After 20 years is the energy regulatory stool balanced?

Wed, 31 May 2017 11:39:58 +0000

 ERB 20th Anniversary

 By Kwali Mfuni 

 Introduction

 The Energy Regulation Board (ERB) has clocked 20 years of regulating the energy sector. The question that quickly comes to mind is: ‘Has the energy regulator fulfilled its mandate and national vision for which it was established 20 years ago?’

The quick and short answer is ‘Yes’ and the reasons to justify this primarily revolve around issues of clear rules and guidelines, security of supply of energy products and services, a predictable and level playing field and protection of consumer interests. A negative answer would been coloured arising from an unpopular decision particularly when a seemingly underperforming utility is granted an upward tariff adjustment. This among other issues has resulted in some stakeholders questioning the effectiveness or relevance of the ERB. However, the simple truth is that we are an energy-hungry developing country which is excellent news for our economy, however we have an energy deficit.

This has put tremendous pressure on the national energy outlook with any disruption adversely impacting the economy as experienced recently. It is therefore clear that someone has to make the tough and unpopular decisions which maybe painful in the short/medium term but are intended to actually yield the energy advancement Zambia needs to keep pace with national development.

A good starting point to the 20 year regulatory walk in Zambia would be to start with the regulatory function, a concept which has not been fully appreciated by many. This is because the regulatory function typically tries to imitate competition to maintain equilibrium which sometimes calls for making tough decisions. In the absence of competition, which is typical particularly in the electricity sub sector – the regulatory function is critical.

The electricity sub sector has monopolistic characteristics due to costs associated with building, maintaining and operating an electricity business. Consequently, the sector still has few players with ZESCO Limited being the dominant player.

With such monopolistic power there maybe a risk to abuse it to the detriment of consumers. In addition, while bulk power users may have negotiation leverage, individual consumers maybe disadvantaged in taking the utility to task.  Therefore, in addition to ensuring that the consumer voice is heard, the regulator also guards against such vices and promotes good business practices, while controlling the price charged by utilities.

This regulatory function is not only evident in the electricity sub sector but is equally important in the petroleum sub sector. In this regard, the ERB role is primarily to guard against collusion, provide for a level playing field and ensure product quality. Despite the petroleum sector having a relatively large number of players there is still need for the regulator to monitor operations. In addition, the ERB also pegs the price at which petroleum products are sold in order to avert the risk of collusion.

The ERB presence has perhaps been more visible in the petroleum sector than electricity. Regulatory oversight has been critical with the influx of players in the petroleum sector that has increased from less than 10 at ERB’s inception in 1997 to currently about 51 Oil Marketing Companies (OMCs). In addition, the country has about 327 filling stations scattered throughout the country. Again, someone has to monitor the sector not only for safety but also product quality to ensure consumer protection.

Ultimately, the skill, capacity and experience with which the ERB manages the Zambian energy sector has been a learning curve gradually acquired over the past 20 years. From its inception in 1997 the ERB has had to quickly learn the regulatory skills, adapt and adopt best regulatory practices and grow in order to fulfil its mandate.

To execute its mandate effectively the ERB has developed structures to tackle the various regulatory aspects as follows:

2. Licensing & Legal Services

 Licensing involves issuing licenses in the energy sector and effecting enforcement action in the event of a breach. If the licensed companies do not adhere to their license conditions they risk compliance action which includes suspension or revocation of their licenses.

The types and duration of licenses issued are indicated in the table below:

2.1 Highlights include the following:

 Increased compliance rates by licensees due to consistent enforcement

of Licenses conditions;

 Predictable and consistent issuance of provisional and quarterly

Standard Licenses;

 Simplified licensing procedures and light handed regulation for certain

activities in line with the Business Regulatory Act

 Facilitation of entry of new investors in the energy sector through

issuance of Licenses and Investment Endorsements;

 Effective provision of policy guidance to Government on regulatory

matters.

