26 December 2012

Zambia: Expansion of Energy Sector Essential for Economic Growth

ZAMBIA's robust economy has brought with it an enormous challenge for more power supply.

But the trends in energy production and consumption bring out a glaring deficit as production is not meeting demand.

With the population in the rise and the economy becomes more industrialised, the limited power production and supply is proving a challenge to sustain economic growth.

Rapid increase in power demand is due to the increase in mining and industrial sector investments as well as upsurge in agriculture sector investments and activities.

While the two are attracting huge investment, the delayed investment in the power generation sector has not matched the load growth resulting in deficit in power generation capacity. The current generation deficit is about 250 megawatts.

Further delayed investments in transmission and distribution systems have also led to depleting power transmission & distribution capacity.

Due to current generation deficit, load management has been carried out to ensure system security level of load shedding, which is determined by the difference between the available generation capacity and the forecast demand.

Zambia has recently been faced with recurrent load shedding which has raised concern among the community.

Currently, Zambia is predominantly hydro and the majority of the power stations (1,640 MW) are State-owned Zesco, which is involved in generation, transmission, distribution and supply of electricity.

Demand for power in Zambia has been growing steadily over the past few years and currently stands at around 1,700 MW.

Energy, Mines and Water Development Minister Yamfwa Mukanga said in the last few years, the country had experienced load shedding due to the power deficit in power generation.

"We have a potential of about 6,000 megawatts in terms of hydro power.

If we had proper money to invest we would easily get 6,000 but since independence we have so far invested in 1, 948 megawatts this means that due to pick demands we have a shortage of 250 megawatts," Mr Mukanga said.

He explained that the current deficit was necessitated by increased investments in the mining, agriculture and other productive sectors.

Mr Mukanga said the level of investment in the country had not matched the growth of the population hence the current deficit.

The energy sector is the most important sector to drive the smooth growth of the economy hence the need for the Government to put up measures that would help the sector to grow thereby, contributing to the growth of the economy.

Generation capacity, on the other hand, has remained fairly stagnant over the past 30 years.

Only about 25 per cent of the Zambian population has access to electricity.

In the rural areas, the level of access is less than five per cent.

According to the data on energy production, use, dependency and efficiency compiled by the World Bank from the international energy Agency and carbon dioxide information analysis centre, Zambia's energy production this year stands at 9.6 kilo watts compared to the 9.75 in 2011.

Reliable supplies of energy such as electricity and petroleum products are key in driving the wheels of commerce and industry in the country.

Government needs to partner with the private sector in order to increase installed generation capacity, improve the transmission and ndistribution infrastructure, and expand rural access to electricity.

Finance Minister Alexander Chikwanda said Government was working with strategic partners to develop the Itezhi-Tezhi and Kafue Gorge lower power stations and complete the extension of the Kariba North Bank Power Station, amongst other projects.

Mr Chikwanda said with regard to the petroleum sub-sector, Government would continue constructing fuel depots across the country.

He said government would also continue to promote private sector investment in the use of renewable energy and alternative sources of energy such as solar, bio-mass, geo-thermal and wind.

"Our aim is to generate at least 90,000 direct jobs in the energy sector, we will continue to work with strategic partners to develop nthe Itezhi-Tezhi and Kafue Gorge lower power stations and complete the extension of the Kariba North Bank Power Station, amongst other projects," Mr Chikwanda said.

A recent parliamentary report on the state of oil supply in Zambia noted that petroleum products which were the highest in the region could be cheaper while fuel products were being kept superficially high.

"Petroleum products in Zambia, which are the highest in the region, could be cheaper. Fuel products are being kept superficially high due to impediments in the petroleum sector which include issues of policy, planning, recapitalisation, procurement and taxation," The report stated.

"There is need for a transparent tendering system for the procurement of crude oil and finished products with preference being given to oil marketing companies already invested in Zambia.

"The problems facing oil supply in Zambia are the same problems facing maize marketing. Inefficient government involvement in systems where its role should be purely to maintain strategic reserves and leave the rest to market forces, underpinned by appropriate favourable taxation framework," the report stated.

Consequently, the Government needed to put in place adequate financial resources in the energy sector to enable the effective implementation of the programmes in the country.

As Zambia got the US$750 million Eurobond issuance, against a 5.5 per cent spread over 10 years, it showed that investors have the confidence in the Zambian economy to reap a profitable return.

From the euro bond gotten, $255 million would be injected in the energy sector mainly to address generation and transmission.

