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Sunday, 10 June 2007

Mulongotism

Mulongotism : "the irrational fear that the privatization of an inefficient state- owned enterprise would damage our fragile economy".

A recently diagonised syndrome, whose roots can be traced back to the pain our nation went through in the early 1990s, when a well intended liberalisation of our economy was poorly executed pushing more of our people into poverty.

The only cure for this syndrome is information:

Zamtel needs more than an "injection of more energy" as Mr Mulongoti's would have us believe. Zamtel's de facto monopoly in the international segment (because of a prohibitive license fee it charges) should surely cease, because it is actually inefficient in itself and because it is inhibiting the expansion of all other telecommunications market segments. Profits from the international segment have not found their way to financing the expansion of the rural network; rather they cross subsidise services for our urban people that are already in possession of a phone line and for Government departments that do not pay their bills.

At the same time time, Zamtel's monoplogy inflicts losses upon mobile service providers that must use its gateway, depriving them of resources that could have been invested in the expansion of their networks. Discriminator practices in internet access undermine growth of other dynamic companies as well!

Recent World Bank estimates actually suggests that full competition could provide another 30,000 of our people with access to fixed-line telephones, and the gains in the mobile access could be comparable. So I say let us tackle this syndrome head on!

41 comments:

  1. Thanks Cho for your positive comments on my blog. A few weeks ago, I said the same thing about Zamtel albeit differently. There was a sickening threat from one minister that businesses providing VoIP would be prosecuted because they were threatening (my foot) the profitability (ouch...) of Zamtel. This is definitely the antithesis of competition. Hammer Ba Roomie!

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  2. when we sell zamtel who are we going to sale to? dont we have professionals in zambia that can run this company profitably? the same people we sell to are going to bring professionals just like the ones we spent tax payers money sending to europe for school and trun their back on us.
    lets think like business minded people get returns on any venture.government is worried about its source of income nothing else. they are protecting their interests who is protecting the commons one?

    zamtel is very profitable or we need to is find zambians that can put their education to good use.not the masses we have who are bombarstic with qualifications but make loud noises than an empty petrol tanker.

    zamtel has got alot of assets that can be used as collateral if money is needed for reinvestement.

    look at brilliant economic minds from china,they have bought almost all the reserves of steel in the world.in zambia we have trade kings buying all the scrap.

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  3. gerry,

    welcome!
    yes Mr Daka's comments were laughable..i wish some of these guys would reflect deeply before issuing such public utterances..

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  4. Arthur,

    Valid points indeed.
    A couple of additional thoughts.

    Yes there is a serious issue about “how” we privatise ZAMTEL if we indeed choose to go down that route.

    What we want to see is a ZAMTEL that is operating in a competitive market and is off Government books. Our first and immediate concern should be to make Communications Authority of Zambia (CAZ) become truly independent, to begin tariff rebalancing by ZAMTEL and to allow competition in the international gateway to the currently licensed operators.

    So answer your question, from the mini research I have done in this area, I think it can work in the following sequence:

    Step 1: Government needs to enhance the regulatory capacity of CAZ

    Step 2: We restructure ZAMTEL so that it becomes a company just like any - non of this “code” commercialisation. Proper restructuring.

    Step 3: We institute a meaningful universal access policy. Government needs to allow free entry into the international segment to new providers that currently are not present in the market, and let the market determine the number of providers.

    Step 4: We change ownership of ZAMTEL.

    I think this can all happen within a year :)

    Now your concern is about the 4th point who should own it. Well we can start with partial privatisation and then move to full privatisation down the line. I think the best bidder should run it, but obviously with 1-3 in place, we won’t have to worry :).

    Your point about Zambian ownership is valid. These are “strategic” areas and obviously what can do is look at various ownership models e.g. anyone who wants it must have 50% Zambians on board etc. The americans impose these conditions all the time - i forget what they are called :)

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  5. "The americans impose these conditions all the time - i forget what they are called :)" -Cho

    Here's an example of the type of US regulation you are referring to:
    http://www.mondaq.com/article.asp?articleid=47370

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  6. Yakima,

    Thanks for the link.

    I have since found out that the one I was thiking is called the "25% rule". As part of the Open Skies agreement with the EU, the Americans insisted on limiting any foreign company from owning more than 25% of a US airline's voting rights.

    The EU objected but eventually had to agree because the Americans couldn't back down.

    Its actually a strange situation. I was speaking to a trade professor from Oxford this week on non-tariff barriers. He saw this as a form of protectionism, but I actually said it is diffcult to prove that because restrictions ownership in the airline situation can be difficult to prove they get in the way of "trade" because the american-US agreeement allows unlimited flights between the two.

    Coming back to the Zambian context, I think Government could quite easily impose similar constraints, as long it never enters any WTO agreements on services.

    What we are also saying is that competition and ownership are two different things. The plan I have on the top places more emphasis on strong regulation, because "natural monopoly" arguments certainly mean that ZAMTEL has to remain a single entity, but they would NEED to rebalance their tariffs and give up control of the international gateway. Issue of ownership is only to ensure that they never run back to Government.

    A 60% Zambians and 40% foreign ownership would be good. Then its electricity next :)

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  7. One option would be to split ZAMTEL into two separate businesses, one which services domestic customers, and one which operates the international gateway. Domestic services could then compete on a level playing field with regard to access charges on international traffic, while contributing a traffic-load based percentage towards funding of maintenance and expansion of international relay infrastructure.

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  8. Yes that is another option - and probably the "First Best" because it makes its much easier from a regulatory point of view.

    The Regulator would still need to ensure ZAMTEL International set the price competitively, since it will be a MONOPOLY in the international segment market - although this time round it has no incentive to discriminate between domestic operators, it would still have the incentive to generate abnormal profits and also "gold plating" new ventures like all monopolies do, ultimately to the detriment of consumers. So the CAZ would have to set appropriate pricing caps.

    But your option is certainly the first best. Infact under that scenario, I know ZAMTEL domestic would have no choice but to improve, since the opportunity of "regulatory capture" would be reduced.

    Infact it is an interesting question whether we would we still need to regulate ZAMTEL domestic - under your option. Possibly not since that downstream sector is more competitive. I'll see if I can track down some market shares.

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  9. Okay here are the market shares according to the World Bank (2006)

    In the domestic segment - if we treated Zamtel's landline and mobile [CELL Z] as one company then we have the following subscribers in 2006:

    Celtel (800,000 users) - 78%
    Zamtel (141,856 users) - 14%
    MTN (90,000 users) - 8%


    CELL Z on its own accounts for about 6% of the market (57,000 users). ZAMTEL Landlines is 8% (84,956 users).

