HATS OFF TO GOVERNMENT FOR DOUBLING FUNDING TO RURAL ELECTRIFICATION
“His vision for solving Africa’s excruciating energy poverty must be sustained”
T FHE 2023 national budget was presented on 30th September 30, 2022 by the Minister of Finance and National Planning Dr. Situmbeko Musokotwane. The theme for the 2023 national budget is “Stimulating Economic Growth for Improved Livelihoods.”
This is the second budget by the new dawn administrator as guided and mentored by the UPND Manifesto and President Hakainde Hichilema’s speech in Parliament on September 9, 2022 during the official opening of the second session of the 13th National Assembly.
The basis of my 2023 budget expectations from an energy perspective was premised on my analysis of the 2022 national budget, President Hichilema’s recent statement made in Parliament which cast the tone and served as a harbinger of what could reasonably be expected.
There are some key highlights from an energy sector point of view which the Minister of Finance and National Planning has made. A number of highlights were expected although there is something he mentioned which took me by surprise.
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 because the same
sustain a self-financ
taxes remain suspended. I was expecting these taxes to be reintegrated in a phased manner going forward.
My takeaway from the budget is that VAT and Excise Duty has been brought back effective October 1, 2022 while 25 percent Customs Duty is still pending.
This measure is aimed at enhancing revenue collection measures from the oil
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industry while being cautious of the impact of reintegrating all the suspended taxes at one time. The public has been cushioned for almost two years.
I was holding my breath regarding funding to rural electrification which has tragically been under funded. This under funding coupled with cumbersome government procurement processes have led to a dismal 8.1 percent rural electrification rate which is one of the lowest in the SADC region.
When I heard that funding to rural electrification has been doubled from last year’s funding, I was shocked as I did not expect the jump to this extent despite lobbying intensely for funding to be more than doubled. The following extract from my previous article refers:
“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. Am optimistic that the New Dawn Administration will not pay a blind eye to this because of its intention to develop the rural areas.”
What Government has done about rural electrification funding is unprecedented as this has never happened before. Rural electrification is key to the achievement of about eight Sustainable Development Goals (SDGs) including SDG 7 on universal access to clean, affordable, and sustainable energy for all by 2030.
Clearly, Government has reasserted its priorities and appreciates the implication of failing to adequately fund rural electrification. The tide has been turned around. I commend the Government in this regard and wish to encourage them to sustain the momentum.
The ball is over to REA management to ensure speedy utilisation of the funds and enhance procurement plans in view of the cumbersome Government procurement processes and an understaffed organisational structure.
Previously, it was not only poor funding but also inefficient disbursement and lengthy procurement processes which affected progress of works. From what is coming out of the new administration, disbursement
for 7 days for 30 days is unlikely to be a challenge.
I can only hope that the staffing levels will be urgently improved to support the increased workload precipitated by unprecedented funding.
A surprise inclusion in the budget statement was that electricity generation from the coal fired Maamba Collieries will be doubled from 300MW to 600MW.
This statement has come at a time when governments are coming under heavy obstruction from climate change diplomats regarding recourse to coal for energy generation despite improved technology to manage emissions.
It is gratifying that Government is cognizant of the necessity of a well-balanced energy portfolio and that the energy transition to green energy pathways is a long slow journey which cannot be relied upon adequately to support the ambitious Government industrialisation drive.
The budget has also provided good measures about removing the taxes on gas cylinders, electric vehicles, and electric motor bikes to make them more affordable to the public.
My advice to Government is that it must consider de
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vising a mechanism of motoring if these rebates get passed on to the consumers. We have had several rebates on various renewable energy products, yet pricing remain on the higher side.
It is possible that the rebates could be getting con
DEPOSIT
verted into gross profits by some importers. In the absence of effective monitoring, achieving the intended purpose may be missed.
WHAT WAS NOT CLEAR IN THE 2023 BUDGET
While the Minister of Finance and National Planning was very emphatic on reforms in the petroleum subsector and that Indeni Refinery would be performing “some role” in the petroleum supply chain, he missed a good opportunity to inform the nation what measures
Government has put in place to support a new mandate which has been assigned to Indeni.
A few weeks ago, the President alluded to ethanol production and blending as part of the new mandate for Indeni. The Minister of Energy last week informed the nation that Indeni will operate as an oil marketing company and will also start blending biofuels in December this year on pilot project basis.
My considered view is that full scale operations at Indeni will require both CAPEX and OPEX provision to support the new mandate. I hope this will be discussed and clarity provided.
While I welcome the pronouncement that Government has finally disengaged from participating in the importation of petroleum products to cut out middlemen and improve efficiencies, I am of the view that, the Zambian oil industry has not yet reached maturity stage to be completely left in the hands of the private sector even if Government has remained with regulation.
It is critical that Indeni be allowed to participate as an oil company after all it is also a private company registered at PACRA although owned by the State. The previous administration attempted to leave procurement of fuel to the private sector 100 percent but learnt bitter lessons.
In 2017 the then Minister of Finance Mr. Felix Mutati stood in the same podium in Parliament and made the same proclamation of Government disengagement. Five years down the lane, it has not been fully achieved because of lack of exit manback and managed by REA agement plans from a $2.5 as part of energy sector rebillion industry. It is my conforms. While the Minister of sidered view that the PetroFinance and National Planleum Management Bill of ning proposed some house 2019 be reviewed, revalidatkeeping measures aimed at ed, and taken to Parliament amending the Customs and to assist managing the post Excise Duty Act, it is not clear Government involvement in whether this will extend to the oil industry. the rural electrification levy
Other key matters which which got merged in electricwere not mentioned in the ity excise duty. budget speech but maybe This issue has been causthey have been provided for ing pain to electricity traders in the yellow book related to who are being charged excise major projects which Presduty by Zesco but ZRA is not
policy be adhered to in order to sustain a self-fi ident Hichilema alluded to: allowing them to pass it over The 2,400MW Batoka Power to the electricity consumers Plant Project and the 300MW hence operating at a loss. Power Plant on the Luapula River.
Being major clean energy projects, I thought that mentioning them in the budget speech in the wake of the Presidential pronouncement a few weeks ago was going to provide more finality of intention.
These projects are critical to unlocking national development especially that the Minister of Finance and National Planning talked about 600 MW coming off the 750MW Kafue Gorge Lower Power Plant Project and 300MW from coal to energy pathway at Maamba.
Zambia’s power generation profile is informed by its national arbitrage rooted in her blue economy- water bodies; hence the need to gyrate 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.
Previously, the electricity tariff set by 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.
My expectation was that the rural electrification levy was going to be brought
COMMENDING GOVERNMENT ON CUSTOMS DUTY SUSPENSION ON FUEL
Based on the budget speech and the press statement from ERB, it is clear that 25 percent Customs Duty has not been reintegrated in the fuel pricing template. While this has reduced the extent of the fuel pump price for October 2022 it has also given room to rethink how to handle this particular tax from a SADC Rules of Origin perspective.
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 based on the 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.
ZRA does not have enough capacity to manage the verifications and validations on the complex fuel movements in the region. It is already a nightmare for them to fathom why fuel declarations are made in metric tons but tax computations is based on litres at some conversion factors which may need a rethink.
I would prefer a different tax is introduced to replace Customs Duty on fuels or increasing the size of the Excise Duty and abolish the Customs Duty on fuel all together. _________________________
*Dr. Johnstone Chikwanda is an Energy expert, researcher, and a Fellow of the Engineering Institute of Zambia, Email: j_chikwanda@yahoo. com.