NEW DAWN GOVERNMENT 2023 BUDGET: EXPECTATIONS FROM AN ENERGY PERSPECTIVE
...BRING BACK RURAL ELECTRIFICATION LEVY AND GIVE IT BACK TO RURAL ELECTRIFICATION AUTHORITY. IT WAS WRONG TO MERGE IT WITH EXCISE DUTY, ACCOUNTABILITY FELL IN THE CRACKS AFTER MERGING IT.
THE 2022 national budget was presented on 29th October 29, 2021 by the Minister of Finance and National Planning Dr. Situmbeko Musokotwane. The 2022 budget was the new dawn administration’s first own crafted budget which was informed, guided, and mentored by the UPND manifesto and the Presidential inaugural speech to Parliament on September 10, 2021.
It is not easy to balance a national budget due to numerous conflicting endogenous and exogenous factors. To this end, the 2022 budget has prismatically been constrained in many ways yet it has been delivered upon significantly due to strong praxis of leadership.
The theme of the 2022 national budget was Growth, jobs and taking development closer to the people.”
True to its theme we saw some mind blowing provisions in the 2022 budget regarding the Constituency Development Fund (CDF) which meteorically increased from a meagre K1.6 million to K26 million.
I even wished the town I was born in - Kapiri Mposhi - had more than one constituency because some constituencies are too big. The 2022 national budget was a bit challenging to understand because of the format which made tracking certain cost centres challenging. I hope this will be improved upon.
Very soon, Dr. Musokotwane will once again present the national budget. It has been a torrid and challenging fiscal year, yet he looks so calm. Last year, Government was unable to collect an estimated $1 billion from the oil industry due to suspended VAT, Customs Duty, and Excise Duty (approx. 45 percent in total). This year, he has also not been able to collect from the oil industry sustain because a self-financ the same taxes remain suspended.
The basis of my 2023 budget expectations from an energy perspective is premised on my analysis of the 2022 national budget and President Hakainde Hichilema’s recent statement made in Parliament which cast the tone and served as a harbinger of what could reasonably be expected.
I will cover funding expectation to rural electrification and implications on eight Sustainable Development Goals (SDGs) and how consistently chronic under funding has tragically been the root cause of poor rural electrification rate which stands at 8.1 percent with eight years remaining to 2030 when our Head of State is expected to go and brief his peers at the United Nations General Assembly on Zambia’s performance on SDG7 among other SDGs.
The realm of eight of the 17 SDGs depend on progress on SDG7. Therefore, a poor showing on SDG7 has mirror image implications on other SDGs.
In his inaugural speech to
Parliament last year, President Hichilema admitted that investment in the energy sector has not grown in tandem with the potential of the sector.
This year, he boldly informed Parliament that the 2, 400 MW Batoka Hydro Power Plant will be built. He also repeated his assurance to the people of Luapula that at least a 300MW Hydro Power Plant will be built on the Luapula River.
Both projects are on shared water bodies with other countries. In addition, he beamed with radiance and assured that the remaining 150MW turbine at the 750MW Kafue Gorge Lower Power Plant will be brought online.
Zambia’s power generation profile is informed by its national arbitrage rooted in her blue economy -water bodies; hence gyrating around the blue economy potential.
Yet, Government has also cast strong ambitions towards a green economy and brown economy respectively. As a matter of fact, the extent to which Government will attract investment in the brown economy will depend on progress made on power sources from the blue economy and from the green economy.
To this extent, balancing perspectives from the blue economy, green economy, and brown economy to accelerate national development must be understood within national priorities.
Rebuilding the economy has frequently come up in the vocabulary of the new dawn administration. Based on rhetorogy, which is the study of frequently used symbols and words to decipher and uncover cultural underpinnings of an organisation, I’m expecting this talk to find its expression in the 2023 national budget.
As a matter of fact, the taxes on fuel which were suspended last year are likely going to be re-integrated and counted upon based on Government rhetoric in the recent past.
Last year, I hoped that funding to rural electrification was going to significantly jump from an underfunded allocation of K317 million in the 2021 budget.