    Internet is another interesting area where ZAMTEL finds itself in competition with ZAMNET, COPPERNET, MICROLINK and UUNET. Its share is about 30% or less but with significan low users - Internet is still developing in Zambia. So the 30% actually represents about 3,500 subscribers or so.

    The case for setting domestic caps on Zamtel and others once we follow your suggestion therefore appears weak. CELTEL appear to be doing a fine job in that sense! With year on year growth over 30%.

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  10. Cho correctly points out that a separate, more specialized, Zamtel International Gateway Monopoly (ZIGM), "has no incentive to discriminate between domestic operators, it would still have the incentive to generate abnormal profits and also "gold plating" new ventures like all monopolies do, ultimately to the detriment of consumers. So the CAZ would have to set appropriate pricing caps."

    The ZIGM fee structure could be partitioned in order to erode the monopoly as capacity infrastructure grows. If fees for use of existing gateway equipment are based on cost of maintenance/use plus profit, and are evenly applied to all domestic carriers, then regulators should be able to keep them under control.

    The real trouble comes with the costs of increasing the gateway capacity, since "gold plating" ultimately gets charged to rate payers. A second set of fees paid by domestic carriers could be structured as a lease-to-own program, where the domestic companies would gradually gain ownership of new gateway infrastructure as it is used. By the time the industry is ready to consider breaking up the monopoly, local telecoms may already own most of it.

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  11. Yakima,

    I think this is what makes economic regulation so challenging. You need to set the cap just enough to incentivise the ZIMG to invest in new technologies, but without going off tangent.

    But you are right, CAZ can learn from what others are doing with regards to regulation of utilies to ensure that a right mechanism is adopted that incentivises investment on ZIMG side.

    You suggest that "A second set of fees paid by domestic carriers could be structured as a lease-to-own program, where the domestic companies would gradually gain ownership of new gateway infrastructure as it is used. By the time the industry is ready to consider breaking up the monopoly, local telecoms may already own most of it".

    I am unclear here in terms of the ownership model. Do you suggest that eventually the domestic players should own it? What advantage do you see lies in the domestic segment sharing ownership of it?

    My main concern with domestic players owning the Gateway is that it would make CAZ job difficult. If for example CAZ adopted a Regulatory Asset Base (RAB) type of regulation for firms within the industry, it would get very messy. You then enter the territory of cross subsidations. For example if CELTEL owned 33% of the Gateway and it is currently dominant in the domestic market. You may think about regulating it in the future if you thought it started exerting market power. Now there you would have a problem on how to treat CELTEL. Do you consider CELTEL domestic as separate from CELTEL Gateway? etc. Its the single till versus multiple till problem.

    Also I am worried whether domestic players owning the Gateway would make the whole market less contestable in the long term. If Celtel, MTN and Zamtel Domestic owned 33% each. They could collude to keep other future competitors out - unless CAZ and the Competition Commission were exceptionally strong.

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  12. Cho,

    I appreciate your caution, it is never good to make use of short term solutions which result in long term complications and costs. I make certain assumptions in advocating for structured ownership sharing of new international gateway infrastructure.

    Firstly, that CAZ will be able to establish a fee-per-use rate mechanism for domestic customers to gain equal access to international telecom if ZAMTEL is split into domestic and international corporate entities (ZT-Int and ZT-Dom).

    Secondly, that unless specifically addressed by new regulation, ZT-Int will attempt to increase the basic rates charged to domestic carriers to justify the costs of "gold plated" infrastructure development projects.

    Thirdly, that eventual growth in international telecom service capacities will result in a priority shift away from infrastructure building monopoly structure, and toward competitive customer service delivery structures.

    Having two separate rate structures for how ZT-Int collects money from domestic carriers would allow regulators to address the fairness of charges for use of the existing gateway, and contributions toward the addition of new capacity, independently of one another. By designating the latter type of fees collected as investment contributions to an Increased Capacity Investment Fund (ICIF), which are then split 50-50 between the monopoly and the domestic carrier, ZT-Int is placed under incentives to deliver additional capacity in an efficient manner.

    For example: The customers of the three domestic carriers use the gateway operated by ZT-Int on the same fee-per-use basis. Over time, CELTEL customers consume 50% of all international traffic, ZT-Dom accounts for 30%, and MTN 20%. With each minute of international call, the ICIF grows, until ZT-Int determines that it is sufficient for a project to increase capacity by 20%.

    If everything comes in on budget and target, then ZT-Int will own 91.67% of 120% of its old capacity (110%), while CELTEL gets 4.17% (5%), ZT-Dom 2.5% (3%), and MTN 1.67% (2%). If the project were to be successfully "gold plated" in the planning stages such that the same amount from the ICIF only produces half the capacity increase (10%), then ZT-Int owns 95.45% of only 110% of old capacity (105%) and the domestic carriers also lose half of what they would have gained.

    Regulators who are able to detect "gold plating" could then deduct that portion of the project cost from ZT-Int's share of investment only. In the case of perfect detection in our example of inflating costs to 200%, all of ZT-Int's share would be deducted, resulting in all of the new capacity going to the contributing domestic carriers. ZT-Int ends up with 90.9% of 110% capacity (100%), no gain, while the domestic carriers get the same amount as in the original scenario, CELTEL 4.55% (5%), ZT-Dom 2.73% (3%), MTN 1.82% (2%).

    If regulators only catch half of the gold plating, ZT-Int still loses out more, garnering 93.9% of 110% (103.3%), than do the domestics, CELTEL 3.04% (3.35%), ZT-Dom 1.83% (2.01%), MTN 1.22% (1.34%).

    Over time, domestic carriers can only gain 50+% ownership of the total gateway if regulators deduct penalties in excess of ZT-Int's initial equity headstart (today's value of the entire gateway infrastructure). They will also have to at least finance doubling the existing capacity (if ZT-Int lost all of its new capacity share to penalties), but are more likely to face a more efficient operation out of ZT-Int or a less efficient one by regulators, and thus will have to increase the gateway capacity ten or twenty-fold before eroding ZT-Int's lead in capitalization.

    Even if a domestic carrier's share of international traffic is increased to 80%, it would take an even larger increase in total capacity before they had a 50+% stake. Legislators need not have their hands forced into revoking the ZT-Int monopoly over servicing the gateway infrastructure (operation, maintenance and project implementation responsibilities), if that is specifically determined by statute and not subject to change by new ownership. Likewise adjustments in the pre-regulated split of ICIF between domestics and ZT-Int to 55-45 or 60-40 would slow the pace of monopoly erosion (or speed it up).

