Energy Crisis: Lasting Solutions

By Michelo Maunga

The current deficit in electricity production is effecting substantial harm on households, industry and the Zambian economy as a whole. For Manufacturing, the implications have been dire, it being a sector that is highly energy intensive. Load rationing is not a new phenomenon in Zambia. However, it has become increasingly frequent in recent years. This is attributable to the continuing effects of climate variability, with reduced rainfall patterns inevitably resulting in lower water levels in our reservoirs for hydroelectric power generation. These effects are only compounded by the composition of the country’s energy mix which relies on hydro-power for 83% of installed capacity, with majority of these sources located in the part of the country most severely affected by dry spells, Southern Province.

Let us begin by reviewing the policy framework governing the domestic electricity sector as encompassed by the National Energy Policy (NEP) of 2019. This Policy was crafted to guide the development of Electricity Generation, Transmission and Distribution capacity and promote the deployment of renewable energy sources. Its scope extends to the fuel sub-sector where it envisages creating efficiency in the supply of petroleum products. Across all these spheres, cost reflectiveness has been prioritized to guarantee returns to private capital while maintaining price sustainability for the consumer. Consideration has also been given to climate change mitigation and adaptation while advancing the development of the sector. Given the cruciality of energy sufficiency in economic development, it is necessary that energy markets be regulated prudently by Governments. In view of Zambia’s aspiration to become a prosperous middle income country by 2030, this becomes even more important and provides the rationale for the publication of the NEP 2019.

Returning to the present context, the country is on the heels of the worst drought experienced on record. Added to the humanitarian crisis has been the catastrophic impact on the energy sector, with the President proceeding to declare a National Disaster on 29^th February 2024. With reports from the Zambezi River Authority (2024) that gross water levels in the Kariba Dam will be no more than 40% of those available during periods of normal rainfall, there is cause for concern for both Zambia and Zimbabwe for the remainder of the year, as relates electricity generation. And thus, ZESCO Managing Director, announced on 7^th March that beginning 11 March 2024, the state utility would commence rolling power outages that would last 8 hours each day, which has since increased to 12 hours. Productive sectors of the economy such as Manufacturing and Mining have not been spared, with Ministry of Mines confirming power supplies to the latter are also being rationed.

The President of the Zambia Association of Manufacturers, Mr. Ashu Sagar, was recently quoted as stating the ongoing load rationing would cost Manufacturers roughly 30% of their output (Radio Phoenix, 2024). Manufacturers have essentially been constrained in the amount of time they can spend online, in a sector that in the ideal sense should function 24 hours a day. Mr. Sagar also drew attention to the increase in demand for power that will be presented by the upscaling of production at Mopani and Konkola Copper Mines and how this will worsen the current mismatch between demand and supply of electricity, without immediate corrective intervention by the Ministry of Energy. Elsewhere, Economist, Mr. Yusuf Dodia (Zambia Business Times, 2024) reported that power cuts would cost Zambia 50% of its productive output, spanning all forms of Trade, Commerce and Manufacturing.

The effects of power rationing on Manufacturing are experienced through, inter alia, increased costs of production, reduced output and the resulting appeal created for imports. Costs tend to rise as Manufacturers are compelled, or at least those who can afford to, to use alternative sources of energy such as Generators. These are costly to operate however, more so at the present moment with the escalating prices of fuel. Where, purchase of such equipment is out of the means of a firm, the Manufacturer is presented with no alternative but to reduce production. All this occurs, whilst costs such as wages, rent and others remain the same.

On a wider scale, the sectoral level effects are actualizing a downside risk to economic growth for the year 2024. The Article IV Consultation of July 2023 by the IMF, projected this growth at 4.3%. This was more recently downgraded to 2.3% by the lender. Amongst our recommendations, in response to this crisis are, firstly, that additional power imports be sourced from within the region, secondly, that, where possible, power exports be limited, contractually, and lastly that Government cease to charge excise duty on captive self-generated energy. All this must be underpinned by long-term efforts at diversification of the energy mix, towards photovoltaic, geothermal and wind sources for which Zambia has immense potential.

In conclusion, Load shedding is occasioning genuine harm on all facets of Zambian society and industry. Unfortunately, this has become a feature of the socio-landscape within our country. With our lofty goals for economic progress, we simply cannot afford to compromise our National Output. We must ensure, therefore, that this episode of “load shedding” is the last. To do this, it is imperative to move beyond the pronouncement of investment pledges and strive for the operationalization of these commitments. With foresight, proper planning and incentivization of private sector activity in the electricity sub-sector, load shedding can indeed be confined to our history, for the benefit of all economic sectors, not least Manufacturing.