2022 BUDGET EXPECTATIONS
FROM AN ENERGY PERSPECTIVE
“Operationalising the Energy Fund and Increasing Funding to Rural Electrification Authority (REA) is Crucial”
By Johnstone Chikwanda
ACCORDING to a public notice, the 2022 National Budget will be presented by the Minister of Finance, Hon. Situmbeko Musokotwane, MP on 29th October, 2021. This will be a massive moment in our national calendar.
The 2022 Budget will be the New Dawn Government’s first own crafted Budget which obviously will be informed, guided and mentored by the UPND Manifesto and the Presidential inaugural speech to Parliament on 10th September, 2021. It has never been easy to balance a National Budget due to endogenous and exogenous factors. To this end, the 2022 Budget will certainly be constrained by these factors.
COVID-19
The year 2021 has been a very challenging year due to the ravaging effects of the global pandemic-COVID-19. Although global economies have steadily been opening up, global economies have not yet recovered from the crippling effects of the pandemic which pushed the global economy into a recession.
It affected supply chains, consumption levels, mobility of people and goods. It has affected national budgets and developmental plans to the extent that funds have had to be diverted from their prior intended use. The world is still ravaged by the pandemic COVID-19.
Zambia is no exception. As a matter of fact, countries have spent over a Trillion United States Dollars in fossil fuel subsidies in the past 2 years to cushion consumers against the impact of COVID-19.
Going into 2022, the effects of the COVID-19 could be felt for a much longer time than anticipated. While some countries have made significant progress in the fight against the pandemic, there are a lot of countries where reported positive cases are still worrisome such as South Africa; a major trading power house with Zambia.
As long as mobility of people and goods between South Africa and Zambia remain constrained, business will remain sluggish between these two countries.
However, as we are now coming to terms with life in the “new normal,” there is need to focus more on a number of priority areas which shall assist to put more life in the economy.
And one such priority area is energy. Energy is the life blood of a modern economy. It turns the wheels of economy. Energy is an enabler of economic growth.
PRESIDENT HICHILEMA
In his inaugural speech to Parliament this year, His Excellence the President of the Republic of Zambia, Mr. Hakainde Hichilema acknowledged that investment in the energy sector has not grown in tandem with the potential of the sector. The theme of his address was “creating a united, prosperous and equitable Zambia: restoring economic growth and safe-guarding livelihoods.” His speech set the tone and cast a harbinger of what we could expect. “Extracts from President Hichilema’s address to Parliament regarding energy sector will find expression in the 2022 National Budget”
Rebuilding the economy has frequently come up in the vocabulary of the New Dawn Government. To this end:
1) Austerity measures can be expected.
2) Removal of some unhealthy subsidies in the energy sector can be expected in order to free resources and improve energy security. Some taxes which were waived on fuel could be reinstated.
3)Measures that talk to decarbonization thereby setting a basis for a green economy can be expected.
Although it is expected that background constraints could impact on the Budget outlook, I would like to encourage Government to do all it can to ensure that funding to projects in the energy sector does not shrink but be improved upon.
We desperately need certain energy sector projects to be commissioned without further delays in order to increase energy security, productivity and energy export market engagements. To this end, ensuring that all remaining obligations on the 750MW Kafue Gorge Lower (KGL) are provided for is a must.
This plant was embarked on as a game changer in our scheme of things.
RURAL ELECTRIFICATION AUTHORITY
Funding to Rural Electrification Authority (REA) need to be more than doubled from the 2021 funding level and timely disbursements provided for. Rural electrification is at a pathetic 8% electrification rate; albeit a significant jump from 3% not too long ago.
There is also need for a bigger electricity transmission line to LuapulaProvince in order to support industrialisation drive which is hampered by inadequate industrial electricity.
Funding to REA has been dropping systematically since 2018 although it went up in 2021. REA has a Master Plan being implemented from 2008 to 2030 which will lead to the achievement of rural electrification rate of 51% from 3%.
While this jump appears to be huge, it’s far below the requirements of the United Nations Sustainable Development Goal Number 7 (UNSDG 7) which calls for universal access to affordable, clean and sustainable energy for all by 2030.
While UN SDG 7 is calling for 100% electrification by 2030, REA has projected a rural electrification of only 51% by 2030 at an annual budget of USD 50 million of the implementation phase of the Master Plan.
It means that if funding to the Master Plan was increased beyond $50 million per year, we could achieve over 51% rural electrification by 2030.
Despite this need, successful administrations have been allocating a small fraction of the cost of implementing the Rural Electrification Master Plan. However, in the 2021 Budget, allocation to REA was doubled although disbursement challenges still remain an issue.
THE NEW DAWN GOVERNMENT
To implement the New Dawn Government ambitious plan of rolling out a robust renewable energy plan in rural areas, significant funding above $50m per year from Parliamentary, Bilateral and Multilateral partners will be required. One of the avenues could be to increase rural electrification surcharge on certain consumers for electricity.
The other avenue could be to operationalize the Energy Fund which has been established under the new Energy Regulation Act No. 12 of 2019. The establishment of this fund is one of the best things to have come out of the energy sector reforms.
Johnstone Chikwanda is an energy expert and a Fellow of the Engineering Institute of Zambia, a PhD candidate at Johnson University, Knoxville, Tennessee, USA