    Overall the reciprocal nature of the investment/fee structure encourages domestic carriers to accept the financial burden of expanding international telecom capacity, while discouraging ZT-Int from "gold plating" projects in a detectable way, in order to preserve its majority control over the gateway and monopoly on servicing the infrastructure.

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  13. "Overall the reciprocal nature of the investment/fee structure encourages domestic carriers to accept the financial burden of expanding international telecom capacity, while discouraging ZT-Int from "gold plating" projects in a detectable way, in order to preserve its majority control over the gateway and monopoly on servicing the infrastructure."

    I can see the merits, and your initial condition of CAZ being "able to establish a fee-per-user rate mechanism" linking it to ICIF have calmed most of my concerns.

    Its a sophiscated approach :)

    But clarify something for me - how do you deal with the issue of preferential treatment to incumbent domestic companies? I am assuming that the gateway does not have limitless access to everyone. It requires rationing of some sort. [Technical know how may help here..mine is unfortunately limited]. In other words it is scarce commodity. So if it is how the gateway slots are awarded matters in terms of openness. Shared ownership could lead to a more closed system. Unless the gateway slots were awarded on an auction basis - so one fee for being a user of the gateway, and another for the specific gateway slot. But then that would create uncertainty. You can end up with a situation where a firm has payed funds into the ICIF only to drop out of the market later because it got out bid for specific gateway slots.

    I hope I am making sense.
    I guess what I am trying to get a feel for is whether there's something that also needs to be done to how gateway access is granted to domestic incumbents to prevent them getting preferential treatment...if it is possible that they are purchasing a good that is scarce and requires some rationing...

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  14. "I hope I am making sense.
    I guess what I am trying to get a feel for is whether there's something that also needs to be done to how gateway access is granted to domestic incumbents to prevent them getting preferential treatment...if it is possible that they are purchasing a good that is scarce and requires some rationing..." -Cho


    I think you are making perfect sense, it is only prudent to anticipate as many problems as possible. Thank you for finding this one!

    My gut reaction is that the model calls for awarding slots in two separate ways. The proportion of slots which a given domestic carrier "owns" by virtue of ICIF capacity upgrades should be awarded to it first. They then pay the operation fee plus a minimal ICIF contribution rate.

    The remaining gateway slots, the proportion "owned" by ZT-Int (which will only go down as overall capacity goes up) can then be auctioned off with the operation fee as the starting reserve and carriers bidding on the ICIF contribution. Thus carriers forced to pay higher prices for fewer slots at auction in the short term will control more guaranteed slots over the longer term.

    The faster the ICIF grows, the faster the supply of both guaranteed and auctioned slots will grow to meet the demand, which will ease prices on the auction market. A certain degree of preferential treatment for established carriers can guarantee a minimum level of service for existing customers. By rewarding companies which overcome short term price hurdles with reciprocal long term guarantees, preference will shift with investment toward increasing capacity.

    As "preferential treatment" is a force operating within the model, then it is better if we can try to harness it and direct it to add to the overall growth of and fair access to telecom services before trying to eliminate it.

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  15. Let me see if I have understood what you are suggesting here correctly. Is the idea that you are basically guarantee the existing customers some sort of "grand father status" to their existing share and then allow some form of auction for new capacity emerging from investment?

    Now if I am correct in that intepretation, then it might be worth considering one further implication.

    The slots that aren't subject to bidding and are awarded on a "grand father" status are not awarded allocatively efficient. They are not necessarily going to who is willing to pay for them most. This potentially limits the level of access that new entrants have. Note that this problem arises only because existing carriers have shared ownership of the gateway. If they didn't, you would be actioning all the slots - giving you a more superior economic solution.

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  16. "Note that this problem arises only because existing carriers have shared ownership of the gateway. If they didn't, you would be actioning all the slots - giving you a more superior economic solution."

    Only if one assumes a fixed number of slots. When one considers the growth in the number of ZT-Int owned slots (auctioned) due to their claim on half of the assets contributed by carriers to the ICIF, then the half of increased capacity which carriers are allowed to "keep" under fixed payment terms primarily serves as incentive, to get them to finance building a much larger publicly owned gateway much more quickly than ZT-Int would be likely to build, if left to its own gold plated devices.

    To illustrate, as domestic carriers contribute to ICIF, new slots are added to the gateway capacity, if we assume that ZT-Int doesn't get penalised for breaking the rules and that the gateway has 100 slots today, then over time the number of public slots available for new market entrants to bid over looks like this:

    Total: ZT-Int: Private:
    100 .....100...... 0
    120 .....110..... 10
    150 .....125..... 25
    200 .....150..... 50
    300 .....200.....100
    500 .....300.....200
    1000....550.....450
    2000...1050....950
    4000...2050...1950

    A model which leaves upgrade ownership entirely in the hands of ZT-Int will remove the disincentive to gold plate, as well as the incentive for domestic carriers to contribute generously and rapidly to increasing infrastructure. Allowing for "grandfathering" of rate structures on privately owned gateway slots has the added benefit of permitting new entrants faced with high public auction prices to "catch up" in the race to construct new private slots.

    If the ICIF fee (they both pay the same operation and maintenance fee) collected from a company with 100 grandfathered slots is sufficient to build 10 additional slots, and over the same period fees from a new company using 100 auctioned slots are sufficient to build 20 new slots, then the two companies will wind up with 110 and 20 grandfathered slots respectively. If they each use 10% more slots, and the ratio between fees remains at 1:2, then the first company will add 11 slots in the time that the second company adds (2+18=20) new slots again, making the new total 121 v. 40. The next jump narrows the gap again, to 133.1 v. 60.2. Thus the more times a carrier must pay higher prices at auction in the short term, the fewer times they will have to pay over the longer term. The ICIF fee on grants for private slots could even be indexed by ratio to the average public auction rate if there is a particular ratio which is most desirable.

    Each private slot must still be "rented" and therefore must be used in order to justify the cost of "renting" it. Thus the addition of private slots also serves to increase the profitability of ZT-Int's business in operation and maintenance of all slots, as well as reducing the demand pressure on the number of auctioned slots as the total supply of slots grows closer to total demand.

    The initial barriers to new entrants into the market may be somewhat higher under this model (for as long as gateway capacity remains below demand), however the incentive of long term ownership and rental rights to slots should help to settle investor's fears over long term viability of new entrants. Most investors are used to trading short term cost variability for long term cost stability and asset accumulation, so I think that the model will result in a relatively rapid increase in the size of the gateway and the number of domestic carriers using it.

