1. REGONAL MULTI-STAKEHOLDER CONSULTATION ON “FINANCING ACCESS TO UTILITIES FOR ALL” ENSURING SUSTAINABLE ACCESS TO ELECTRICITY FOR THE POOR THROUGH INTERNAL REVENUE GENERATION PRESENTATION BY MOSES E ZULU DIRECTOR OF FINANCE, ZESCO 24 APRIL 2007 INTERCONTINENTAL HOTEL, LUSAKA

2. PRESENTATION OUTLINE WHO ARE THE POOR? LOW NATIONAL ACCESS RATES CAUSES POSSIBLE SOLUTIONS MINIMISING COST OF ELECTRICITY RECOVERING COST OF OPERATIONS NEED FOR SUBSIDIES BEYOND COST RECOVERY CONCLUSION

3. WHO ARE THE POOR? BY PER CAPITA INCOME BY RESIDENCE –URBAN/RURAL –HIGH COST/LOW COST RESIDENCE BY OTHER MEANS

4. NATIONAL ACCESS RATES DEFINITION OF ACCESS:- - INDIVIDUAL CONNECTION -ACCESS TO FACILITIES E.G. SCHOOLS, CLINICS, CMMUNITY CENTRES WITH ELECTRICITY ELECTRIFICATION STANDARDS-INIHIBITION TO ACCESS –CANT ELECTRIFY THATCHED HOUSES –MUD HOUSES –ETC

5. ZAMBIA ACCESS RATES NATIONAL AVERAGE 23% –URBAN 44% –RURAL 2%

6. ACCES: WHY NOT 100% SIZE OF ZAMBIA 752,000 SQ. KM POPULATION DENSITY –HIGHER COSTS PER CONNECTION $1000 –HIGHER COST FOR O&M LOW PER CAPITA INCOMES –$300 UP TO 2005 –ROSE TO $800 BY END 2006 POOR PAYING CULTURE

7. D R CONGO TANZANIA MALAWI MOZAMBIQUE ZIMBABWE NAKONDE KASAMA ISOKA CHINSALI MPOROKOSO LUWINGU MPIKA PENSUL O SERENJE CHIPATA CHIRUNDU LEOPARDS HILL KARIBA SOUTH MUSONDA FALLS (5MW) LUSIWASI (12MW) MULUNGUSHI (20MW) MSORO LUNDAZI MFUE AZELE LUNSEMFWA (18MW) CHISHIMBA FALLS LUNZUA (0.75MW) MBALA SAMFYA KASHIKISHI PETAUKE MOMBUTUTA CHIENGI LUAPULA RIVER To Sumbuwanga KALUNGWISHI RIVER MPULUNGU NAMIBIA BOTSWANA ANGOLA KALAB O MONGU SENANGA SESHEKE SOLWEZI ITEZHI – TEZHI (120MW) VICTORIA FALLS (108MW) MUZUMA MICHELO LUANO KITWE MAPOSA KANSUSWA KABWE KAPIRI MPOSHI MPONGWE LUSAKA WEST KAFUE WEST KAFUE TOWN KAFUE LOWER (750MW) KAFUE GORGE 900MW(1080MW) KARIBA NORTH (600MW(750MW) LAKE KARIBA MAZABUKA MUMBWA MANSA MAMBILIMA KAFUE RIVER ZAMBEZI RIVER CHAMBESHI RIVER WEST LUNGA at West Lunga River (2.5MW) KASEMPA CHIKATA FALLS (3.5MW) MUFUMBWE LUKULU KAOMA 220kV 22 o East 33.5 o East 8o8o 18 o KATIMA MULILO ZAMBEZI LUANGWA 132kV 88kV 66kV 330kV EXISTING POWER\SUBSTATIONS AND POWER LINES PROPOSED POWER\SUBSTATIONS AND POWER LINES 330kV 220kV 132kV 88kV 66kV HYDRO POWERSTATION SUBSTATION DIESEL STATION PROPOSED HYDROPOWERSTATION PROPOSED SUBSTATION PROPOSED DIESEL STATION CHONGWE CHAVUMA KABOMPO MWINILUNGA KANSANSHI LUMWANA (Mine) KAPUTA NCHELENGE CHAMA KUNDABWIKA (101MW) KABWELUME (62MW) KAWAMBWA TEA MBERESHI LUSIWASI EXTENSION (40MW) KARIBA NORTH EXTENSION (600MW(750MW) BATOKA GORGE (800MW) DEVILS GORGE (800MW) BWANA MKUBWA ROMA COV. NAMPUNDWE MAAMBA KATIMA MULILO KABOMPO Gorge (34MW) Luangwa Bridge Mkushi Farm Block Mkushi Central Kawambwa Town Chambasitu SHANGOMBO MUYOMBE ZESCO GRID (66 – 330kV) ZESCO

8. POSSIBLE SOLTUIONS ACCELERATE NATIONAL DEVELOPMENT –INCREASE PER CAPITA INCOMES –DEVELOP PRO-POOR POLICIES ELECTRICITY KEY TO NATIONAL DEVELOPMENT –MOST BUSINESSES REQUIRE ELECTRICITY –MINING –AGRICULTURE –COMMERCIAL –INDUSTRIAL –TOURISM –SERVICES (EDUCATION, HOSPITAL, ETC) ELECTRICITY SUPPORTS ALL THESE BUSINESSES AND SERVICES –THUS SUPPORTING THE POOR

