The Zambian government has embarked on efforts to develop its power industry to meet the rising demand for power. Efforts are underway to attract private companies to participate in the country as independent power producers (IPPs) or form public-private partnerships with the Zambian Government.

New analysis from growth consulting company Frost & Sullivan, Strategic Analysis of the Zambian Electricity Industry, finds that the market earned revenues of USD188 million in 2006 and estimates this to reach USD285 million in 2013.

“The country’s thriving mining sector has significantly raised the overall demand for power in Zambia,” says Frost & Sullivan Research Analyst Moses Duma. “The government has now embarked on upgrading and expanding installed power generation capacities, while also inviting the private sector to build new plants.”

The Zambian Government currently lacks the ability to develop the needed generation capacity to meet the rising local and export demand. As a result, it has launched efforts to attract the participation of private companies in the power industry.

While these are promising trends, major obstacles remain. Key challenges to the growth of the Zambian electricity industry are the dominance of the state utility, Zesco, in power generation, transmission and distribution and the existing low tariffs.

“Over 90 percent of the power generation, transmission and distribution facilities in Zambia are owned by Zesco, making it difficult for new companies to compete with the state utility,” explains Duma. “Moreover, existing tariffs in the Zambian power industry are sub-economical, motivating efforts to develop tariffs which are cost reflective and attractive for IPPs.”

Power generation is a high-capital cost activity. Therefore, IPPs need an assurance that their investment in the Zambian power industry will yield positive returns.

The government’s immediate focus should be on improving the level of tariffs to attract investment from both local and international companies. Moreover, private companies should consider strategic private-public partnerships with Zesco to develop new power plants and investigate ways to leverage the potential export market in the Southern African power pool.