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  17. There's a lot in there!

    The numbers help to illustrate how the slots accumulate over time and which are Zam-Int and which are domestic.

    I certainly agree that "Allowing for "grandfathering" of rate structures on privately owned gateway slots has the added benefit of permitting new entrants faced with high public auction prices to "catch up" in the race to construct new private slots."

    Now where I need some clarification is on two specific assumptions:

    "If the ICIF fee (they both pay the same operation and maintenance fee) collected from a company with 100 grandfathered slots is sufficient to build 10 additional slots"

    Are we assuming that the ICIF fee will be over and above the maintance and operation cost in general or just when there's an investment proposal to widen the network at stake?


    "If they each use 10% more slots, and the ratio between fees remains at 1:2, then the first company will add 11 slots in the time that the second company adds (2+18=20) new slots again, making the new total 121 v. 40. The next jump narrows the gap again, to 133.1 v. 60.2 ".

    I didn't quite get the 1:" ratio assumption - is this arbitrary? Probably I am being slow here!

    In general I think the model is excellent. I accept that over time the addition of slots goes to the way of making the system more contestable.

    I think this also illustrates one cardinal point: there's enormous flexibility in putting a framework that avoids gold plating but also ensure that adequate infrastructure is in place, where you are starting from the scratch and trying to define the shape of the industry. as we have seen - shared ownership can even be contemplated! its more challenging when the industry is already defined and you are having to take it as given.

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  18. "Are we assuming that the ICIF fee will be over and above the maintance and operation cost in general or just when there's an investment proposal to widen the network at stake?" -Cho

    Good question, and I think that the answer which best suits the model is to have the ICIF be the driver of network investment instead of just a mechanism. That would mean a continual stream of contributions which would build up over time, and then be partially expended on a per project basis. Shared ownership of project results between ICIF contributors and ZT-Int should encourage both parties to support rapid gateway expansion. Building up the ICIF in advance, on a fee-per-use basis, has the added advantage of avoiding conflicts over the size of new projects because the money will already be there, just use what you've got [if you want a bigger project, wait longer or raise the fees].

    Of course all this is based in part on the central assumption that the gateway is insufficient to meet demand. I think that in the general sense that is a safe assumption, as the human appetite for communications has yet to be sated in any market to date. However determining the proper rate of investment to increase capacity is less straightforward.

    This is another useful aspect of the split ICIF rate structure, where privately owned slots can be charged a fee aimed at producing the minimum acceptable investment in capacity, while the publicly owned slots can be auctioned at a fee determined by the marketplace. [The privately owned fee could be variably indexed to the average auction price instead of fixed, but I think fixed is more useful as a stabilizing factor on the auction market.] Thus in cases where high demand causes the auction fee to rise, the rate of investment increases as well. But if, in the future, the pressure on the gateway has eased, then the auction fee may drop below the "grandfather" fee, and the established players will have to carry the majority of the burden of upgrades.

    "If they each use 10% more slots, and the ratio between fees remains at 1:2, then the first company will add 11 slots in the time that the second company adds (2+18=20) new slots again, making the new total 121 v. 40. The next jump narrows the gap again, to 133.1 v. 60.2 ". -Yakima

    "I didn't quite get the 1:" ratio assumption - is this arbitrary? Probably I am being slow here! "
    -Cho

    No you are quite right, unless directly indexed to each other by regulation, the ICIF fees charged on privately owned slots will remain fixed while the auction rate varies with market demand so the ratio between them will likewise vary accordingly. I used a constant ratio between them arbitrarily in order to keep that portion of the math simple while illustrating the general mechanism. The actual accumulation rate of private slots is likely to be much less orderly, as auction rates vary and projects add slots in a punctuated fashion.

    A flat operations and maintenance fee for all slots set by regulators links ZT-Int's income growth directly to the increase in the number of reliable gateway slots. That means ZT-Int has every reason to maximize the conversion of ICIF into working infrastructure as efficiently as possible. Unexpended ICIF balances will likely be temporarily invested in secure government vehicles, adding volume to the bond and T-bill markets.

    "its more challenging when the industry is already defined and you are having to take it as given." -Cho

    Very much so! One of the few limited advantages of being "undeveloped" I suppose ;)

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  19. "Thus in cases where high demand causes the auction fee to rise, the rate of investment increases as well. But if, in the future, the pressure on the gateway has eased, then the auction fee may drop below the "grandfather" fee, and the established players will have to carry the majority of the burden of upgrades"

    This point is very important. It reminded of a question I forgot to ask "Is there an implicit assumption that the slots are not transfareable between parties"? Such as there's no secondary trading of slots? So they can only be procured from Zam-Int? This appears a necessary precondition. But I thought you could explicitly clarify that.

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  20. Good thought, and indeed I think that it would be unnecessarily destabilizing to have domestic carriers trading gateway slots amongst themselves. Thus the concept of private slot "ownership" is in part a fiction until such time as the country decides to further decentralize international telecom and allow for competitive gateway operators. Domestic carriers have what amount to lease rights over their "grandfathered" slots, though it is conceivable that they could borrow against the eventual anticipated value of their share of ICIF slots, they would not be able to sell or sublease slots on their own, nor use them as collateral in the strictest sense.

    Presumably companies can decline to exercise their exclusive rights to rent grandfathered slots for a period of time, in which case the rental rights could be auctioned publicly in the normal manner by ZT-Int. This would be useful in allowing companies with declining market shares to shed excess capacity, as well as confronting long periods where the auction rate is lower than the grandfathered rate. Presumably the latter will only occur when there are more than enough available slots to meet the demands of all domestic users, unlikely in the forseeable future.

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  21. I find myself wondering if this sort of structure would benefit other development projects as well, such as rural electrical power generation and distribution. If new power companies were able to construct their own distribution networks for power generated through an ICIF-parastatal partnership similar to the domestic-international telecom model, then expansion of service can be financed through private investment without sacrificing public control over all, and ownership of the majority of the new generating capacity.

    Exception could be made for distribution companies which provide lease-to-own options on home-based or other on-site power micro-generation, such as solar panels on the roof or small windmills. Resistance adds up on electrical flow over long distances, so anything that encourages sustainable generation at the site of use will reduce wasted costs over the long term. Once the site owner has completed the terms of the full lease, they will own the generation equipment as an improvement on the property, and can be credited for the difference against their regular consumption payment.

