IMF and Zambia’s power
Gabriel C Banda
TODAY, we will consider some efforts of the IMF and World Bank duad in actually preventing the building of electricity generation capacity and increased consumer access in Zambia.
Over the decades, besides writing on conflict and peace building issues, we have written much on interaction of economic policies and practices with the situation of basic needs in Zambia and worldwide.
Recently, considering the IMF, International Monetary Fund, and World Bank late 2015 and early 2016 courtship visits to Zambia, I have written reflection and analysis on the dynamics of Zambia’s relationship with IMF and World Bank. The writing has covered the early lending relationship, impact of the economic measures in the short term and long term, and Zambia’s current situation.
We covered the anti-austerity protests and riots that resulted in Zambia and elsewhere. We considered effects on the stability of individuals, households, and societies. We have brought out questions about economic policy dictatorship.
We have also shown some similarities of Greece’s current stressful experience with Zambia’s earlier ones involving IMF, World Bank, and creditors.
An interesting angle we are dealing with today is the forgotten, unheard, ignored, underrated, or hidden influence of IMF and World Bank in the electricity energy situation that Zambia is currently in, in the year 2016.
World Bank before Independence
Now, while Zambia became a member of the International Monetary Fund, IMF, in 1965, a year after Independence, World Bank had some relationship with Zambia before independence. In mid 1960s, the World Bank’s opposition to Zambia building its own power station at Kafue Gorge was in major part linked to the Bank’s own activities in the 1950s.
Besides some railways and agriculture projects, the World Bank had actually been involved in the funding of the Kariba Dam and its hydro-electricity power station jointly owned by two Federation of Rhodesia and Nyasaland members Northern Rhodesia and Southern Rhodesia, now Zambia and Zimbabwe.
In June 1956, the World Bank loaned 80 million US dollars to the Federal Power Board. A huge amount then, this was one of the biggest lending World Bank had ever made. Amongst the basket of lenders, it was one of the biggest loans towards the Kariba Dam and power station.
Even after the 1963 breakup of the Federation, Zambia’s independent government was over the years liable to servicing its part of the loan to the World Bank. The payments were to be through the Central Africa Power Corporation, which entity later, linked to the 1963 dissolution of the Federation, replaced the Federal Power Board.
Siting Kariba against Kafue Gorge
The siting of the dam for the power station was itself a controversy. While Kafue Gorge, in Northern Rhodesia, may have been a better site in terms of impact on humans, environmental impact, and other factors, the Federation’s affairs were tilted in favour of Southern Rhodesia, which had a big and influential White settler community, the site was eventually fixed for the Zambezi River at the border at Kariba.
The Kariba Dam, which became the biggest artificial lake in the world, had massive human, social, and environmental effects – still living with us today, almost sixty years after building. And there are earthquake and seismic effects still happening.
Perhaps it was the times or available technology and terrain factors, but we may argue that Zambia’s later Kafue Gorge power station system has had less impact than Kariba and has delivered very high returns in electricity generation. Kafue Gorge had a built capacity of 900 Mega Watts while Kariba South bank started with 705 Mega Watts.
In September, 1964, a month before Zambia’s independence, another World Bank loan was approved for CAPCO to embark on a second transmission line from Kariba to the Copperbelt and other capacity expansion works. The guarantors of the loan were the United Kingdom, Northern Rhodesia, and Southern Rhodesia.
But the cooperation of Zambia and Southern Rhodesia was to be greatly affected. In November 1965, Ian Douglas Smith and his white team illegally, against the colonial authority of the British government, forced Southern Rhodesia’s Unilateral Declaration of Independence, UDI.
This led to tension in the region and the world. United Nations economic and other sanctions were declared against rebel Rhodesia. This meant that Zambia’s ties with Rhodesia were broken or not the same again.
When Rhodesia threatened to block off Kariba electricity, whose control was on the South bank, the Rhodesia side, from flowing to Zambia, President Kenneth Kaunda’s government made urgent efforts to have an own power station. An immediate site for a station was at Kafue Gorge, which had been rejected during Federation.
World Bank against Kafue Gorge
However, when Zambia’s government started making arrangements, the World Bank tried to block it. The World Bank’s reasons seem to have rested on the fact that World Bank had invested hugely in the Kariba Dam and power station. In September 1964, they had even approved another loan for the join CAPCO.
