Energy Paradox

The recent National Indaba and subsequent North South Corridor Conference in Lusaka paid special attention to the development of physical and soft infrastructure as a primary vehicle for social and economic development.

In the many discussions, a key common issue came out very strongly as a ‘have to do’ item. The general consensus was that electricity was a basic requirement for any economic or social development to really take root. Information and Communications Technologies demand electricity as the prime driver for accessing these technologies. Air Travel is dependent on electricity to operationalise navigational and communications systems.

It therefore becomes necessary to consider the Energy Paradox in respect to the role of electricity in the development paradigm.

The Energy Paradox requires one to think very carefully about the whether electricity is generated as a commercial product, to be sold at a profit, and the excess capacity then directed towards social and economic development for the country. On the other hand, one may want to view electricity generation as a socio-economic product that is produced at cost effective rates, to be used as a catalyst for development, and the excess capacity is then sold commercially to neighbouring countries in a revenue earning endeavour.

The two schools of thought decide how electricity in particular, and energy in general, will be treated by each country. The choice of view may be biased by whether a particular form of energy is available in abundance or not.

For example, in some countries of the Middle East, petroleum fuels cost less per litre than water. In other dry and resource scarce states, electricity is purchased at premium prices because it is imported from distant lands, and has to be transmitted thousands of kilometres to households and factories.

The Energy Paradox therefore takes into account where the energy comes from, what it is used for, and how it impacts on both social and economic development. In addition, the Paradox considers the impact of other factors such as access to sea ports, types and forms of natural resources, and availability of alternate sources and forms of energy.

Many eminent, eloquent and professional speakers at both the National Indaba and the North South Corridor Conference treated energy as just another resource, without linking it to the various development plans of the country and the goals for social and economic development. The buzz words relating to energy were ‘cost reflective tariffs’, ‘attract investment into the sector’, ‘political will’, and ‘collaboration’. No mention was made in respect to ‘efficient production’, ‘efficient operation’, ‘removal of conflict of interest’, ‘fledgling industries’, ‘comparative advantages’, ‘accountability to the nation’, and ‘investing in the future’.

Zambia and all the other countries in the region run public owned electricity generation and distribution companies. The tax payers essentially own these public institutions and yet the managements of these companies do not see it fit to be accountable to the public.

ZESCO is currently seeking a 66 percent tariff increase and appears to be angling for one time lump some hike in tariffs, but may also settle for a 22 percent per annum tariff increase over three years.

The question that most citizens pose to ZESCO and its management is; why does ZESCO continually request for tariff increases when the company is so poorly managed? Much of the electricity distributed is not properly invoiced for. Much of the revenues for electricity distributed are not collected. Many institutions are supplied electricity on fixed rates which are well below the revenue receipts that ZESCO would have realized if the connections were metred. ZESCO has a top heavy management structure that eats into the revenues far more than the production staff of engineers and technicians. A good case in point is the investment by management in a feasibility study for Kafue Gorge Lower power station that cost the tax payer USD 6 million, or ZMK30 billion. This study to be carried out by the International Finance Company (IFC) was specifically to obtain a USD1.5 billion loan for the project that eventually fell through due to ‘investor pull out’. Hopefully, ZESCO has not parted with the cash because it now serves no purpose. If ZESCO has made this pay out, then the tax payer has lost this huge amount with no recourse to the World Bank or IFC, and almost zero value for the study which will not be acceptable to any other financier, due to the non competitive nature of the process that led to the IFC being given the job. Furthermore, beyond the Western financiers, there is a whole world out there in the East where cheaper financing and more cost efficient studies and assessments can be solicited. ZESCO does not seem to be too interested in those options.

Zambia needs to remove the wool from her eyes and recognize that Electricity is an essential input into our social and economic development programs. ‘Cost Effective’ needs to replace ‘Cost Reflective’. Effective suggests that we want to get things done and move ahead. Reflective suggests that we want to pay the bills even when there may be inefficiencies and down right incompetence in the system.

Electricity for all will go a long way to fighting deforestation due to charcoal burning. Electricity at the right price will go along way to reducing the country’s import bill for petroleum fuels, as many machines can use electricity as a fuel substitute, and eventually our railway systems can also run on electricity.

A cursory look at energy companies around the world will reveal that the majority of these institutions are state owned, state run, and state controlled, because of the strategic nature that these institutions have, and their impact on development. The existence of Energy regulators is clear testimony that Energy development and management cannot be left to the whims of private investment, but must be closely monitored and the relevant investments must be made to ensure that the growing economy is supported and facilitated. Interconnector systems between countries are accompanied by ‘Pricing Agreements’ that are negotiated to ensure that industries in both countries are not undermined by exorbitant pricing structures.

Let us make no mistake. The world today is engaged in a scramble for natural resources, food, and energy. It is the responsibility of every country to ensure that these three aspects of development are sensibly harnessed and made to work for the well being of its citizens. In this respect, let us all understand that there should be no paradox about energy. Energy is a catalyst for uplifting the lives of all the citizens in any country, and as such, tax payer’s money should be invested in this fundamental national resource.

Published 14th April, 2009