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PRESENTATION BY MOSES E ZULU DIRECTOR OF FINANCE, ZESCO 24 APRIL 2007

This presentation discusses the challenges of providing electricity access for the poor, including low national access rates and the need for subsidies. It also explores possible solutions, such as minimizing the cost of electricity and recovering the cost of operations. The presentation emphasizes the importance of electricity in national development and supporting businesses and services. It concludes with the need for appropriate tariffs and the possibility of cross-subsidies.

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PRESENTATION BY MOSES E ZULU DIRECTOR OF FINANCE, ZESCO 24 APRIL 2007

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  1. 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

  2. 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

  3. WHO ARE THE POOR? • BY PER CAPITA INCOME • BY RESIDENCE • URBAN/RURAL • HIGH COST/LOW COST RESIDENCE • BY OTHER MEANS

  4. 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

  5. ZAMBIA ACCESS RATES • NATIONAL AVERAGE 23% • URBAN 44% • RURAL 2%

  6. 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

  7. ZESCO GRID (66 – 330kV) To Sumbuwanga KAPUTA 8o TANZANIA CHIENGI MPULUNGU MBALA LUNZUA (0.75MW) KUNDABWIKA (101MW) D RCONGO ZESCO KASHIKISHI MPOROKOSO NAKONDE NCHELENGE KABWELUME (62MW) Kawambwa Town KALUNGWISHIRIVER MBERESHI KAWAMBWA TEA CHISHIMBAFALLS MAMBILIMA ISOKA KASAMA Chambasitu LUWINGU MUSONDAFALLS (5MW) MUYOMBE CHAMBESHIRIVER CHINSALI MWINILUNGA MANSA CHAMA MALAWI MICHELO SAMFYA WESTLUNGA at West Lunga River (2.5MW) KANSANSHI MPIKA MOMBUTUTA LUAPULARIVER ANGOLA SOLWEZI LUMWANA (Mine) LUANO KANSUSWA KABOMPOGorge (34MW) PENSULO LUNDAZI BWANA MKUBWA KITWE LUSIWASI (12MW) CHAVUMA MUFUMBWE SERENJE MFUE MAPOSA LUSIWASI EXTENSION (40MW) CHIKATAFALLS (3.5MW) Mkushi KASEMPA Mkushi Central ZAMBEZI KAPIRI MPOSHI Mkushi Farm Block KABOMPO MPONGWE MSORO CHIPATA LUNSEMFWA (18MW) AZELE KABWE MUMBWA MULUNGUSHI (20MW) PETAUKE KAFUERIVER LUKULU ROMA LUSAKA WEST Luangwa Bridge 33.5o East KAOMA NAMPUNDWE CHONGWE MOZAMBIQUE COV. LEOPARDS HILL KALABO MONGU LUANGWA KAFUE WEST KAFUE TOWN KAFUELOWER (750MW) KAFUE GORGE 900MW(1080MW) ZAMBEZIRIVER EXISTING POWER\SUBSTATIONS AND POWER LINES PROPOSED POWER\SUBSTATIONS AND POWER LINES KARIBANORTH (600MW(750MW) CHIRUNDU MAZABUKA SENANGA KARIBANORTH EXTENSION (600MW(750MW) ITEZHI – TEZHI (120MW) SHANGOMBO 330kV 330kV KARIBASOUTH LAKE KARIBA MUZUMA 220kV 220kV 132kV 132kV MAAMBA 88kV 88kV KATIMA MULILO SESHEKE VICTORIA FALLS (108MW) 22o East 66kV 66kV DEVILS GORGE (800MW) HYDROPOWERSTATION PROPOSEDHYDROPOWERSTATION KATIMA MULILO SUBSTATION 18o PROPOSED SUBSTATION NAMIBIA ZIMBABWE BATOKA GORGE (800MW) DIESELSTATION BOTSWANA PROPOSEDDIESELSTATION

  8. 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

  9. 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

  10. 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

  11. RECOVERING COSTS • NEED FOR APPROPRIATE TARIFFS • DIESEL PLANT COST 27Cents/kWh • TARIFF IS 3.1Cents/kWh • 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

  12. 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

  13. Rapid Load Growth Available Capacity

  14. 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

  15. 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

  16. 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

  17. 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

  18. BEYOND COST RECOVERY • WHAT HAS KEPT PRIVATE SECTOR AWAY FROM ELECTRICITY? • DEAL WITH STRUCTURAL ISSUES • DEAL WITH POLICY ISSUES

  19. CONCLUSION • NEED TO ACCELERATE RURAL ELECTRIFICATION (60% OF POP.) • ALSO NEED TO INCREASE ACCESS IN PERI-URBAN AREAS • FUNDING FROM INTERNAL RESOURCES MEANS FULL COST RECOVERY • GRZ SIGNIFICANT SUBSIDIES THRU REA REQUIRED • HUGE INVESTMENTS IN NEW GENERATION SOURCES AND RETICULATION NEEDED

  20. THANK YOU

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