Zambia is currently groping with the electricity deficit across the country. Every sector of the economy is affected and residences are plagued with power cuts for at least five hours every other day. Industry is forced to cut production hours due to power rationing to factories.
There is a definite pool of losses being experienced in the economy in respect to lower production in industry, the resultant damage to electrically powered equipment due to power surges at cut off and re-connection times, and the escalated costs of production because of labour charges paid for non productive workers.
A quick glimpse at the many hardware and motor accessory shops around the country reveals that many types and sizes of electricity generators are on display for quick sale to mitigate against power cuts in offices, business premises, factories and homes.
The generators are petrol and diesel fuelled depending on the size and work load. This growing option for power in view of the prospects that the Zambia Electricity Supply Corporation (ZESCO) is only expected to generate sizeable power to feed the nation in 2015 is fast developing with the consequences of increasing Zambia’s oil based fuel bill and a big cost to the consumer that has to put between 10litres and 20 litres of petrol or diesel per day. This works out to a cost of between K100,000 per day and K200,000 per day. In one month this figure escalates to a massive K3,000,000 at the low end. That is more than ten times the cost of our monthly ZESCO bill and a huge fuel burden to the nation.
The current power deficit is therefore very damaging to the development of the country and to Zambia’s competitiveness as an investment destination within the region. Zambia’s products become much more expensive to produce and cannot compete with other produces in the region and in the global economy. For the private sector this scenario spells doom and gloom.
ZESCO is currently upgrading its existing power stations that have capacity to generate more power and the Kafue Gorge Power Station will be the first to pump out more electricity albeit not enough o satisfy demand. The Kariba North Bank Power Station is currently undergoing upgrading and will generate an additional 360MW with an investment of USD243 million. Sino Hydro of China is carrying out the works for this upgrade project. This work is expected to be completed in 2011and the additional power will be injected into the national grid at a time when our electricity demand will probably have gone up by another 30 percent if we look at the trends in new mining investments and large industry development as captured by the Zambia Development Agency. We will therefore still experience a power deficit.
In 2007 Government was considering two developers to construct a new Kalungwishi Power Station at our northern border with the Democratic republic of Congo. The developers had majority ownership by Eskom of South Africa and the expected cost of the power station was billed at approximately USD1.2 billion even though no exact figures for production size were released to the general public. This leaves much to speculation on the cost benefit analysis.
In 2006 Zambia completed a Feasibility Study through ZESCO to develop a 750MW Power Station at Kafue Gorge Lower and a 120MW Power Station at Itezhi-Tezhi. At that time the estimated costs for the two projects were USD500 million and USD100 million respectively. The rule of thumb at the time was to calculate the development and building costs of a hydro electric power station at USD1 million per Mega Watt. Zesco’s costings were therefore quite conservative, but not impossible if costs were obtained from manufacturers of the required equipment around the world. In the same year our Minister of Commerce who was well aware of the electricity demands of the emerging mines and industries sounded the warnings that Zambia was facing a looming power shortfall which would be felt in 2008 if no new sources of electricity were developed urgently. He called for immediate gigantic investments in new power station to avert a power deficit and the slowdown of investments that were on the Ministry’s drawing board.
In 2003 Sino Hydro signed a Memorandum of Understanding with ZESCO to build a 660MW Power Station at Kafue Gorge to be called the Kafue Gorge Lower Power Station. These figures authenticated the Feasibility Study carried out by ZESCO earlier and the timeline was pegged at five years. The prospect for the power station to come on line before 2009 was considered to be very high as Sino Hydro had built many power stations in Africa within record time.
Where are we now? What are the prospects for a large new power station by 2010? How have the costs changed with time? Where do we get the financing for any new projects?
At the moment we seem to have gone back to the drawing board to scout for new construction companies, new financiers, new feasibility studies, new business plans, and new cost calculations.