    This becomes especially beneficial in times of natural disaster when the main generators or transmission lines go down, and having isolated pockets off of the grid of at least partial power can help medical and relief crews as well as the functioning of vital equipment like pumps and shortwave radio transmitters. [By the way, there are some pretty good hand or foot wound devices out there that make good gifts for family or friends likely to find themselves off the grid. One such outfitter is Freeplay Energy. Their Weza foot-powered portable energy generators are genius!] http://www.freeplayenergy.com/products.html
    http://www.tenzero.net/~fp2/displayarticles.php?id=103

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  22. ”I find myself wondering if this sort of structure would benefit other development projects as well, such as rural electrical power generation and distribution. If new power companies were able to construct their own distribution networks for power generated through an ICIF-parastatal partnership similar to the domestic-international telecom model, then expansion of service can be financed through private investment without sacrificing public control over all, and ownership of the majority of the new generating capacity. “

    The model is flexible!

    The model can work in any area where there’s need for shared infrastructural network between competing companies/entities. So this can work for electrical dams (with different electricity producers), cross border infrastructure (with countries), airports (with airlines), ports (with shipping firms), cable television (with tv channels) etc.

    The key enabling conditions we have already mentioned.

    One qualification - in the example you have given the “market failure” being addressed has to be clear. It’s not immediately clear why public control is necessary. However, I can think of a number of reasons on why Government may wish to follow the approach you have outlined to further economic goals.

    1. It may wish to resolve the coordination failures that plague “network” industries I have highlighted above. It could be a good way of telling the airlines to investment in a local airport for example.

    2. Even when a firm may be willing to go alone and set up the local electric dam or airport, Government may well need to safeguard from that firm becoming a monopoly down the line and own both the down stream (electrical dam) and up stream (local electrical company). If that happened it may be too late to shape the market. So the doctrine of pre-emptive action becomes useful here :)

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  23. The "market failure" is one which I imagine Fitty_Ngwee would characterize as a lack of a unifying philosophy which synergizes public and private forces and directs their combined energies towards a common goal. The two examples you give are excellent illustrations of conflicting public-private ends and means.

    Within the model, the limited public involvement "at the source" serves to provide private companies with a level playing field on which to innovate and compete for shares in a growing market. Meanwhile the public sector provides private local operators with the means to transfer the costs of increasing "the source" directly to consumers via a fair and transparent process while being generously compensated for any resulting decline in sales volume with shares of the generating infrastructure and price guarantees on its outputs.

    Profitable parastatals are perpetually pursued by political powers presumably for pecuniary purposes [now say it five times fast ;)], but seriously people want them because they can help to deflect the costs of delivering government services away from taxes, especially if they are export oriented. [Statals seldom succeed, sometimes succumbing to stratified stupor, sometimes simply slipping slowly into senility.]

    The goal is to rebuild the web on a grander scale using a more efficient design paradigm, without dismantling the existing structure and without wasting money on redundant parallel structures. To me that means leaving existing parastatals in place, and where public rights and holdings are scattered and diffusely defined, to formalize them into umbrella organizations, and employ them as stewards of the public interest in the marketplace.

    Lack of market principles and appropriate levels of reinvestment have felled many parastatals in the past. This model provides a guaranteed minimum rate of reinvestment with each usage, more when demand increases faster than supply, yet it gives the parastatal only two ways to increase profits: increase supply volume or cut costs [okay three if you count corruption].

    The model is scalable beyond the national perspective, applicable to regional, tribal, or even conceivably international parastatals. This is particularly interesting in light of the decision in the draft constitution that, (article 262)(a) "the Institution of Chief shall be a corporation sole with perpetual succession and with capacity to sue and be sued and to hold assets or properties in trust for itself and the people concerned;" , and thus are themselves parastatals of a new sort, tribastatal corporations.

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  24. ”The "market failure" is one which I imagine Fitty_Ngwee would characterize as a lack of a unifying philosophy which synergizes public and private forces and directs their combined energies towards a common goal.”


    ”The goal is to rebuild the web on a grander scale using a more efficient design paradigm, without dismantling the existing structure and without wasting money on redundant parallel structures. To me that means leaving existing parastatals in place, and where public rights and holdings are scattered and diffusely defined, to formalize them into umbrella organizations, and employ them as stewards of the public interest in the marketplace. “


    It sounds like you see the Government role beyond responding to existing failures in the system, but being more proactive – or “pre-emptive”. Naturally this brings us into the classic discussion on what Government’s role in society should be and how that then is linked to the size of Government. Those that believe that Government should seek to make the markets work “better” as opposed to simply responding to existing failures, often have to concede that may imply a larger Government machinery. They also have to normally concede that when Government’s have tended to act the “Government failure” has often been greater than the “market failure”. So we often find that in the name of making “markets work better” or deliver a more equitable distribution, Government interventions have stifled private enterprise and very often led to misallocation of resources.

    With these caveats in mind, I would probably focus the model to solve situations where “coordination” failures among agents appear more pronounced. [Aside from the special cases of preventing an emergence of a monopoly or liberalising an existing market].

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  25. One thing for sure, Zamtel are not standing still, waiting for the "reformers" to break them up. They intend to press on.

    Zambian state-run telecom firm embarks on 100 million dollar project

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  26. zamtell could be going in for the investment,the one question does their structure allow to be that autonomous and make such investments and seek loans?

    the company should be run like zt-intl and zt-dom like you have suggested this makes it be run competetively.

    at the moment the company is being run like family business with no muscle to administration,how can you explain with all the infrastruture it has and fail to take the bull by its horns.

    government will not let go of the international gateway because of security reasons,this is africa,leaders tend to hold strategic installations. maybe they should hold shares for control for security reasons only?
    but they should be educated enough to understand the future.

    the reasoning differs in africa to that of the west.

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  27. Arthur,

    "government will not let go of the international gateway because of security reasons,this is africa,leaders tend to hold strategic installations. maybe they should hold shares for control for security reasons only?
    but they should be educated enough to understand the future."


    The "security question" has certainly been suggested as one of the reasons for holding onto the Gateway. However, this has not been properly explained to people to what the concerns are.

    In any case, if such concerns exist, my view is that they are best dealt with by using the latest technological developments in security devices and imposing proper license obligations and conditions on Zam-Int and other domestic entrants to the market.

    In particular, with the convergence of networks and services, the Government needs to devise appropriatee cyber-security programs to deal with the challenges posed by the information society without compromising consumer privacy. But the need to address these challenges is not an excuse to delay making the market more open.

