Being a land locked country, Zambia has certain limitations when it comes to national choices that involve strategic pursuits that can foster development. The requirement that bilateral agreements will more often be the difference between access to new foreign markets or naught should serve as a signal to purse disruptive technology as a means to advance the development agenda.
In the energy space, the last couple of years have exposed a gap in terms of options for electricity generation. However, GRZ has made significant progress is pushing the agenda of thinking outside the box when it comes to solutions around improving energy production. It is a known fact that for companies to contribute to GDP, energy concerns must be addressed.Therefore, it is a welcome move that the pursuits that will see diversity in terms of options for energy production are currently being reviewed.
Renewable Energy is the current buzz option that will see companies that are at the frontier of wind, solar and gas energy technology playing in the game energy in Zambia. The regulator of energy in Zambia has already put in place regulation on how the game will be played. Furthermore,incumbents in the game are also reviewing their energy mix in terms of generation options. One of the mechanisms that is proposed is known as Renewable Energy Feed-in Tariff (REFIT). According to Wikipedia, Feed-in tariff is a policy mechanism designed to accelerate investment in renewable energy technologies. It achieves this by offering long-term contracts to renewable energy producers, typically based on the cost of generation of each technology. What this entails is that cost-reflective, pre-posted tariffs,differentiated by size and type of renewable resource based projects (hydro, wind, solar, biomass, or other)that are generally less than an appropriate size (for streamlining, grid stability and cost accuracy).
A few energy consultants in Zambia suggest that the program typically includes regulatory rules that seek to mitigate various key risk factors (such as treatment of connection costs, currency exposure, indexation, and others) to enhance predictability and encourage mobilization of private developers and foreign capital. However, clear Power Purchase Agreement (PPA)guidelines and clear application procedures with clear definitions of what constitutes a Viable Project and a bankable feasibility study are usually an integral part of the Program. Furthermore, to be deemed credible, a REFIT Program must have an implied “if you build it, we will buy it” commitment from the public offtaker (Electricity utility)for viable projects, safeguarded by the regulator, so as to enhance predictability of the investment environment.
For Zambians seeking to participate in this arena, there are currently several options for financing which the World Bank categorizes undertheir Net Financial Flows to emerging market statistics as Net Privateand Net Official flows. Astute players will be seeking private money from these financiers by using mechanisms such as Foreign Direct Investment (FDI), Portfolio Equity,Bonds and Commercial Debt which according to the World Bank have pumped in far more money in EMs compared to bilateral and multilateral grants and loans (Net Official Flows) put together. It isthe future but only requires fiscal disciplinary and government commitment which Hon Felix Mutati has shown signals of in his numerous addresses.
Structuring a viable energy mix will be keenly watched by premier companies that are striving for growth in EBITDA. Although not statistically documented for Zambian premier companies, we have noted that in numerous Chairman and Chief Executive Letters to shareholders in annual reports, energy is a vital ingredient to creation of value.