Our Next Biggest Export Eevenue Earner

The news out of Kenya last week that Kenya will be exporting electricity to Zambia through the Zambia- Tanzania-Kenya power interconnector was, to say the least, surprising. Especially that we repeatedly boast of having 40 percent of the water resources in the Southern African region and we have little to show for it. Zambia's hydropower resource potential stands at an estimated 6,000 MW while its installed capacity is approximately only 2,300 MW. The electricity sub-sector has experienced continuous growth in the last few years. This has primarily been driven by strong growth in mining, industrial and domestic demand, with the mining sector accounting for over half of the demand. These rapid developments in power demand have put pressure on existing generation capacity which has resulted in power shortages that have led to increased load shedding. ZESCO, the largest power utility company, is one of the most unpopular public sector firms in the country. I have no doubt that the man at the helm of ZESCO, Eng. Cyprian Chitundu, has numerous sleepless nights.

One area which we can tap into and diversify our exports in a big way is the energy sector, particularly the electricity sub-sector. And Eng. Chitundu is the man currently best placed to make that happen. He needs to think about Zambia becoming a net exporter of electricity in the Eastern and Southern African region, so that we can get out of the Copper Dependency Syndrome. He is already doing quite a bit where that is concerned. I have in mind projects such as the 700–800 MW Kafue Gorge Lower, 120 MW Itezhi-Tezhi, and the Kariba North Bank Extension Project which are underway and are expected to result in more than 1,000 MW of added capacity. Another project is the 1,600MW Batoka Gorge, which when completed will be equally shared between Zambia and Zimbabwe.

I am thinking Eng. Chitundu should leverage on the fact that our production costs are relatively lower and he needs to think beyond the 5% power he exports while we are sleeping, by setting up power generation plants that are going to export power 24/7. We all know that ZESCO also has challenges with transmission lines. There is a need to ensure that the planned generation capacity is matched with adequate transmission capacity in order to evacuate power to demand centres through efficient high voltage transmission lines.

To do all this, and make us a net exporter of electricity, ZESCO will need money – loads of it. The crumbs from the recently acquired Eurobond, and government grants, are not enough to pull off what the ZESCO MD may have in mind. He may have to consider tapping into the international capital markets to borrow. However, I doubt if Government can give a credit guarantee to ZESCO, so the firm has to do a lot of due diligence, and get itself its own credit rating so that creditors know what they are investing in. A credit rating is a pre-requisite for public utility firms like ZESCO to access international capital markets.

In order not to get us into the undesirable foreign debt, he also has another option to consider - the domestic capital market. The Government should institute policies aimed at developing the domestic debt market to cater for more innovative instruments and facilitate secondary market trading. Despite the considerable progress the country has achieved in establishing domestic primary markets for government securities, the development of deep and liquid secondary markets has proved more challenging. A consultation with the market players will have to be done to determine the type of instrument, maturities and interest rates which need to be introduced in the domestic debt market. And then maybe Eng. Chitundu can tap into that.

As the Eastern and Southern African countries continue on their strong economic growth paths, they will increasingly need more energy supplies. My firm belief is that energy is our next big export revenue earner after copper. Let us seriously consider this option as a country before the next copper price plunge.