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  28. Cho,

    I should clarify somewhat my earlier statement that, ”The [ongoing] goal is to rebuild the web on a grander scale using a more efficient design paradigm, without dismantling the existing structure [in advance] and without wasting money on redundant parallel structures [in the end]. To me that means leaving existing parastatals in place [and modifying them to act as development partners with private enterprise], and where public rights and holdings are scattered and diffusely defined, to formalize them into umbrella organizations [capable of acting as development partners with private enterprise], and employ them as stewards of the public interest in the marketplace. “

    I agree that selective determinations of the proper role of government in any particular market situation tend to produce better results than blanket assertions do. Similarly the sweeping use of "security" concerns to justify stagnation in telecom development is, as you point out, rather less useful than a more specific description of the problem would be. From Mr. Sitwala's comments I cannot determine whether the primary "security" threat stems from foreign ownership of aspects of the international gateway, or operational control over portions of it.

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  29. Yes the phrasiology is now more dynamic.

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  30. David Kabamfwile21 July 2007 at 18:52

    Thanks for all the bashing on Zamtel from largely what I call megro neo-libs ( an overdose of liberal education exacerbated with unbridle lust for personal advancement without recourse to national objectives).
    At the heart of what is perceived as Zamtel's inefficiency is the lack of competitive financing in Zambia.
    Zamtel has a higher mandate than Celtel, where as Celtel can source financing to deliver limited services namely mobile telephony,Zamtel provides land lines ( currently essential for internet access at residential level),national defence communication, radio and TV to provincial centres.
    At the moment what is driving Celtel success is it's ability to deliver mobile phone services in rural areas (after been bought by a Kuwait business with plenty change to spare). However this expansion to rural Zambia,in the long term will be subsidized by the urban subscriber- considering the deficit in revenue per subscriber per period.
    Give a profit driven player like Celtel the keys to the national jewels and you run the risk of marginalizing delivery of other national services deemed unprofitable.
    That Zamtel charges high international rates results from fees for use of intel-sat services, transit switch charges and other applicable fees.( Its cost $1.75 to call Afghanistan from California US)
    I submit that Celtel mobile rates are high when compared to rates in the US, UK or South Africa.
    Zamtel has always posted profits, year after year in spite of uncollected revenue from national interest services like radio,TV and defense.
    I advise that we focus our transient knowledge on how we can create a credit bureau in Zambia (tough given our multifaceted issues) but this create a basis for tapping cheap finance.

    D. Kabamfwile, Arlington,IL

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  31. David,

    Thanks.

    Thanks for all the bashing on Zamtel from largely what I call megro neo-libs ( an overdose of liberal education exacerbated with unbridle lust for personal advancement without recourse to national objectives).

    I think we should do all we can to desist from name calling - we have enough of that among politicians. Let us focus on ideas and not personalities. I am sure you agree.

    Now on the substance of your thoughts:

    If I have understood your fundamental point - it is that Zamtel is inefficient because it cannot finance competitively - as opposed to competition. In your words ”At the heart of what is perceived as Zamtel's inefficiency is the lack of competitive financing in Zambia“. According to you, this is profoundly manifested in the large uncollected revenue. And your solution therefore is “create a credit bureau in Zambia (tough given our multifaceted issues)”. This according to you ensures that Zamtel lends to are on a sound footing.

    I won’t go into detail here to explain how Zamtel’s problems are structural and how it is restricting welfare gains in the cellular, fixed line and internet segments. I have however posted a new blog showing this pictorially with some additional. I hope from there you would also be able to see why I think mobile rates are high. There rates are high because of Zamtel’s distortion of competition and also because Cellular companies incur costs from the high fee of international gateway which they cross subside with domestic rates to customers to keep international calling possible.

    What I would say for your “credit” point is that you are right Zamtel faces problems from collecting revenue but most of it is from Government institutions. Zamtel knows who these organisations are. Indeed in March 2006, Zamtel put its outstanding debt at $62m (4 months worth of the company’s revenue). The problems is not the lack of a credit bureau but the lack of incentives for Zamtel to provide services responsibly as any normal company operating on profit would.

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  32. Given recent developments with ZANACO and ZAMTEL, I am tempted to revive the concept of Infrastructure Construction Investment Funds for use in expanding electrical generation capacity and delivery by private operators in partnership with ZESCO.

    There is always a great deal of interesting material in reports by the Energy Review Board, but I would like to call special attention to pp. 6-8 of their March 2007, ZESCO Cost of Service Study Report:

    "We next looked at the average annual cost per employee. Based on numbers reported in ZESCO’s Annual Reports, Figure 5 below shows that the average annual cost per employee increased from K19 million to K105 million between 1999 and 2004, doubling every two years from 1999 to 2003. This growth rate began to slow in FY 2004/05. ZESCO’s average cost per employee reached K115 million in FY 2005/06, which is the equivalent of $28,750 (at K4000/US$.)

    The first reason given for such significant increases in total staff costs and average staff costs per employee was the high rate of Zambian inflation during those years. However, when the rate of inflation was compared to the rate at which total staff costs grew, it became clear that staff costs grew twice as fast as inflation in four of the last six years.

    The next reason stated as the cause of the sizeable run up in staff costs was an increase in pensions, GLA and gratuities. When graphed as a portion of total staff costs, these costs accounted for about one-third to one-half of the increase in staff costs in FY 2003 and FY 2004. In the following year, however, when pensions, GLA and gratuities decreased by 35%, all other staff costs didn’t decrease by a like amount but instead increased by about 30%. Our conclusion was that the increased amounts spent on pensions, GLA and gratuities in FY 03 and FY 04 were, in essence, “built into the base” the following year (FY 05) and equivalent funds were spent on other staff costs.

    We also looked at the growth in staff numbers, particularly in temporary staff. In the four years between FY 2002 and the end of FY 2006, full time permanent employment decreased by about 2% (from 3859 to 3785), but full time temporary employment grew 17-fold, from 82 to 1390. During this same period, total full time employment grew by 31% (from 3941 to 5175).

    We noted that virtually all publications and information provided to the public by ZESCO refers to its employment as being in the range of 3600-3800, ignoring entirely its full time temporary employees, who now represent about 27% of ZESCO’s total employment.

    The key issues with respect to the temporary employees are not their average cost (about $4000 per year), but that their numbers are large and growing and their effects on overall productivity and efficiency. If their numbers were to continue to grow at the same average rate as in the past three years, ZESCO would have more than 10,000 full time temporary employees in the next 10 years. Given that many if not most of these “temporary” employees are actually employed on a virtually permanent basis, it would be expected that ZESCO will face growing pressure to convert them to permanent status, at which point they would become a huge cost issue.

    We were unable to develop an understanding of why all the new temporary employees had been hired or what they had been hired to do. It was surprising that so many have been added to Generation and Transmission.

