THE ZAMBIAN ELECTRICITY
REGULATORY ENVIRONMENT
PRESENTATION BY ZAMBIAN TEAM
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PRESENTATION OUTLINE
Country Overview
Energy Sector Reforms
Legislative Framework
Establishment of ERB
Structure of ERB
Regulatory Functions
Independence Accountability &
Transparency
8. Regulatory Impact
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COUNTRY OVERVIEW
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Land Mass: 753,000 km2
Independence: 1964
Politics: Multi Party system
Elections: 5yrs
Population: 13.09 Mn
Ethnic Groups: Over 73
Provinces: 10
Capital city: Lusaka – 1.7 Mn
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COUNTRY OVERVIEW cont…
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Official language: English
GDP : US$ 20.67 Billion (2012 est.)
GDP Per Capita: US$1,700
Real GDP Growth Rate: 6.5% (2012 est.)
Currency: Zambian Kwacha (ZMK)
Inflation Rate: 7 % (Sept 2013)
Major economic sectors –GDP contribution
 Agriculture – 20.2%
 Industry – 33.5%
 Services - 46.3%
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ENERGY SECTOR REFORMS
 Broad Economic reforms of 1990’s called for:
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Liberalization of ESI
Dismantling of ZESCO’s monopoly power
Provided for entry of new players
Establishment of a sector regulator
 Energy Policy of 1994 – provided for actualization of
these reforms – NEP revised in 2008
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LEGISLATIVE FRAMEWORK
Enabling Legislation
 The Energy Regulation Act
 The Electricity Act, Cap 433
 The Petroleum Act, Cap 435
 The Energy Regulation (Licensing Regulations),
Statutory Instrument No. 2 of 1998
Associated legislation
 The Standards Act
 The Consumer and Competition Act
 The Environmental Management Act
 Weights and Measures Act
ESTABLISHMENT OF ERB
 ERB established in 1997 – Energy Regulation Act 436
 Extent of ERBs regulatory mandate:
a. Electricity
b. Petroleum
c. Coal
d. Biofuels
e. Other forms of energy: Solar
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INSTITUTIONAL SETUP IN ESI
ERB: 1997 – Sector
Regulator
MMEWD
Provides
Oversight
OPPI: 1999 - Promoters
of private investment in
ESI
REA: 2003 Rural
Electrification
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STRUCTURE OF THE ERB
 The ERB
 Est. section 3 of the Act
 Body corporate, perpetual succession
 The Board
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Seven (7) part time members
Appointed by Minister
3 yr tenure - renewable once
Appointed in own capacity –
with no stakeholder representation
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STRUCTURE OF THE ERB cont…
 Management
 Headed by an Executive Director/CEO
 Functional structure with 5 Key Directorates –
(Legal, Technical Regulation, Economic Regulation,
Consumer
&
Public
Affairs,
Finance
&
Administration)
 ERB headquarters (Lusaka) + 2 Regional offices
(Kitwe & Livingstone).
 Current staff complement is 67.
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BOARD FUNCTIONS
Functions as enshrined in the ERA:
 Issuance of Licenses in Energy Sector
 Monitor efficiency and performance of licensees;
 Receive and investigate consumer complaints;
 Regulate the location or construction of a common
carrier, energy facility;
 Monitor competition with CCPC;
 Design standards with ZABS;
 Monitor environmental energy issues with ZEMA; and
 Recommendations to the Minister on energy
regulation and related issues.
SOURCE OF FUNDING
1.Revenue Grants from Government :
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Licence fees (0.7% of annual turnover)
Application fees (0.1% of the cost/value of the business)
 As at 1st January 2013, 100% collections remitted directly to
GRZ – rely on a Grant from central treasury
 Previously ERB retained 80% of collections and remitted 20% to
GRZ.
2.Grants or donations from co-operating agencies.
3.Other income - Bank interest, sale of application forms,
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LICENSING
Authority to License drawn from:
 Electricity Act (EA) (section 3) which requires the
licensing of Generation; Transmission; Distribution;
and Supply of electricity.
 Other licenses include: Manufacture, Maintenance and
Installation of Solar Energy Systems; etc
 Energy Regulation Act (ERA) (section 6) which
acknowledges the ERB as the licensing authority in
the energy sector.
TECHNICAL REGULATION
Instruments
of TR
Infrastructure Compliance Audits &
Licensing Inspections
License
Conditions
Standards/
Codes/Guide
lines
Board
Orders
Regulations
Product Monitoring
TECHNICAL
REGULATION
Standards Development
– In collaboration with
ZABS
Investigations of consumer
complaints
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ENFORCEMENT OF LICENSE CONDITIONS
The ERB can recommend the Suspension/Revocation of
license to Minister in instances of:
i. Material failure to comply with license conditions
ii. Material contravention to licence conditions;
iii. Technical, managerial or financial incompetence;
and
iv. Failure to start licensed activity in 3 years.