9. MINIMISING COST OF ELECTRICITY NEEDS OF THE POOR –FOOD, CLOTHING, EDUCATION, WORK, HEALTH, ETC –LIGHTING, COOKING, STUDY _ INCOME GENERATING ACTIVITIES (SMALL SCALE INDUSTRIES) ALL SUPPORTED BY ELECTRICITY

10. RECOVERING COSTS CONNECTION COSTS OPERATIONS AND MAINTENANCE COSTS –GENERATION, TRANSMISSION, DISTRIBUTION, SUPPLY COSTS –SYSTEM MAINTENANCE & STRENGTHENING COSTS NEED TO RECOVER ALL COSTS QUALITY OF SERVICE DEPENDS ON COST RECOVERY COST RECOVERY PLUS MARGIN NECESSARY FOR NEW INVESTMENT OTHERWISE NO SYSTEM EXPANSION, NO INCREASED ACCESS

11. RECOVERING COSTS NEED FOR APPROPRIATE TARIFFS –DIESEL PLANT COST 27Cents/kWh –TARIFF IS 3.1Cents/kWh CURRENT ZESCO TARIFFS BELOW COST RECOVERY –LOWEST IN THE REGION LOW TARIFFS DISCOURAGE INVESTMENTS –RECOGNISED IN GRZ/ERB COST OF SERVICE STUDY –SOME PRIVATE SECTOR IPPs WANT TO SELL TO ZESCO AT TARIFFS HIGHER THAN ZESCO SELLING PRICE

13. RECOVERING COSTS LOOMING NATIONAL & REGIONAL DEFICIT HUGE INVESTMENTS IN GENERATION AND TRANSMISSION REQUIRED –REQUIRES SUPPORTING TARIFFS COST OF IMPORTS MUST BE RECOVERED – REGULATOR’S SUPPORT NECESSARY LOANS FOR PRP & OTHER PRIOR SYSTEM WORKS NOW BECOMING DUE –LOAN REPAYMENT DIFFICULT WITHOUT COST RECOVERY –POOR PEOPLE WILL HAVE EVEN LESS ACCESS

14. Rapid Load Growth Available Capacity

15. NEED FOR SUBSIDIES DEVELOPED COUNTRIES HAVE SUBSIDIES TO ELECTRICITY BY WAY OF: –GRANTS OR TAX WAIVERS –CONSUMPTION SUPPORT THRU WELFARE PAYMENTS (FOOD, HOUSING, TRANSPORT, ELECTRICTY, ETC) ZAMBIA DOES NOT HAVE WELFARE PAYOUTS –ONLY LIFELINE TARIFFS –ROLE OF RURAL ELECTRIFICATION AUTHORITY POSSIBILITY OF CROSS-SUBSIDIES –ONE CUSTOMER CATEGORY PAYS MORE THAN ITS COST OF SUPPLY TO SUPPORT ANOTHER CATEGORY WHICH IS DISADVANTAGED

16. NEED FOR SUBSIDIES ROLE OF MINES & INDUSTRIAL CUSTOMERS –CURRENT TARIFFS AVERAGE 2.1 CENTS –REAL COST TARIFF 4.2 CENTS –IF THEY GET COST REFLECTIVE TARIFFS BENEFIT CAN GO TO POOR CUSTOMERS POSSIBILITY OF MULTI-YEAR PROGRESSION TARIFFS –HELPS CUSHION THE IMPACT ON POOR CUSTOMERS

17. NEED FOR SUBSIDIES USE OF ELECTRICTY –DEVELOPED COUNTRIES USE GAS FOR COOKING –RECOMMEND THAT ALL NEW HOUSES TO HAVE SOLAR PANELS FOR HEATING –DEVELOPED COUNTRIES HAVE LIFELINE UNITS OF UP TO 50 –ZAMBIA’S LIFELINE TARIFFS CURRENTLY 300 UNITS –SHOULD ADOPT LOWER UNITS AND RECOVER FULL COST FROM NON-POOR

18. BEYOND COST RECOVERY ALLOCATING STATE REVENUES TO UTILITIES –CURRENTLY THRU ELECTRIFICATION LEVY –AMOUNTS RAISED NOT ENOUGH NEED FOR BUDGET SUPPORT –JUST LIKE AGRICULTURE (CATLE RESTOKING, FARMERS’ PACK, ETC –TOURISM DEVELOPENT FUND –WITHOUT SUPPORT, ALL GOVERNMENT INVESTMENT IN OTHER SECTORS MAY BE AFFECTED INTENSIFY PPP –REQUIRES COST-REFLECTIVE TARIFFS –OTHERWISE NO OFFTAKERS

19. BEYOND COST RECOVERY WHAT HAS KEPT PRIVATE SECTOR AWAY FROM ELECTRICITY? DEAL WITH STRUCTURAL ISSUES DEAL WITH POLICY ISSUES

20. CONCLUSION NEED TO ACCELERATE RURAL ELECTRIFICATION (60% OF POP.) ALSO NEED TO INCREASE ACCESS IN PERI- URBAN AREAS FUNDING FROM INTERNAL RESOURCES MEANS FULL COST RECOVERY GRZ SIGNIFICANT SUBSIDIES THRU REA REQUIRED HUGE INVESTMENTS IN NEW GENERATION SOURCES AND RETICULATION NEEDED

21. THANK YOU