    We also looked at some productivity measures and found that staff cost per MWh sent out (about ZMK 50,000 in FY 06) has been steadily increasing, indicating that productivity has been decreasing over time.

    We then benchmarked ZESCO on two key measures – customers/employee and cost/employee (indexed for GDP per capita) -- against South Africa’s ESKOM (a large utility that restructured and retrenched from 60,000 to about 35,000 employees) and Mozambique’s EDM, a utility that has about the same number of customers as ZESCO. ZESCO’s customer per employee ratio was lower than either ESKOM or EDM, indicating the ZESCO’s potential for substantial efficiency gains.

    The comparison of average cost per employee shows that the average ZESCO employee is well paid within the context of the Zambian economy. The average ZESCO employee receives about 64 times Zambia’s per capita GDP, the average EDM employee receives 39 times Mozambique’s per capita GDP, and ESKOM’s average employee receives 9.5 times South Africa’s per capita GDP."


    This would appear to be a parastatal in desperate need of checks against gold plated expansion projects, as well as help meeting production capacity challenges they appear unable to meet on their own any time soon. Page 9 of the ERB report explains how ZESCO is already entering into side arrangements with mining companies, exchanging capital to expand transmission infrastructure for electrical rates at below delivery cost. They explain that under the terms of these arrangements, "it would appear that ZESCO is currently selling to CEC at a loss of about one half a US cent/ kWh, at a loss of about one US cent/kWh to Kansanshi, and [to Equinox] at a loss of just under .9 US cent/kWh. ZESCO argues that the differences in pricing is due to different arrangements with the new customers related to their contributions to the capital costs related to their connection to the system. However, ZESCO did not provide and data and information to substantiate this assertion.

    This issue requires additional analysis, perhaps in conjunction with the Anti-Competition Commission.

    If this under pricing of the mining load is allowed to continue, a $926 million deficit relative to ZESCO’s Revenue Requirements will likely accumulate over the next 10 years. This estimate was calculated in the Cost of Service Pricing and Revenue Model . . ."


    I think that under these circumstances, it is in the public interest to consider formalizing such arrangements in a uniform and transparent manner such that the sector is opened to any domestic operation seeking to engage in private electric generation or connection activities.

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  33. Yakima,

    "I think that under these circumstances, it is in the public interest to consider formalizing such arrangements in a uniform and transparent manner such that the sector is opened to any domestic operation seeking to engage in private electric generation or connection activities."

    I couldn't agree more!

    However, I was puzzled to read this 1 page from Kate Baylis :Lessons from the South African Electricity Crisis
    , with its startling conclusion that "The electricity crisis of South Africa demonstrates that the widespread efforts across developing countries to encourage private sector investment in the electricity industry are unlikely to succeed. So the government and state utility must continue to scale up public investment in order to maintain and expand electricity capacity."

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  34. Cho,

    That is an excellent article, thank you. Ms. Bayliss does an impressive job of concentrating a lot of data into just one page. On first reading, the article's content gave me pause and caused me to wonder if I was chasing down a blind alley, but second reading seems to reveal certain salient factors which may distinguish the ICIF concept from the typical restructuring effort. I will quote several short passages from the report in order to illustrate:

    "The focus of reform was on bringing market forces to bear on the electricity supply industry. Eskom, the state utility, was corporatised and in 2001, its core activities (the generation, transmission and distribution of electricity) were separated, with their finances ring-fenced.

    "The fragmented national distribution system was to be reorganized into six electricity distribution companies, owned by Eskom and the municipalities. Ultimately, the goal was competition and private sector participation in distribution. However, this process has involved complex legislation regarding the transfer of assets and has been painfully slow. By 2005, just one company had been created, only to be disbanded soon afterwards.

    "Crucially, policy uncertainty has contributed to a collapse in investment, in some cases falling to 1-2 per cent of the asset base rather than the desired level of 10 per cent. Lack of investment in the distribution infrastructure is a key factor in the crisis."


    And,

    "Underlying the low level of plant availability in the longer term is the lack of investment in generation capacity, which has stemmed from unwarranted optimism in the willingness of the private sector to invest."

    And finally,

    "Similar reform packages have been repeated in much of sub-Saharan Africa. But the ‘unbundling’ of the electricity supply industry to facilitate private sector participation has failed to elicit the critically needed investment (Bayliss and Fine 2008)."

    I think that it is not unreasonable to believe that it is the nature of the effort to "unbundle" the Eskom (or other reform target's) assets and resulting "fragmentation" which is itself at least in part to blame for discouraging investment in infrastructure.

    The "unwarranted optimism" that the private sector would provide greater investment than it in fact did, and the reciprocal optimism on the part of private capital that government alone will be sufficient to maintain the necessary growth in the sector, seems to be one of these tragedy of commons circumstances which keep popping up. In this case it appears that all players in the Eskom network simultaneously concluded that it would be preferable to purchase power from the grid to meet shortfalls during peak usage than to invest in sufficient additional capacity to handle it themselves. Given that this continued for a period of years, I think we can assume that by some point all players knew that the others were following the same approach, yet again all appear to have again concluded that it would be someone else who would make the infrastructure investment instead of the purchase. I can only conclude from this behaviour that whatever networking agreement was in place disproportionately encouraged the local privatized "Baby-Eskoms" to reap the benefits of shared infrastructure without making compensation to the collective ownership of said infrastructure.

    In adapting the ICIF model from the Zamtel international gateway access issue to the somewhat different challenge of encouraging faster capacity growth in Zesco, I think that we can theoretically overcome such barriers, and even turn some factors in our favour. One of the keys to the function of the ICIF will be to determine a fair metric on which to base "fee-per-use" imposition on sector participants. I think in Zesco's case it makes sense to use kWh, with perhaps slightly different treatment based on whether we are addressing energy generation, transmission, or delivery. This is a point in the process where it would be very useful to have someone with the technical and corporate knowledge of Zesco itself to provide us with some specifics. We need a Zesco version of David Kabamfwile! Barring that, I will try to hunt up some simplified technical explanations of the operational differences between the three types of infrastructure.

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  35. Pressing onward with aspects of ICIF structure which I will postulate for the time being will function without contradiction by technical impediments:

    While line resistance causes electricity to be not entirely fungible once fed into the transmission grid, let us proceed in a fashion that both assumes that it is, and that we will have to make some kind of compensation later on because it isn't. Technical details in this regard will likely also be required to determine whether or not it is desirable to segment the ICIF into separate sub-funds earmarked specifically for transmission, generation or delivery infrastructure. We will assume for the moment that it is not desirable and that all projects will be financed from the same source. We will also assume that it is desirable for Zesco to retain operational control and maintenance responsibility over the entire grid as it grows.

