Speaking at a public discussion organized by celebrated think tank the Economics Association of Zambia (EAZ), ZESCO’s Director of Strategy and Corporate Services Patrick Mwila told the audience as he justified the tariff proposal that the power utility is bleeding. In his presentation dubbed, Proposed increase in electricity tariffs: understanding the increment and impact of the economy, Mwila highlighted a 637% widening in the power utilities cost of sales to K5.7 billion (2018) from K0.77 billion (2013) with a lower than expected growth in turnover of 313% in the same period to K9.5 billion.
The power utility currently grapples with negative jaws as it’s costs accelerate at a higher pace than its cost build up which has resulted in earnings erosion over the years.
Mwila elaborated the power utilities quagmire where 27-30% of installed capacity is with Independent Power Producers (IPPs) while the remaining 70% is generated by ZESCO yet 73% of its revenues should be allocated to IPPs which is an impossibility.
Mwila highlighted factors that have necessitated tariff hike which include economic growth, inflation, exchange rate fluctuations, generation costs, system and customer base expansion which had double to a million, attraction of private investment and above all the need to support the power utilities investments.
ZESCO Ltd has applied to the Energy Regulation Board (ERB) to hike its tariffs to improve its revenue margins to allow it operate more efficiently but this has been received with mixed feelings as it is perceived to increase the burden on consumers across the spectrum.
(Financial analysis based on 2018 Audited Financial Statements for ZESCO)
The Diode Analyst
