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 :: ANNOUNCEMENTS

 REGULATING THE ENERGY SECTOR

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Importance of Regulation

Concept of Regulation

INTRODUCTION

The concept of regulating a country's energy sector is more than one hundred years old, having been initiated in America. In later years, Europe also established regulatory agencies for the energy sector having seen the need for dedicated bodies to regulate what is often referred to as the engine of any economy - the energy sector. It has been argued that the steady development of the energy sector in the developing world is partly attributable to the presence of regulatory agencies, specifically focused on that sector. It is therefore not surprising that the developing world has decided to follow suit in recent years. Thus, at present, regulation is a worldwide phenomenon common in both the developed and developing countries. In fact, some countries without regulatory agencies in place feel left behind and are in a hurry to learn from countries with regulators in place.

Over the years, the ever-increasing involvement of the private sector has reinforced the need for autonomous agencies to regulate the sector. Regulation has largely entailed balancing the needs of both consumers and utilities. Thus, through regulation, utilities are able to operate in an environment where they can get a reasonable rate of return on their investment, while providing a quality service to consumers. With the advent of regulation, there now exist generally distinct and clear roles for different players in the sector â Government formulates policy, utilities provide the services while autonomous agencies regulate the sector. This has helped to boost investor confidence in the energy sector as there is a higher likelihood of a level playing field.

ENERGY REGULATION IN AFRICA

In Africa, the advent of liberalisation and commercialisation has triggered legislative reforms which paved the way for the establishment of regulatory agencies in the energy sector. With the wind of change, African countries began to establish regulatory agencies, having opened up to private sector participation, after years of state dominance in most sectors of the economy. With the success stories in America and Europe, Africa stood on firm ground to draw lessons from the developed world. Thus, in recent years many African countries have put in place energy regulators, while others are making efforts to establish their own. African countries which have regulatory agencies in the energy sector include Ethiopia, Sudan, Kenya, Uganda, Rwanda, Egypt, Senegal, Nigeria, Ghana, Gambia, Burkina Faso, Mali, Cameroon and Ivory Coast.

In view of the increase of regulatory agencies for energy and other sectors in Africa, the African Forum for Utility Regulators (AFUR) was established in 2000. AFUR is a formal collaborative arrangement for regulators that aims at supporting the development of effective utility regulation in Africa. It seeks to facilitate the exchange of information and lessons of experience among African regulators and to support capacity building initiatives. AFUR focuses on issues related to energy, telecommunication and water and sanitation.

THE SADC REGION

In the Southern African Development Community (SADC), a good number of member countries currently have regulatory agencies for the energy sector. Tanzania, Lesotho, South Africa, Zimbabwe, Angola, Malawi, Namibia, Madagascar and Zambia all have autonomous regulatory bodies in place. Indications are that other countries will soon take the same route. In order to foster the development of the sector, the regulatory agencies in the region have even created a Regional Electricity Regulators Association of Southern Africa. This has provided a forum where regulators draw lessons from one another for the development of the energy sector.

ZAMBIA

In 1994 the Government of the Republic of Zambia promulgated a National Energy Policy to guide the administration of the sector. This was in recognition of the critical role that energy plays in socio-economic development and poverty reduction and the need to enhance that role. At the time, there existed no regulatory body, and the law allowed for a monopoly in the provision of electricity services in Zambia, among other things. One of the key strategies outlined in the policy was to provide leadership in the energy sector through licensing and other regulatory instruments.

In that regard, legislation to do with electricity (The Electricity Act) was reviewed to open up the sector and new legislation (The Energy Regulation Act) was introduced to provide for the establishment of a regulator in the energy sector. Thorough processes were undertaken including consultations and reference to international best practice during the review of existing legislation before introduction of new legislation.

The Energy Regulation Board

The need to establish a regulator in the energy sector mainly arose from the liberalization policy which allowed many players to come into the sector and this required an agency to ensure that there was coordination and a level playing field in the sector. The Energy Regulation Board (ERB) was thus established in 1997 following the enactment of the Energy Regulation Act, Cap 436 of the Laws of Zambia.

ERB was established to regulate undertakings/utilities in the energy sector including Electricity, Fossil Fuels (petroleum) and Other Forms of Energy such as solar and coal, through specialised licences it would issue. Currently, regulated utilities include ZESCO, Copperbelt Energy Corporation and Lunsemfwa Hydro Power Company under the electricity sub-sector. ERB also regulates the refining, marketing of, importation and transportation of crude and finished petroleum products under the petroleum sub-sector. Some of the companies regulated include INDENI Oil Refinery, TAZAMA Pipeline and all Oil Marketing Companies such as BP (Z), Total (Z), Petrotech and Engen. Due to the conducive investment environment created by Government and the ERB, there are now more than 19 oil marketing companies operating in Zambia and consumers are receiving a better level of service, owing to increased compettion.

The functions of the ERB as provided for by the Energy Regulation Act are as follows:

  • issue licences under the Act (to all commercial undertakings in the energy sector);

  • monitor the efficiency and performance of licenced companies, having regard to the purposes for which they were established;

  • receive and investigate complaints from consumers on price adjustments by any undertaking, and regulate such adjustments by the attachment of appropriate conditions to licences held by undertakings or by such other means as the Board considers appropriate;

  • receive or investigate complaints from consumers and licenced undertakings on services provided by the undertakings and regulate such services by the attachment of appropriate conditions to the licences held by undertakings or by such other means as the Board considers appropriate;

  • approve the location and construction of, and receive and investigate complaints concerning the location or construction of any common carrier or any energy or fuel facility or installation or the carrying out of any works by any undertakings, and regulate such location and construction by the attachment of appropriate conditions to licences held by undertakings;

  • in conjunction with the Zambia Competition Commission established by the Competition Commission established by the Fair Trading Act -

    • investigate and monitor the levels and structures of competition within the energy sector with a view to promoting competition and accessibility to any company or individual who meets the basic requirements for operating as a business in Zambia; and

    • develop and implement appropriate rules to promote competition in the energy sector;

  • in conjunction with the Zambia Bureau of Standards established under the Standards Act, design standards with regard to the quality, safety and reliability of supply of energy and fuels;

  • In conjunction with the Environmental Council of Zambia established under the Environmental Protection and Pollution Control Act, formulate measures to minimise the environmental impact of the production and supply of energy and the production, transportation, conversion, storage and use of fuels and enforce such measures by the attachment of appropriate conditions to licences held by the undertakings; and

  • make recommendations to the Minister as to the measures to be taken through regulations to be made under this Act.

Since inception, the ERB has developed regulatory procedures and systems to facilitate the regulation of the energy sector in line with its mandate and mission. For example, in the petroleum sub-sector ERB has set standards for all petroleum products on the market so that consumers are protected. This, to a large extent, also prevents sub-standard products from entering the market and ensures Zambia does not become a dumping ground for undesirable products.

Conclusion

Aspiring to be world class, firm but fair regulator that inspires the confidence of all stakeholders, the ERB is regulating the energy sector in Zambia with due to consideration to the world trends in the sector. After ten years, ERB has firmly positioned itself and provided leadership in the sector. This has considerably raised the standard of service provision mainly through enforcement of procedures and guidelines for the sector. The presence of ERB in the sector has also helped to promote investment by providing an environment in which investors can have a reasonable rate of return on their investment and still provide a quality service to consumers. The level of competition has also improved resulting in increased availability and quality of energy services. Further, adherence to the rules by players is emphasised as sanctions are firmly but fairly applied.

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