Zambia Weekly Wrap - October 18 Edition

ZESCO Makes Their Case for November 2015 Electricity Tariff Hike

The Energy Regulation Board (ERB) has received an application from ZESCO to increase electricity tariffs for its various customer categories (excluding mining, high and low voltage export customer categories) for the year 2015. In its application, ZESCO proposed to increase electricity  tariffs for retail customers (Residential, Services, Commercial and Maximum demand).
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Before even talking about the merits of ZESCO’s case to raise electricity tariffs, it’s important to understand that this decision will go through no matter what. The country’s current energy deficit has forced the Government’s hand. They (and previous regimes) have known for a long time that tariffs needed to be a lot higher in order to spur private investment. So don’t waste your time attending any debates or sending any submissions against the increment because it has the FULL backing of the President – which is what ultimately counts in our political system.

ZESCO’s case
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The utility company has very strong points and has had them for a very long time. Historically, the country’s power infrastructure has lacked adequate investment primarily because tariffs have been kept artificially low ($0.056 per Kwh and below!). The mining sector (which uses over 50% of Zambia’s electricity) also locked in low tariffs through the non-transparent ‘Bulk Supply Agreements’ meant to make them more attractive during privatization. Would any private investor want to commit to a capital expenditure-heavy power project with a long pay-back horizon at those tariffs? Eh NO.

ZESCO has had to shoulder the burden of investing in the sector (because they are Government owned). And even with the few private power projects that have come online in the recent past, as the sole utility, ZESCO buys power from them at over $0.10 per Kwh to sell at just about half of that to domestic, commercial and mining sector users. The same applies to the more than 400 MW of power being imported to mitigate the current energy crises right now!

The new tariffs are projected to more than triple ZESCO’s 2014 revenues to K14.8 billion in 2016 (first year of full implementation). This will unleash more capital for investment by ZESCO in generation, transmission and distribution infrastructure moving forward. It will also enable the utility to raise more external capital to undertake various projects.

The other side

ZESCO needs to be cleaned up in terms of governance and financials.

Governance: Currently, the President has the power to pick and choose whomever he wants to be the CEO of the utility in addition to handpicking the board of directors (this is the case for all state-owned entities). In addition to the obvious problems this brings about, it also means that a change in Government effectively means a change in leadership at ZESCO.

Financials: The Zambian public is not privy to the audited annual statements of ZESCO. And even though an Initial Public Offering (IPO) on the Lusaka Stock Exchange (LuSE) has been mentioned a few times by the Finance Minister in the recent past, he admitted that ZESCO’s balance sheet still needs to be re-structured. A prime example is their outstanding trade receivables (money owed to them by customers) which stood at over K1 billion in 2013 with 60% being above 90 days! To their credit, they have been working on cutting this down but who knows what that figure was like in 2014.

Costs will also rise further in an environment where they have already been increasing as a result of the effects of the Kwacha’s deprecation. As things stand, paying higher tariffs is analogous to investing in a company with a record of poor governance which does not have a solid balance sheet. On top of this, we don’t know how good or bad their financial statements really are.

Bottom-line: The country needs more energy to grow the economy and this tariff increment will go some ways into facilitating that. This will also create a more solid base for future generations to thrive. However, costs will rise and ZESCO has a lot of issues which need to be tackled from both a governance and financial perspective – the billion dollar question is will this ever happen? Only the President can make that happen.
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DBZ and Chinese Development Bank sign $30 million loan for SMEs support
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The Development Bank of Zambia (DBZ) has signed a 30 million dollar loan agreement with the Chinese Development Bank.The loan is meant to support small and medium enterprises (SMEs) in the country. (Read more)
 

MTN Zambia to roll out 500 more LTE sites

In an effort to increase data consumption in Zambia, the Southern African country's largest mobile phone operator MTN plans to roll out 500 Long-Term Evolution (LTE) sites by the end of the year. (Read more)
 