Appeals Process:
 Suspension of license - Administrative appeal to ERB
 Revocation of license - Appeal through High Court
 Transparency of Enforcement Process
ECONOMIC REGULATION
Tariff Determination: In accordance with the Electricity
Act Cap. 433 & Tariff filing guidelines
 Revenue Requirement Methodology applied ie:
Revenue Requirement = Expenses (O&M) + Depreciation
(straight line) + Rate of return X Rate Base (Assets)
 Applied uniformly to Generation,
Distribution and Supply assets
Transmission,
 Currently Real Rate of Return set at 6% - determined
through Benchmarking with other Regional Utilities at
time of Cost of Service Study (2007)
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ECONOMIC REGULATION
 Self-enforcing Incentive Based &
Regulation KPI Mechanism for SOE’s
Performance
 Tariff award tied to Utility’s performance KPIs score of
previous period (year)
 Review & Approval PPAs - regulatory consent ensures
non-discrimination, cost reflective tariffs, conformity to
regulatory requirements before contracts signed
 Tariff Migration to Full Cost Reflectivity – since 2007
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TARIFF MIGRATION PATH
APPROVED TARIFF INCREASES 2007-2010
CUSTOMER CATEGORY
2006/7
RESIDENTIAL
US$c
3.97
COMMERCIAL
US$c
5.53
SERVICES
US$c
SMALL POWER US$c
LARGE POWER US$c
Average Change
3.82
4.44
4.22
4.27
2008/9
2009/10
2010/11
27.80%
40%
41%
5.04
5.24
7.86
1.30%
27%
27%
5.6
5.28
7.13
6.80%
25%
33%
4.08
3.78
5.36
16.20%
26%
15%
5.16
4.83
5.91
27.50%
42%
12%
5.38
16%
4.95
5.67
35%
4.97
6.76
25%
6.6
Cumulative
(2006-2011)
151%
63%
78%
68%
103%
96%
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TARIFF MIGRATION PATH
PROGRESSION TOWARDS COST REFLECTIVITY
400.0
350.0
ZMK/KWH
300.0
250.0
200.0
Residential
150.0
208.7
264.6
373.1
Large Power (MD3 & MD4)
224.5
286.2
320.5
Small Power (MD1 & MD2)
209.8
243.8
280.3
Commercial
263.1
266.5
338.4
Services
178.9
191.1
254.1
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ACCOUNTABILITY STRUCTURES
 Government Oversight – through MMEWD
• Submission of periodic Performance reports
• Submission of Annual Reports to Parliament
 Public Accounts Parliamentary Committee
• ERB subject to PAC oversight with respect to
prudency of use of financial resources
 Lands, Energy and Water Parliamentary Committee
• ERB subject to LEWC oversight on emergent issues in
the energy sector
REGULATORY INDEPENDENCE
Decision making independence – set out in the
regulatory functions of the ERB as outlined in the ERA.
ERB regulatory decisions not subject to approval or
review by Minister or any other institutions.
Appellate Review of Regulatory Decisions
 Appeals to High Court
• Against ERB regulatory decision;
• Against Minister’s decision to revoke a license;
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•
Judicial Review under High Court procedures
Legality of the decision or action taken;
Procedural fairness; or
Unreasonableness.
REGULATORY INDEPENDENCE
Financial Independence - ERA provides that License
fees collected be used for the energy sector
Administrative Independence
 Staff and management appointments done by ERB
 Conditions of service, code of ethics by ERB
 ERA – Financial and performance reporting
 Public Finance Act – internal controls and audit.
 Public Procurement Act - procurement.
TRANSPARENCY AND PARTICIPATION
 Public hearing process for• Objections to license applications; and
• Objections to electricity tariff applications and
adjustments.
 Rational for regulatory decision based on assessment
of submissions, evidence and legal, technical,
economic and public interest issues.
 Regulatory decision made public through:
i. Public media: Electronic & Print media, publications;
ii. Public register: Register of license applications, tariff
applications, objections, regulatory decisions.
iii. Licensee informed of reasons for decisions, actions.
REGULATORY IMPACT
 Promotion of private participation in the ESI through
level playing field & open access regime – Grid Code
Development
 Approval of new Generation projects through the
issuance of Investment Endorsements – new
investments
 Facilitate regional trade – through approved Cross
border trading guidelines
 Migration to cost reflective tariffs – financial viability of
utilities
 Encourage operational efficiency in Infrastructure service
delivery through incentive based regulation.
 Light handed regulation for Small HEP & isolated grid
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projects
CHALLENGES
 Impact of SI 33: New projects – reached financial
closure now re-opened – project implementation at risk
– PPA escalation clauses uncertain; loan repayments
 Development of feed-in-tariffs – Policy not in place
 Balancing need for Cost reflective tariffs in light of new
energy projects and economic social impact
 Attaining Cost reflectivity across all consumer
categories
 Delayed implementation of Grid Code - affecting
stakeholder confidence
 Investment focus more on generation projects - no
corresponding investment in attendant transmission
infrastructure for evacuation of power
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CONCLUSION
 Need for progression beyond feasibility stage on new
Generation projects - most of which have been on the
drawing board for past decade or more
 Integration of other renewable alternatives eg. solar
farms; geo-thermal, etc - Zambian energy mix still
skewed towards large hydro-generation
 Need for increased investment in transmission network
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THE END
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