World Bank’s preference was for Zambia to continue relying on the jointly owned dam and power station and ignoring the difficult situation of the politics of UDI. Just as Zambia had approached Western governments to help build the TAZARA railway line as a way of keeping with the United Nations sanctions and links with Rhodesia and the West refused to help, now the World Bank did not want Kafue Gorge power to be built by Zambia.
As on TAZARA, there was an assumption that the situation of UDI and Zimbabwe becoming independent could be solved in a short time. But UDI took some fifteen difficult years and war to settle.
An official remembers that President Kaunda’s government, unhappy with the World Bank position, appealed to the USA president. Dr Kaunda, fresh from a mindset of achieving Independence, sent a message to President Johnson, saying Zambia had an independent government and the World Bank had no authority to prevent Zambia from building a power station.
USA, then in good books with the anti-UDI Africa and world movements, told World Bank not to block Zambia and to allow Zambia to build. Thus the Kafue Gorge power project went ahead. Supported by civil engineering from Yugoslavia and electricity generation machinery by Sweden, it was a huge but efficient engineering project.
Zambia, in those days part of the Non-Aligned movement, and proclaiming a “mixed economy,” dealt with both Eastern and Western governments that were themselves in their own hostilities of the “Cold War.”
Kafue Gorge power station was build with Itezhi Tezhi dam further away, at Namwala. Built for the future, Itezhi Tezhi dam was built with a provision of a power station, which was fulfilled by Zesco and Tata in early 2016.
Meanwhile, in 1970, Zambia consolidated electricity supply by local authorities into an enterprise, Zambia Electricity Supply Corporation, Zesco. This was publicly owned, with government shares, a “parastatal,” which IMF and World Bank have been against. They believe business, especially utilities, should be “private sector driven.”
After Kafue Gorge’s opening in early 1970s, Zambia also built Kariba North Bank on the Kariba Dam. Kariba North Bank was also built with the future in mind, with provision of adding a Kariba North Bank Extension station. Zesco was to over the years go into other capacity building projects.
Meanwhile, in the 1970s, World Bank’s role in Zambia included involvement in a Lusaka housing upgrading programme and a useful scheme of building low cost material schools as Zambia’s government implemented its focus of increasing most people’s access to basic’s like education, health, water and sanitation, and infrastructure.
Southern Africa, Petro, and Copper prices
In the early 1970s, some key factors affected Zambia’s balance of payment and the whole economy. There was the January 1972 border closure by Rhodesia in the South. This led to further re-routing and other costs.
Meanwhile, the 1973 Arab-Israeli war led to higher oil prices. Around the same time, prices of copper, Zambia’s key export, fell. Economic pressures of sanctions and supporting the anti-racism and anti-apartheid struggles in Africa affected Zambia’s economy. Balance of payments was affected.
Thus Zambia for the first time got involved in borrowing from the IMF. The SDR (Special Drawing Rights) 19 million, which was then US $22.92 million, or K14.75 million with the Kwacha being stronger than the US dollar, was some soft loan to cover the economic impact of the Rhodesia border closure.
The IMF and World Bank followed on with other lending. They then implemented tougher “Structural Adjustment Programmes.” As in other parts of the world, as in Greece recently, these led to hardship amongst a wide population. Protests and riots, as currently in France, Greece, and Chile, happened over basic needs.
People have died as a result of IMF economic policy conditions. Social foundations have been shaken and societies destabilised. The integrity of life is affected. Zambia tried to leave the IMF programmes but facing IMF and World Bank organised sanctions and, isolated, Zambia was forced to go back to some IMF programme.
Over the years, even when they are not lending money, IMF and World Bank have got close into government and public body systems. The World Bank and IMF have penetrated electricity utilities. They get involved in administration, management, strategic planning programmes, and studies.
World Bank and Tariffs
In the 1990s, World Bank and IMF pushed for Zesco to increase electricity tariffs to so-called “cost levels.” Into 2016, World Bank and IMF have kept on pushing for increase. The World Bank and IMF are doing the same push with other SADC governments and utility providers. Individual governments are told their tariffs are the lowest in the region and in Africa.
At one time, in Zambia, with huge water resources and hydro-electricity potential, Zesco worked on plans of building power generation and export projects while keeping tariffs affordable to households.
