It’s Time to Unbundle ZESCO: A Strategic Shift Towards Energy Efficiency
The ongoing power crisis in Zambia has laid bare the structural inefficiencies within ZESCO, the country’s state-owned power utility. Despite repeated government interventions and tariff adjustments, the problems at ZESCO persist, highlighting the need for fundamental reforms.
Currently, the company is yet again before the Energy Regulations Board(ERB) seeking an emergency tariff adjustment in order to allow it increase tariffs for certain customer categories to enable it import emergency power.
ZESCO’s recent announcement to raise $15 million through new tariffs, aiming to provide a stable 7-hour power supply, has raised concerns.
While the proposed tariff increase seems like a quick fix, it is unlikely to achieve the intended goal of stable electricity supply, especially with the onset of the rainy season. During this period, countries in the region will be heavily reliant on their own power resources, limiting the availability of regional power imports.
While financial investments are necessary to upgrade infrastructure, ZESCO’s inefficiencies are structural, and a mere tariff hike will not address these deep-rooted issues.
Without a comprehensive overhaul, such as the proposed unbundling of ZESCO into distinct entities for generation, transmission, and distribution, the utility will continue to struggle.
Relying on tariff increases alone, without addressing governance, operational inefficiencies, and long-term energy planning, will not lead to the desired results of stable power supply.
To solve the deep-rooted issues plaguing the entity, ZESCO must be unbundled into smaller, more manageable units under a holding company. This approach will help resolve inefficiencies, foster accountability, and set Zambia on a path toward a sustainable and reliable power future.
ZESCO’s Structural Challenges
As a vertically integrated monopoly, ZESCO is burdened with responsibilities that span power generation, transmission, and distribution. This arrangement creates operational complexities and dilutes accountability, leading to widespread inefficiencies.
ZESCO’s bloated size means decision-making is sluggish, resulting in a company that struggles to deliver reliable power and respond to the growing demands of the economy.
Moreover, the sheer complexity of running such a massive entity has resulted in an administrative nightmare. Given the current energy crisis and Zambia’s ambition to become a regional leader in power generation, the inefficiencies within ZESCO must be addressed through structural reform.
The unbundling of ZESCO into three distinct entities will be the first critical step toward solving these challenges.
The Unbundling Plan: A Three-Pronged Approach
Under the proposed restructuring, ZESCO should be divided into three specialized companies, each focusing on one core aspect of the utility’s operations: generation, transmission, and distribution.
These entities would be overseen by a newly formed ZESCO Holdings Group, ensuring cohesion and overall governance without the current operational entanglements.
ZESCO Power Generation Company Limited (ZPGCL)
ZPGCL will focus on research, development, and the construction of power generation solutions for Zambia. By collaborating with the private sector and independent power producers (IPPs), the company will focus on building an energy mix that includes hydropower, coal, solar, wind, and nuclear energy.
Given Zambia’s vast potential in renewable energy, ZPGCL will also play a key role in integrating new energy sources into the national grid.
The company will work to attract investment and drive innovation in energy generation, moving Zambia towards energy independence and reducing the overreliance on hydropower, which has become unsustainable due to climate change.
ZESCO Transmission and Maintenance Company Limited (ZTMCL)
ZTMCL will manage Zambia’s national transmission infrastructure, ensuring it is properly maintained and upgraded. This company will serve as the system operator, trading energy between ZPGCL, IPPs, and electricity consumers.
A major part of its mandate will be the transition toward a competitive electricity market once the new Energy Regulation Board (ERB) Act is in place.
The introduction of ZTMCL will enhance transparency in the sector, reduce bottlenecks in power distribution, and ensure that Zambia’s electricity infrastructure is capable of meeting growing demand while facilitating international power trading.
ZESCO Distribution Technologies Company Limited (ZDTCL)
ZDTCL will be responsible for the distribution of electricity to domestic and commercial customers. It will ensure that customers receive reliable power while adhering to safety standards and regulatory frameworks.
Additionally, the company will work to streamline operations, improve customer service, and align electricity pricing with ERB regulations.
By separating ZESCO’s generation, transmission, and distribution functions, each entity can focus on its core mandate, allowing for better efficiency, more targeted investments, and improved accountability.
The Legislative and Regulatory Roadmap
A key part of the unbundling process will be the revision of Zambia’s existing energy laws, specifically the Electricity Act No. 11 of 2019, the Energy Regulations Board Act No. 12 of 2019 and the Electricity (Net Metering) Regulations of 2024.
The new legislation must allow for independent power producers to operate and supply electricity directly to consumers, thus encouraging competition and diversification in the sector.
Cabinet must initiate this process by transferring the revised laws to Parliament for debate, with a focus on integrating provisions for domestic “prosumers” (those who produce and consume electricity) and facilitating net metering for commercial IPPs.
The amendments should also include clear guidelines for utilizing transmission lines by IPPs and procedures for connecting new generation capacity to the grid.
Additionally, the Energy Regulation Board Act No. 12 of 2019 should be updated to reflect the new market dynamics, ensuring that the ERB is empowered to oversee the operations of multiple energy producers and regulate the competitive electricity market effectively.
The Energy Regulation Board (ERB) should indeed consider allowing independent power producers (IPPs) to generate up to 100 megawatts without requiring a license.
This adjustment would significantly lower the barriers to entry, attracting more investors to Zambia’s energy sector. By easing regulations for smaller-scale producers, the country could benefit from a more diversified energy mix, which is crucial for achieving energy security and reducing the reliance on ZESCO’s centralized generation model.
Encouraging IPPs through such a policy would stimulate competition, drive innovation in renewable energy, and help close the supply-demand gap that has plagued Zambia for years.
It would also enable faster integration of renewable energy sources, as smaller producers could quickly enter the market without the lengthy and costly licensing processes that deter many potential investors.
With more participants in the market, Zambia could move towards a decentralized energy system, fostering resilience and stability in power supply.
This reform would help the country transition to a low-carbon economy and create a competitive electricity market that benefits consumers through lower tariffs and more reliable service.
Moving Beyond Political Interests
The unbundling of ZESCO is not a privatization scheme, as some critics may claim. Instead, it is a move towards making the utility more manageable and efficient.
While ZESCO remains fully state-owned, the restructuring will enable the holding group and its subsidiaries to operate independently, each focusing solely on their area of expertise. The power sector needs long-term stability and growth, and this restructuring will help achieve that by clearly defining roles and responsibilities.
Political interference has been a major issue for ZESCO. The proposed unbundling will protect the entity from becoming a tool for political leverage, allowing it to operate with the transparency and efficiency necessary for national growth.
The Broader Implications
Unbundling ZESCO will not only increase efficiency but also create opportunities for growth in Zambia’s power sector. It will help lower energy costs for consumers, attract investment into renewable energy projects, and facilitate the country’s transition to a low-carbon economy.
As Zambia seeks to address climate change and move towards sustainability, a diversified and efficient power sector is crucial. The unbundling of ZESCO will provide the platform needed for Zambia to develop a renewable energy portfolio while reducing dependency on fossil fuels.
Conclusion
ZESCO’s current structure is unsustainable, and the ongoing power crisis is a testament to this fact. Unbundling the utility is essential to bring about the reforms needed to deliver reliable, affordable, and sustainable electricity to Zambians.
The creation of ZESCO Power Generation, Transmission, and Distribution companies under a holding group will streamline operations, improve accountability, and set the stage for future growth.
Now is the time for bold action to transform Zambia’s power sector and ensure that ZESCO is no longer part of the problem, but part of the solution.