However, the Minister of Finance perpetuated the underfunding to K362 million albeit at a marginal increase of 18 percent; perhaps I over expected seeing this was a new administration still trying to settle down.
The Rural Electrification Master Plan costs $50 million per year which is circa K800 million per year. It has been sheer lack of political will that $50 million per year could not be found to fund the Rural Electrification Master Plan while the same Government been burning at least $50 million per month on fuel subsidies for many years.
Previously, the electricity tariff set by the Energy Regulation Board (ERB) had a three percent rural electrification levy, but this important and well targeted levy was strangely absorbed into electricity general excise duty without consultations and since then, it has been a nightmare to account for this levy and it has impeded prospects for improved rural electrification funding.
My expectation is that the rural electrification levy will be brought back and managed by REA as part of the energy sector reforms.
REA has a master plan being implemented from 2008 to 2030 which will lead to the achievement of rural electrification rate of 51 percent from three percent even though the United Nations Sustainable Goal Number 7 calls for universal access to clean, affordable and sustainable energy for all by 2030.
My understanding is that if REA had recourse to better assurances of funding, it would have cast a target higher than the 51 percent it has set by 2030.
In fact, with a chronic under funding since 2003, it would be a miracle to achieve even 20 percent by 2030 unless very robust funding from Government and Cooperating Partners begin to get unlocked into REA mandate.
To this end, my expectation of the 2023 budget is that the 2022 K362 million allocation to REA will be more than doubled because we have a huge under funding legacy at less than 50 percent of the cost of implementing the Master Plan.
I am confident that the new dawn administration will not pay a blind eye to this because of its intention to develop the rural areas.
I’m also confident that measures which talk to the development of the Batoka Power Project and the 300 MW for Luapula Province will be adequately budgeted for from a Government perspective.
I am expecting that adequate funding will be allocated to Indeni Energy to support its new business model as an Oil Marketing Company (OMC) which is closer to what it was doing and not as a fuel marking company.
It is against industry best practice for an OMC to mark fuel for itself and for its competitors. This is conflict of interest and unheard of.
Fuel Marking is a fuel auditing programme which is done by an independent entity appointed by a regulator or done by an OMC for its own fuel as a brand protection imitative.
For the safety of the nation and especially that the Zambian oil industry has not reached maturity stage, a State-owned Enterprise (SoE) such as Indeni must participate in fuel importations. It cannot be sidelined.
Indeni Energy will need considerable funding to carry out technical feasibility studies aimed at choosing locations in provinces for production of ethanol. Ethanol production equipment must be imported and installed.
Blending facilities and storage facilities must be installed in various depots in the country. Many people think the current tanks we are using for fuel storage are fit for purpose for ethanol storage. That’s not correct.
My sincere hope is that Indeni has by now presented budgets to IDC for operations as an OMC and CAPEX requirements with regards the ethanol production and blending.
If this has not happened, it is unlikely Indeni will start business next year from an ethanol production and blending point of view.
With various OMCs bringing in their own fuel, the private depots also must invest to support the biofuel mandate. I’m not sure an industry engagement with OMCs has taken place to gain in-depth implications on their CAPEX requirements.
Therefore, a biofuels policy is key to unlocking this industry together with the pricing methodology and an agreed upon national crop to support this mandate.
Surprisingly, the Ministry of Agriculture as custodian of national crops has not been visible on this national mandate. My take is that the Ministry of Agriculture is supposed to take a leading role in informing the nation regarding crops it intends to dedicate to this mandate.
In conclusion, I wish to emphasise the need to unpack the electricity Excise Duty and take the three percent rural electrification levy which was merged and give it back to REA.
A word of caution; let’s be careful how we bring back Customs Duty on fuel imports especially the fuels coming from the SADC Region because of challenges surrounding the claims for Customs Duty reimbursement on the basis of SADC Rules of Origin.
It is very difficult to verify and validate claims of this nature because of the complex nature of the fuel movement matrix in the SADC region. Zambia Revenue Authority (ZRA) has no capacity to manage the verifications and validations on the complex fuel movements in the region. I would prefer a different tax is introduced to replace Customs Duty on fuels.