In the early 2000s, as Zesco was about to implement some major projects, World Bank and IMF stopped Zesco, saying it was not right for a publicly owned utility firm to be involved in the electricity generation projects. World Bank was calling for private sector running of electricity utilities.
This has been the IMF-World Bank call and their aim, even now, and in the future, where the enterprises will be removed from public ownership and taken to private sector ownership. Yet it is known that both public and private owned enterprises are useful for society. Some can be co-owned.
IMF and World Bank stopping Zesco from building power facilities contributed to Zambia having limited capacity especially in times of drought, like the recent one of rain season 2014/2015.
Had the Zesco power generation projects been done in the 1990s and early 2000s, Zambia would have been in a stronger position now. In drought, electricity imports could have been minimised or avoided.
Another way in which IMF and World Bank policies affected Zambia’s power generation was through the imposition of incentives and concessions to help bring in investments. Mining investment to enable privatisation was targeted for concessions.
Firstly, the selling prices of the mines were very, very, low. Then business taxes were made favourable to the new mine operators.
And the mine operators could export 100 percent of earnings as foreign exchange. The tax system was later to create controversy between government and mine investors.
Government tried to reverse things, but not in a stable and fair way to both the mines and the public and thus things still have to be worked out and to be fair to both mine operators and the society.
The mines were given concessions in electricity tariffs for some ten years. This means some of the cost fell on house hold users, in some ways subsidizing the big businesses. The incentives measures benefitted mines and other investors but were unfair on the public purse.
We find that IMF and World Bank incentivisation measures for investors on mines and other enterprises contributed to limitations in resources for citizens and the public. The electricity field was greatly affected.
Generators and Regulators
Using supporting and financing of projects and tools like cost and tariff studies, World Bank and IMF penetrate energy regulation boards, including the regional RERA association of regulators. Sadly, instead of being fair to both producers and electricity users, electricity regulators, “watchdogs,” are now favourable to producers’ demands and are on the road to increase of tariffs.
Zambia’s electricity capacity built after independence now provides most of the available electricity generation capacity, which is now at slightly over 2,000 MegaWatts.
But Zambia continues to be an attractive energy and electricity potential that others envy. And in recent times, as before, IMF and World Bank have been pushing for the increase of tariffs. We believe the call is based on shaky premises. It uses the situation of monopoly and potential cartels to increase tariffs.
The IMF and World Bank promote “market forces,” yet in the electricity field they are promoting the fixing of prices through monopolies and cartels they support. But we believe that, with good management of enterprises, good capitalisation, and not the raising of prices and tariffs by monopolies and cartels, can answer some situations.
Cultures and Prejudice
Key is the attitude that says people in places like Zambia do not like paying for things and have some culture of getting things for free. This constant World Bank attitude is sometimes driven by prejudice against persons of some cultures or groups.
In electricity, the production costs, history, cultures, and other factors, such as the relationships of ownership and public resource investment in projects are complex in Zambia.
The effect of high IMF induced tariffs will be great impact on households and businesses. As with other energy price increases, all sectors of the economy and society will be negatively affected by price increase. The sectors will in turn increase their prices, while wages remain low, thus leading to higher price levels in society, levels which may be difficult to come down from. Tariffs increases will also have big bearing on trees and the environment.
Factors like drought, such as the one of the 2014 to 2015 rain season, will continue to be excuse used to talk about investment in power generation. Drought and flood often follow some cyclical patterns and should be considered in various production activities.
However, current house hold tariffs, considered low by IMF, are NOT the cause of limited electricity generation in Zambia. IMF and World Bank have contributed to limitations in Zambia’s electricity sector.
The IMF and World Bank should not be allowed to bully governments. Governments have responsibility to run affairs in independent and relevant ways. IMF and World Bank have worked through imposition and dictatorship.
They have often evaded responsibility for the negative effects of their economic policies and measures. But governments and societies do not have to suffer from IMF and World Bank. They can choose not to be limited by IMF and World Bank.
Recently, the Africa Development Bank, AfDB, has unveiled plans for supporting energy projects in Africa. We hope that, in economic policies, funding, and bonding, funders like AfDB do not become partners and agents of World Bank and IMF negative policies. Yet things have changed. There are alternatives to policies and borrowing from IMF and World Bank, the negative machine.
– Based in Lusaka, Zambia, the Author is involved in Writing and Arts, Basic Needs issues, Social Development, and observation of Conflict and Peace issues.
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GCB, Jan – May 2016