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66% ZESCO tariff hike: Recipe for Poverty Enhancement – Mar 28,2009

By Beston Chitala

ZESCO, a monopolistic power utility, has consistently asserted that it does not operate profitably owing to low tariffs to justify tariffs hike. The power utility is slated to effect 66% tariff hike in electricity tariff with the blessings from the Bank Governor and ERB. The tariff will be introduced inspite of ZACCI and one UNZA Economics professor opposing the hike. The Bank Governor should have known better that raising electricity tariffs would have implications on a fragile economy. The Governor’s argument is that raising tariffs would attract investments to the electricity sector. When the same thinking was applied to the mines and the new tax regime introduced in 2008, taxes accruing from windfall, corporate and other applicable taxes were expected to stimulate economic growth. Unfortunately, the Government recently reneged by suspending the new tax regime on mining. While the idea is to prevent the greedy mining companies from closing shop, it is also envisaged that lower tax regimes will act to stem capital flight as mining companies scale down their operations and in some cases cease operations completely. In the same vein, one would expect similar economic rationale to be applied in the case of ZESCO tariff hikes. It’s common knowledge that the cost of electricity generation in Zambia is one of the lowest in the region but Zambians pay higher tariffs than those obtaining in neighbouring countries whose cost of generation is higher. The expected result, when inefficiencies and personal interests are factored into the tariff, is the high tariff. This is ridiculous! One wonders just what kind of economic model is applied to arrive at an exaggerated 66%. It shameful that ZESCO is allowed to use tariff increases to covering up inefficiencies and schemes to award themselves unjustified salary increments and benefits. It is indisputable that the 66% tariff hike will negatively impact the economy. First, even ordinary people know that the monstrous hike will alter their spending habits. Consumers at household level will be required to shell out 66% more than they have in the past. Spending will be hit enough to translate into possible reduction in total household expenditure on food. Further, the new tariff will cause electricity to become more expensive and less affordable, especially for the majority of households currently struggling to pay for electricity. Eventually, some consumers will be compelled to make hard choices: a meal on the table or electricity in their homes. ZESCO’s Managing Director has the audacity to ask Zambians not to construe the proposed tariff hike as a way to financially disadvantage them. Can he explain how 66% tariff hikes will ease the pain consumers currently feel? Finally, the proposed tariff will affect business and commerce alike. As a consequence, upward price adjustments to offset the new tariff are inevitable. Such myopic and ill-conceived tariff hikes are more likely to exacerbate poverty than stimulate economic growth.

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