Zambia’s Chipata Hits Tech Map

Anyone who has visited Chipata, a picturesque town in eastern Zambia near the border with Malawi, will know it’s not exactly a technology hub. But one company, Impact Enterprises, is helping to change that. It’s created a digital business process outsourcing venture in Chipata that already employs 45 youngsters from the town, with plans to double that to 100 in the next year and to expand elsewhere in the Southern African nation. (Read more)

 
Maasai hairdressers, Congolese tailors – with more flights and good business, Zambia is an African melting pot

THE TWO men’s fingers worked quickly on each braid, weaving it tightly together, working their way down, and casting it aside before quickly starting on the next strand. Just over a year ago, these men were herding their cattle on the plains of Amboseli in Kenya, but the rumours of well-paid jobs brought them to this small shack in Lusaka, the bustling capital city of Zambia. (Read more)


Immigration Department makes it easy for Visitors to get a Visa to Zambia

The Immigration Department has launched the Electronic Visa application aimed at providing an expedient and paperless work when acquiring a visa. Speaking during the launch in Lusaka today, Immigration Department Director General, Moola Milomo says when fully implemented, the e-visa has the potential to enhance monitoring of migrants and tapping of revenue collection for the national treasury. (Read more)
 
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Brewers SABMiller and AB InBev agree 44 pound-per-share takeover

Anheuser-Busch InBev and SAB Miller said on Tuesday they had agreed terms for a takeover, with the world's largest brewer set to pay 44 pounds ($68) per share in cash for its smaller rival. (Read more)

ZANACO Rated 'AA' by Credit Rating Agency

LACK of a credit rating industry in Zambia has led to potential investors and lenders not to advance as much funding to the country as they could have, says Minister of Finance Alexander Chikwanda.  (Read more)

Finance Minister Calls for Austerity Measures by the Treasury
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FINANCE Minister Alexander Chikwanda has called for austerity measures by the treasury and controlling officers in an effort to maintain the budget deficit at lowest minimum. Mr Chikwanda noted that the projected 3.8 budget deficit in the next year’s national budget would only be attained with fiscal discipline by the treasury. (Read more)
 
Zambia awards government workers 9-29% pay rises for 2016

Zambia has awarded government workers salary increases of between 9 and 29 percent for 2016, ending a two-year freeze on wage rises, state radio said on Wednesday quoting a senior government official and union leaders. (Read more)
 
Zambia expects copper output to fall 15% in 2015

Zambia is expected to produce 600,000 tonnes of copper this year, down 15 percent from 708,000 tonnes in 2014, a government official said on Wedensday. (Read more)
 

Global Copper Mine Spending Seen Sinking Below Financial-Crisis Levels
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Mining investment next year will tumble to the lowest level since before the global financial crisis, giving some vindication to long-term copper bulls. The amount companies spend to expand mining projects next year will fall to $11.1 billion, the lowest since 2007, from a high of $33.7 billion in 2012, according to data from Citigroup Inc. Such investment had climbed 15-fold in the 10 years leading up to the record, as demand from China surged and producers encouraged by rising prices expanded output. (Read more)
 

Government may pay $350 million more on the Kafue Gorge power Project

THE Zambian Government may pay US$350 million more to the highest bidder in the construction of the 750MW Kafue Gorge Lower Power Station that will cost US$1.46billion, in a contract award that has left officials baffled. (Read more)

 
Load Shedding leads to loss of 200 jobs at Kafue Steel

Kafue Steel Plant has laid off more than 200 workers as a result of increased load shedding which has affected its production. Speaking when Special Assistant to the President for Project Monitoring and Implementation Lucky Mulusa toured the plant yesterday, Company Technical Executive Director Julius Kaoma says this is from a workforce of 1,000 workers. (Read more)


98 lose jobs at ZAMPOST, Job cuts inevitable - Transport Minister

State run Zambia Postal Services has fired 98 workers as at 8th October 2015. An additional 30 have left the corporation this year through normal retirement. Communications Deputy Minister James Kapyanga told Parliament on Tuesday that the job cuts at ZAMPOST were inevitable. (Read more)

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