3. Technical Regulation

The ERB monitors the performance and enforce compliance of petroleum, electricity and renewable energy infrastructure countrywide.  This also involves the review and development of standards and guidelines for monitoring of licensees with respect to environment, performance, quality, safety and reliability of supply of energy products and services.

3.1 Highlights relating to the ERB’s technical regulation agenda include the following:

• 51 Oil Marketing Companies with 327 Retail Filling Stations
• 91 Road fuel transporters with 733 fuel tankers licensed to transport

petroleum products

• Gas Distribution (Afrox, Oryx, Ogas, Lake Petroleum, Mount Meru,

Industrial Gases)

• Solar – Regulating the manufacture, importation and installation of

solar energy products

• Bio fuel – one license issued for production of biofuels. A framework

for blending biofuels with petroleum is in place

• Revision of Zambian Standard 385 to include above ground containerised

service stations

• Grading of petroleum infrastructure
• Development of various technical standards: solar, biofuel, biogas,

petroleum  electricity

• Siting Guidelines and Construction Licence for petroleum infrastructure
• Power Quality Management System including standards on Energy

Efficiency

• Implementing the Grid and Distribution Codes
• Enhancing stakeholder collaboration: ZABS, ZEMA, RTSA, ZWMA

4. ECONOMIC REGULATION

One of the ERB core functions relates to pricing energy products and service namely:

1. a) Electricity Pricing;
2. b) Fuel price setting; and
3. c) Renewable Energy Feed-In Tariff Framework (REFiT).

4.1 Electricity Pricing

Electricity tariff adjustments are subject to the ERB review and authorization. This ensures that utilities charge reasonable tariffs which are fair to consumers and but also provide adequate funds to sustain continued service provision.  The history of electricity setting is indicated in the table below:

4.1 Fuel pricing

The ERB has used two models to price fuel the Import Parity Pricing (IPP) mechanism and Cost Plus Model (CPM). Under the IPP mechanism, petroleum prices were previously reviewed on a monthly basis but changed to Cost plus after stakeholders complained.

The CPM operates on the principle that the final price of petroleum products should cover all costs incurred in the fuel supply chain. An assessment is therefore conducted for every petroleum feedstock is imported into the country on an approximately 45-day cycle.

The history of fuel price setting is indicated in the table below:

4.2 Renewable Energy Feed-in- Tariff

In order to ensure a predictable investment and regulatory framework, a regulatory framework for the Feed-In Tariffs for solar Photo Voltaic based projects with the following supporting regulatory tools:

1. a) Standardised Power Purchase Agreement template;
2. b) Standardised Connection Agreement;
3. c) Generation License;
4. d) Guidelines for Renewable Energy;
5. e) Procurement Guidelines and Rules; and
6. f) REFiT Rules and Guidelines.

Consequently, in order to promote investment in the renewable energy sector benchmark REFiT tariffs have been developed as indicated in the table below:

Other key activities include Power Purchase Review Guidelines; Key Performance Indicators; and Utility Performance Audits.

5. CONSUMER AND PUBLIC AFFAIRS

Through the different avenues for complaints handling, the ERB has since inception received a total of 8, 880 and resolved 5,691 representing a resolution rate of 64.1 %, from 1998 to 2016. The complaints mainly related to delayed service connections, pricing of energy products and services, product quality, power outages, disconnections, Load shedding, faulty meters, attitude of customer service personnel, contaminated fuel, wrong fuel, lack of pressure pumps, compensation claims, pre-paid metering, faults and damaged equipment.

The history of complaints handled is indicated in the table below:

In addition to complaints handling, a standard on the Quality of Consumer Service stipulating acceptable minimum level of service has also been developed in conjunction with the Zambian Bureau of Standards.

6. ERB PRESENCE

The ERB presence has expanded to 111 staff from a contingency of only seven at inception all of whom were housed at Premium House in Lusaka’s Kamwala area.  Now the ERB can boast of four offices which in addition to the Head Office in Lusaka, is also in Kitwe, Livingstone and Chinsali.

