amounts to nothing if implementation and enforcement lag. Policy pronouncements or enacting legislation alone do not translate into the necessary action and impact on the ground.
While Zambia’s energy sector was liberalized in 1995 with the enactment of the Electricity Act, actual reform has been slow to come. The Electricity Act enabled the first power asset privatization—the ZCCM Power Division, now Copperbelt Energy Corporation—in 1997 followed by Lunsemfwa Hydro Power Company in 2001. Then it went cold. ZESCO was not privatized and, until recently, with the operationalization of open access, the electricity market was structured on a single-buyer model where ZESCO was designated the sole purchaser of all electricity produced by independent power producers (IPPs). Needless to say, for a company that has been in financial dire straits for nearly four decades, that is a heavy burden.
Is ZESCO the Weak Link?
ZESCO’s financial problems first surfaced in 1988. The utility’s ‘good run’ lasted a short 18 years from its formation in 1970. By 1988, the company was showing stress from a combination of factors. The Zambian economy was in serious decline, and the state lacked the funds to invest in power or maintain the existing assets. The private sector was not in the picture, foreign currency was hard to access.
With falling exports and a stagnant domestic market, demand for ZESCO’s power fell. Compounded by low staff productivity and low tariffs, inadequate to provide reserves for operations and maintenance, ZESCO’s financial health was becoming precipitously weak. 36 years later, there appears to have been little change since this diagnosis.
Inevitably, it has accumulated huge debts to IPPs for power supplies. Additionally, many projects have died unrealized because investors could not sink money into developments for which they had no certainty of payment or return. ZESCO has signed many power purchase agreements over the years, but how many of those have been actualized into power assets? The utility’s bankability, lack of liquidity, and high indebtedness are hurdles but not the be-all and end-all of the country’s power problems.
Zambia’s first energy policy sought to cure these problems by first, restructuring the electricity industry and introducing liberalization to allow other companies to participate, commercializing ZESCO, privatizing its distribution segment, and restructuring the cost of power (tariffs).
This was 30 years ago but does this not sound familiar today?
From Paper to Action
This background demonstrates that the policymakers and technocrats know the problems and where they lie. What must be done to move the needle?
From a policy and legislative perspective, the National Energy Policy and Electricity Act of 2019 progressed the industry restructuring agenda, providing for a system operator – which should ideally be an independent entity – and permitting licensed industry participants to access and use the transmission and distribution networks owned and operated by other entities. As the ongoing crisis sank its fangs deeper, the government quickly approved regulations to, among others, operationalize the electricity open access.
The practical application and benefits of this can be seen in how mining companies, including the North-Western giant First Quantum Minerals, have been able to access power outside of ZESCO to keep their operations running during this crisis when ZESCO cannot provide their full requirements. Private power traders have secured power from their sources in Southern Africa and supplied it to their mine customers using the ZESCO network. That is evidence of a liberal power market structure. While progress here is noted, reform work remains for the market to fully operate as a free model.
Insufficient energy is what got Zambia in the bind it’s currently in. Of course, there’s a cause behind the cause—drought—but one could almost certainly say we wouldn’t be here had certain actions been taken long before. While the assets with the capacity to produce all the power the country needs are there, the fuel to produce the power is insufficient.
Zambia has relied too much and too long on a single source of power, such that at least 85% of its current generation is from hydropower. Much as hydroelectricity is clean energy those credentials count for nothing when the country’s growth is decimated as the economy is starved of power.
Not only has Zambia not developed all of its estimated potential 6,000MW of hydropower, aspired to from as far back as 1994, but it has also dismally underexploited its other endowments including solar and coal. Practically, this means the water sources located in various parts of the country, which can be exploited for electricity remain untapped, leading to the lack of geographical diversity. When all the generating assets are located in the same location, adverse weather conditions in that area almost certainly mean that all the generating assets will be similarly affected. We are living through that right now with the drought drying up the Zambezi and Kafue river basins on which our large power-generating stations located south of the country rely. Had we developed the hydro potential in Luapula and the other northern parts, the severity of the power crisis would have been much reduced.
Borrowing from the Minister of Finance, Dr. Situmbeko Musokotwane’s words when he presented the 2025 National Budget to the National Assembly: all stakeholders are to blame for today’s power crisis. We must all share in the blame for inaction because despite experts telling us what was needed decades ago, we have resisted. Chiefly, Zambian power consumers have refused to acknowledge that the rate at which they pay for power is too low to support quality supply and service delivery, let alone new investments.
Capital will not come to Zambia’s power sector if the owners or providers of the money can’t get a decent return on their investment. Zambia’s power sector has been stuck in this rut for more than 40 years. Low tariffs are one of the major factors affecting investment in the power sector across the value chain. Consumers don’t pay enough to make the value chain attractive to capital. But even with the evidence, people still argue and believe they pay a lot already.
With the Electricity Act providing for multi-year tariff adjustments, the prospects for our market attaining tariffs that reflect the cost of producing and supplying power could be within reach. The predictability of the cost movements also enables investors a level of certainty and confidence about their projections. In 2023, the Energy Regulation Board approved the first five-year tariff plan for ZESCO covering 2023 to 2027.
Working together with progressive policies, legislation, and regulation, economic tariffs will unlock new investments in the power sector for it to expand and thrive beyond hydropower, coal, solar, and wind. Building transmission and distribution networks will open new markets, customers, trade routes, and opportunities.
The answers to our power dilemma lie in the elements and variables already known.
