PRIVATISATION
Shifting focus

Published: 19-MAY-04

In its continued shift from depending on copper as the mainstay of the economy, the Zambian government is anxiously trying to revitalise other sectors by improving conditions for private sector investment. Apart from focusing on agriculture, tourism and manufacturing, the government has turned its attention to the energy sector, well aware that this is the sector that powers the rest.

Zambia has abundant energy resources. The most important is electricity, which is generated by three major hydroelectric power stations with an installed capacity of 1608MW. Zambia's electricity sub sector has for many years been dominated by the state-owned Zambia Electricity Supply Corporation (ZESCO). But with the commercialisation of the power utility under way, private-public partnerships are set to emerge and this would entail more private sector involvement. With the liberalisation of the economy, the government has amended legislation affecting generation, transmission, distribution and supply of electricity, allowing entry by the private sector.

Commercialisation

To improve efficiency, government has introduced measures aimed at commercialising the services offered by public utility firms in the sector.

There is, however, a tremendous gap between the country's huge energy potential and actual investment, as well as in the number of people with access to power.

Although the country is home to about 30 per cent of the waters in the Southern African region, only a small number of people have access to electricity.

According to the Energy Regulation Board, the country's energy regulator and licensing authority, only 20 per cent of Zambians have electricity while the other 80 per cent are in the dark. Statistics from ZESCO say that out of a population of over 10 million people, only 230, 408 households were connected to the National Grid in 2002, an 8.5 per cent increase from 212,358 in 2001.

According to ZESCO, Zambia's known hydropower potential on the various rivers and lakes is estimated at 6,000MW. "The government of the Republic of Zambia has developed only a small fraction of this potential," read a statement from ZESCO. "Determined to utilise this vast cheap source of energy, the government, with the help of co-operating partners, has brought 2,310 MW of this potential to pre-feasibility stage."

Investment up for grabs

Currently, the government is pursuing the development of new power stations at Kafue Gorge Lower (900 MW) and Itezhi Tezhi (120 MW) to produce more electricity for domestic consumption as well as for export to energy-deficient areas in the region. "Through various incentives, private investors are being encouraged to help the country develop these vast untapped resources," ZESCO said. The two projects, which are the flagships of Zambia's energy potential, are crying out for investment.

The power station at Kafue Gorge Lower is the country's main source, while other major power plants include Kariba North Bank (600MW) and Victoria Falls (108MW). There are two smaller hydro power stations in the North Western parts of the country contributing to the national grid and supplying outlying areas. These are located on the Lunsemfwa and Mulungushi rivers.

Energy Regulation Board executive director, Sylvester Hibajene, says developing the Kafue Gorge Lower project requires about US$800 million.

The cost of developing the Kafue Gorge project is estimated at US$120 million while the Kariba one would gobble up around US$150 million.

In a bid to have the vast prospects developed, the government is trying to lure investors into the projects. According to Energy and Water Development Deputy Minister Alex Musanya, the government of Iran had expressed interest, although they did not commit themselves.

"They expressed a lot of interest in investing in Kafue Gorge Lower but they did not commit themselves since they have to report to their government," Musanya, who took Iranian government officials to inspect the project, told Business In Africa. Iran has increasingly become Zambia's energy partner after the resumption of diplomatic ties that were cut 11 years ago. Talks are already underway for the former to supply crude oil to Zambia on a government-to-government basis.

Electricity contributes to Zambia's export earnings, as demand is growing from neighbouring countries. The Zambian power system is interconnected at high voltage to the north of Botswana and Namibia. These countries are potentially large export markets.

Other potential opportunities identified in this sector are the Kafue Gorge Lower Hydroelectric Project, Itezhi-Tezhi Hydroelectric Project, the Zambia-Namibia Interconnector and the 330kV Zambia-Tanzania-Kenya Interconnector. Once complete, this project will produce 400MW of power. The three governments have committed themselves to joint mobilisation of investment funds.

The first phase, which is expected to be completed by 2006, would cost US$326 million, while the second phase, due for completion by 2012 will swallow about US$240 million. The Zambian government is keen to further light up the country to aid its massively ambitious economic diversification programme. "Power is the engine of the nation. It has to get to the hinterland," Musanya added.

Zambia's maximum demand for electricity stands at 1180 MW while the installed capacity is 1660 MW, enough to meet its national requirements including the mines on the Copperbelt, which ZESCO supplies power to through an intermediary company, the Copperbelt Energy Corporation. The major generating plants at Kafue Gorge and at Kariba North are now over 30 years old. These power stations are in need of a major facelift to improve their reliability and extend their life.

With financial assistance from the World Bank and other bilateral and multilateral lenders, the government has accessed about $230 million to enable ZESCO to undertake the monumental task of rehabilitating the energy infrastructure. The rehabilitation project, which is already underway, is scheduled for completion in the next two years. The project also seeks to increase installed capacity at the major power stations by 150 MW (90 MW at Kafue Gorge and 60 MW at Kariba North Bank).

Private sector involvement appears to be bearing fruit. The development of the Mkushi Farming Block (Zambia's prime commercial farming area) electrification was awarded to Namibia Power Company (Nampower). Government is studying, the fiscal incentives to be given to the developer after which the concession agreement would be signed.

The Zambia Investment Center, the country's investment promotion and marketing agency, is keen to see that the country attracts the needed investment in the sector. Fiscal incentives have been devised to increase electricity generation and transmission capacity in Zambia to provide a competitive environment for private power investment.

Among the incentives that may be allowed, according to the Investment Center, is that private power generation and transmission companies may be exempt from corporate income tax on incomes earned from the sale of, or the transportation of, electricity for a period of 10 years from the date of commercial operation. Companies are allowed to import all types of plant and equipment for generation, transmission without payments of customs duties, Value Added Tax and other surcharges. With the immense potential in the energy sector and the incentives provided, the government hopes this will woo investors to take advantage of the country's energy resources and boost the economy.



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