6.1 Head Office – Lusaka

This is the hub of the ERB housing all the technical departments as well as support staff. The ERB Head Office has been housed at a landmark building since 2012, which being a public institution belongs to the Zambian people.

6.2 Copperbelt Office – Kitwe

The Copperbelt Regional Office was officially opened on 18th November, 2005 by the then Minister of Energy and Water Development, Honourable Felix Mutati. This was the first to be opened outside Lusaka primarily taking cognizance of the high energy activity in the province through the mines. In addition, key petroleum infrastructure namely INDENI Petroleum Refinery, TAZAMA Pipelines headquarters and Fuel Terminal and in recent years Ndola Energy Company (thermal power plant), and other bulk fuel storage depots are found in area.

Since opening of the Kitwe office, highlights include enhanced consumer complaints resolution especially in former mine townships where the electricity network had deteriorated over the years before upgrade works were undertaken. In the petroleum sub sector, the complaints handled by the ERB Kitwe office have mostly been about contaminated products.

Inspections have also been conducted under Technical regulation for electricity and petroleum for compliance to stipulated standards. The Copperbelt office staff include TR and Consumer & Public Affairs.

6.3 Southern Region Office – Livingstone

The Livingstone office was opened on 12th April 2012 against the background of increased social and economic activities.  In addition, the area also boasts of energy infrastructure in the area which includes the Victoria Falls Power Station, Maamba Collieries and an extensive transmission network.

Highlights:

• Facilitated Maamba Collieries Limited licensing to undertake its 300 MW thermal power generation and transmission activities,
• Provided regulatory oversight over the 6.5 million capacity Mongu Strategic fuel depot from construction commissioning of the depot in 2016
• Key in the development of ERB’s procedures for approval of the location of filing stations.
• Participated in the development of key performance indicator (KPI) framework for ZESCO’s operations.
• Collaborated with ZESCO Limited to clear of a backlog of over 5,800 delayed new customer service connections in Southern region by November 2016.

6.4 Northern Region Office – Chinsali

The Northern Region office in Chinsali was launched on 1st October 2015 with a view to be more accessible to stakeholders in Luapula, Northern and Muchinga Provinces.

Muchinga office activities include Environmental Impact Assessments (EIAs) for the Rural Electrification Authority (REA) grid extension projects in Chembe, Kawambwa and Milenge districts, a 100 Kilowatt (KW) hydro power generation project for own use at Kalungwishi Estates in Kasama district and the three cascade 326 Megawatts (MW) hydropower stations in Mpulungu for Lufubu Power Company.

On the petroleum front by 2015 the region had twenty (20) Petroleum retail service stations. The ERB Northern Region Office has since approved commissioning of eight service stations bringing the current total to 28 service stations. In addition EIAs have been conducted for five projects in the petroleum sector.

Local stakeholders have not been left out, the office has held community meeting and regularly conducts radio programs on the local community radio station.

Detailed Write Ups on the above issues as well as regional offices can be accessed from the ERB website www.erb.org.zm

7. 20th anniversary commemoration activities

It is difficult to cover 20 years in a short space or period, the ERB is therefore dedicating this week to commemoration of the 20th Anniversary. This occasion will be used to introspect and also invite stakeholders to reflect on the regulatory impact in the energy sector. Consequently, a number of activities under the theme Balancing The Regulatory Stool – A 20-Year Perspective have been lined up for this week as follows:

• Media tour to ZESCO’s National Control Centre to help journalists appreciate the intricacies involved in managing electricity generation;
• Public discussion forum at the ERB head office involving stakeholders and other interested parties on Thursday, 1st June 2017 at 14:00 hours;
• Mini exhibition at Manda Hill Shopping Mall on Friday, 2nd June 2017; and
• Recognition of key contributors to the growth of energy regulation in Zambia.

Members of the public are invited to participate in the public events which will take place at all the ERB offices.

At the end of the day, despite the difficult and sometimes unpopular decisions the ERB tends to make, the regulator still has a job to do for the greater good of the country.