The current favourite financiers are the World Bank as principal lender for Kafue Gorge Lower Power Station, supported by possibility Copperbelt Energy Corporation as a smaller co financier. The World Bank however, insists that a new Feasibility Study for the project must be carried out before any financing can be offered. The European Investment Bank and Tata of India are the favourite financiers for the Itezhi-Tezhi Power Station. This power station will be a ZESCO Tata Public Private Partnership. The fate of the Kalungwishi Power Station is not clearly outlined. It may have stopped at just the idea stage. The bottom line is that not much has happened since 2006 and no ground has been broken at Kafue Gorge but some rumblings are taking place at Itezhi-Tezhi.
We are told that Kafue Gorge Lower Power Station will be completed and functional by 2015 and Itezhi-Tezhi Power Station will only come on line by 2012. The power load shedding and power deficit will be with us up to 2015 if all goes as planned. The possibility of delays is always with us depending on how our political system develops and how the economy performs over the next seven years. Any political or business turbulence in Zambia could push the projects back several more years.
The Itezhi-Tezhi Power Station project has seen some escalation in development costs. The figures however are not very far from the initially projected costs. The Kafue Gorge Lower Power Station development costs have lunged from an estimated USD600 million to a missive USD1.5 billion even before the Feasibility Study that the World Bank insists should be done is completed. This expensive USD6 million Study is financed by the Zambian Government and is being carried out by the International Finance Corporation which is a division of the World Bank. It is not likely to be seen as an independent study that can be used to solicit financing from any other sources, but an in-house document to confirm the World Bank’s gestimate of USD1.5 billion project costing. There are conflict of interest issues with this arrangement as the client is Zambia, and Zambia should be free to choose the best consultants that will do an objective and professional Feasibility Study. The World Bank will then have to be guided by Zambia’s Feasibility Study and not a document developed by their own institution as the lender of finances. The money is not a grant but a loan to Zambia. The Sino Hydro offer was to finance 85 percent of the Kafue Gorge Lower Power Station project with prospects to bring it up to 100 percent.
What is the final analysis? We do expect that due to increased metal prices the costs for building new power stations in 2008 will be higher than the estimates of 2006. But are we satisfied with twice the costs? What is the cost of Money borrowed from the world and the European Investment Bank? What risks do we run with our developing industries in view of the extended completion time lines for new power stations? Why are we shunning the China offer even though we see that Sino Hydro is building power stations all over Africa at much lower prices and in record time? Why have we discarded the Memorandum of Understanding that was signed in 2003? CEC is ZESCO’s largest customer and the ZESCO Chief Executive is also a shareholder of CEC. What impact will the investment of CEC in a new power station in partnership with ZESCO have on ZESCO’s corporate governance and conflict of interest issues?
One may conclude that the China offer with easy terms and low interest rates to develop power stations in Zambia does not offer ZESCO management any personal perks and benefits, but puts all the resources into a cost effective power solution for Zambia. On the other hand, the World Bank offer will no doubt come with lots of seminars, conferences, project vehicles, and trips abroad with accompanying per diems that will benefit all those top notch engineers involved in the project for years to come.
A quick look at power stations built in Africa gives us a graphic indication of how our neighbours have been faring. The Guinea Kaleta Dam Power Station producing 238MW cost USD257 million. The Ethiopia Tekeze Dam Power Station producing 250MW cost USD224 million. The Sudan Merowe Dam Power Station producing 1,250MW cost USD1200 million. Some African countries have spent USD2 million or more per Mega Watt on power stations but one can clearly see that these countries are fraught with corruption and will have been recovering from a war situation. Conversely, most of the Asian countries and Eastern European countries have spent less than USD1 million per Mega Watt. There is an indication that these countries put much emphasis on due diligence and accountability in respect to public investments on behalf of the people. This information is available on various web sites for public consumption.
Must the Zambian people pay through their children and grand children for the poor judgment of the officials in the energy sector? Are we going to rename the project Kafue Gorge Higher because of the escalating costs? Is this the legacy that the late President Dr Mwanawasa leaves for his people? The incoming President and his administration will have to tackle these issues as a matter of urgency.
Published 2 September 2008
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