Stakeholders expect this allocation to the energy sector will help to revamp the sector and reduce or completely stop load shedding in the country.

Zambia has potential hydro power capacity of about 6,000 Mega Watts.

However, the country has an installed generation capacity of only about 1,788 MW, which is just a third of its potential.

Given the cardinal role electricity plays in socio-economic development, the Energy Regulation Board (ERB) is working closely with all industry stakeholders to promote investment in power infrastructure.

Zambia stands to benefit significantly from trade on the wider regional power market with the exports of power, once the remaining two thirds of its unexploited power potential is utilised.

With only a third of Zambia's hydro potential developed, coupled with the low levels of access to electricity in the country and the fast growing demand, both locally and at regional level, Zambia faces a challenge, as well as an opportunity, to accelerate the pace of new investments in the power sector.

The Government has to create incentives in order to have more investments in the energy sector and boost electricity generation in the country.

The Rural Electrification Authority was working in partnership with other stakeholders to harness renewable energy especially solar energy in a quest to increase electricity access to Zambians.

Government has also embarked on the energy mapping of the country to determine how much water and other renewable energy opportunities are available and to what extent can they be harnessed to meet the current and future energy demands.

Mr Mukanga said the Government would carryout an energy mapping of the country to depict the energy potential for various renewable energy sources.

Mr Mukanga said: "We want the nation to be properly mapped so that we can check exactly which areas would give us what type of power and once that is done investment will be easy because we will be directing the investor to those particular areas."

He said the mapping would help the Government know which area needs hydropower, solar energy and other renewable energy.

Mr Mukanga explained that the Government intends to diversify into other sources of energy such as solar, land fuels, bio-mass and other forms of energy sources to curb the current power deficit.

In seeking to back future sustainable development of the national economy with energy resources, government needs to be interested in the reliable deliveries of oil and electricity.

An economic choice of diversification projects should make that area of the energy sector reform the core of Zambia's energy strategy, concentrate funds on priority directions of development, cease excessive politicisation of that issue in society, making the projects nation-wide.

At the same time, it is clear that irrespective of the diversification projects implementation time, foreign companies will remain the main partner for Zambia in the energy sector in the long run.

Renewable Energy and Bio mass group chairperson Tyson Chisambo said there was need for the country to move towards the usage of clean energy and sustain the sector as a whole.

He said declaring the sector as a priority segment would open the industry for more investment both local and international coupled with a number of incentives among them duty free on importation of machinery.

"The sector is awaiting a lot of things but the most important one is that of Government declaring the bio-fuel industry as a priority sector as this will help players to be motivated in the production and other things consequently contributing to national development," Mr Chisambo said.

He said that the sector awaits a number of incentives among them so that the industry enjoys other incentives such as duty free on importation of machinery.

Mr Chisambo said the sector was also in dare need of long term funding as this would help the sector to significantly record positive growth.

On the other hand the government needs to come up with deliberate policies that would protect the oil supply in the country and improve electricity generation.

ERB executive director Butler Sitali said that renewable energy was fast becoming the preferred energy resource for Africa given the electricity challenge and deficit being experienced, especially in the Sub-Saharan Africa. In order to achieve greater clean energy source and good regulation, the power utility must engage with private partners.

Zambia needs to create more investment opportunities so that the private partners can invest in the energy sector and help it to contribute vastly to the economic development of the country.

Ministry of Mines, Energy and Water Development Permanent Secretary George Zulu said in a bid to improve the delivery of petroleum products, the Government would increase the storage capacity in Lusaka, Mpika District in Muchinga, North-Western, Western and Southern provinces.

"We are putting up tanks in Lusaka and Mpika in a bid to increase the storage capacity of fuels and the fuel tanks in Lusaka was completed in August this year and handed over in September and the Mpika one will be completed by December,"

"We are currently using a manual system to pump the oil from TAZAMA which is taking long thereby increasing delays in the system but with the automated system which is expected to be changed in September this year we will be more efficient," Mr Zulu said.

The government of Zambia has over the past few years been striving to increase the generation capacity of energy in the country engaging with foreign companies to supply oil and to invest in the energy sector.

With the amount of money allocated to the energy sector in the 2013 national budget, the country expects to see a country free from the continued load shedding.

The government needs to come up with more incentives to attract more investments in the energy sector so that it can reduce on the number of challenges it faces.

Private investors should come on board and invest in the energy sector of the country so that the sector could be boosted.

The on-going implementation of demand side initiatives will ensure that the generation capacity being added is utilised responsibly and in sustainable way.

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