    Due to the nature of electricity consumption, it seems fairly inevitable that all costs are eventually charged to the consumer (unless the taxpayers pick up the tab). In that case, it seems best to treat all consumers equally. Zesco has annual sales of 8300 GWh with a turnover of US$233M on assets of US$3B, and a declared customer base of over 310,000. Zesco projects demand will exceed supply through 2012 and beyond. Current installed capacity is 1,632 MW of hydro, 8 MW of diesel, though Zesco claims a total cap of 1,760 MW somehow (probably Copperbelt), so I'll go with it. Using Kate Bayliss as a guide, a desirable annual level of infrastructure investment is 10% of the current asset base, which seems ambitious, but at least it keeps the math simpler for now. In Zesco's case that amounts to US$300M per year, or US$67M more than their entire turnover from power sales, to raise this money from tariffs on consumers would require a US$0.036 per kWh addition to all tariffs, which is 165 kwacha at current exchange rates, a 100% increase over the present commercial tariff which also happens to be 165 kwacha per kWh.

    Doubling the tariffs is unrealistic, which is where external investment becomes so crucial to the process. Let's set the ICIF target lower, and concentrate it only on aspects of infrastructure that will be shared by any power producer or deliverer on the grid (here again Zesco-specific technical knowledge would be useful). For present simplicity, I will arbitrarily choose 1% of total asset base, or US$30M per year, and a proposed consumer tariff hike of 16.5 kwacha per kWh (a 10% increase over present commercial tariff).

    Let's now imagine that a large commercial power consumer, Xcorp, with an average demand for 50MW of grid electricity decides to invest in their own generator and hooks into the grid. Let's suppose that the generator has a capacity of 20MWe, but is only run during business hours, and adds an average of 10MW to the overall grid (for the moment only, ignoring the difference between power on and off peak hours). Since their metered usage will be only 40MW but their actual usage will be 50MW, they will effectively save 20% per kWh, but only on that portion of the 10MW which is for electricity itself and not the operation of the infrastructure to transmit and distribute it (T&D). To address this, I think we should break the tariff down into parts, one allowing profit for fungible kWh such as the ones being fed into the grid by the new generator, and a separate part allowing for the likewise profitable maintenance and operation of the shared T&D infrastructure. It is this second part which the ICIF will seek to use as incentive for increased investment in T&D infrastructure by generation partners.

    At this point the Zesco problem begins to more closely resemble the Zamtel gateway from a structural point of view. In the telecom case, the ICIF model indicated benefits from separating the portion of the company that could reasonably stand to compete equally alongside private entrants into the market, from the portion which could reasonably be expected to show equal or greater social benefit by remaining under parastatal control. In the Zesco circumstance it is generation activities which can presumably stand new entrants to the sector, while T&D remain best handled in a centralized fashion. The ICIF will be used for the upgrading and expansion of T&D infrastructure managed by Zesco, but increasingly owned by new entrants to the generation sector.

    If we imagine that our hypothetical Xcorp with the new generator is not the only new entrant to the sector (let's hope not!), but is instead joined by enough others such that 10 times as much power is generated (requiring at least a 5.68% increase over present Zesco installed capacity), in the first year they contribute 870 GWh to the Zesco 8300, or 10.4% of the US$33M total ICIF fees collected from consumers. When that money is eventually turned into improved T&D infrastructure (I am going to tentatively assume that T&D infrastructure constitutes 50% of the current asset value of Zesco, based solely on their planned capital expenditures during 2007/2008: Itezhi Tezhi US$15 million; Kariba North Bank Extension US$48 million; Transmission Lines US$13.8 million; Customer base expansion US$ 46.9 million), it will amount to 2.15% of the T&D infrastructure base, (plus interest earned in the interim, minus unrecoverable costs, say half pending better information, it's a plug-in-value kind of calculation), or an estimated lasting asset value increase of 1.075%, of which 5.2% will belong to Xcorp and others. Zesco maintains full ownership of the old infrastructure and 94.8% of the additional, assuming no oversight penalties for gold plating or other abuse of ICIF disbursements.

    Provided tariff rates that are split in such a way that both generation and T&D activities are profitable, and oversight authority is effective and diligent in enforcing project standards, this methodology could guarantee that funds are consistently available for improving T&D infrastructure and will increase as overall consumption increases. It will also ensure that power Zesco imports from other countries will produce the same rate of T&D investment as Zesco's own generation activities. An investment rate of 2.15% may not be sufficient (or correct, lots of assumptions going on still) to meet the real need, but I think the exercise demonstrates that the model can be further adapted to meet the specifics without too much difficulty once we have them.

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  36. The model is certainly applicable to the power market, though the three separate aspects make it more challenging.

    I was hoping to find the a recent market review of the power sector, I had somewhere..but I have failed to locate it...if I recall correctly, what we have is a number of emerging players in generation (e.g. Lunsemfwa Hydro, CEC)...though ZESCO still retains signifcant control of that area as well as transmission and delivery...

    A couple of links you may already have checked..

    This World Bank article has some interesting data buried in it

    http://zambian-economist.blogspot.com/2008/07/improving-access-to-electricity.html

    THe IMF Zambua Power Market Assessment
    http://zambian-economist.blogspot.com/2008/05/obstacles-to-growth.html

    Now in view of alternative players already, it may make sense to go for a model where the shared infrastructure is transmission and delivery. This is the model used I think in many countries. The players derive their own power, but share the transmission and delivery costs.

    On Zamtel, coming back to OWNERSHIP and the ROLE OF GOVERNMENT. This appears critical. I think the model works, but the role of government perhaps need some qualifications, if only to appease "the security concern" brigade. The model has been developed to provide the right incentives to both the carriers and Z-Int to expand the gateway. Is there scope that government could effectively be that partner to the carriers...rather than Z-Int being a private entity that is then regulated...[naturally, I prefer it to be private, but I assume the model would allow, a government partner..would it not]

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  37. Cho,

    Thanks for the links! I will dig what I can out of them posthaste! As to your question about government control and Zam-Int, unqualified yes. It was in fact the stated concerns of the security brigade that led me initially to assume fragmentation would be the only way to open the domestic delivery market to full and fair competition. Zam-Dom will presumably sink or swim on the backs of its existing infrastructure and market share, just like Celtel and others. Zam-Int will remain in monopoly hands, and while nominal "ownership" shares of infrastructure improvements with joint financing would be issued to other companies, operational and policy control would not. This ought to safely preserve whatever secrets or capabilities the brigade considers vital to the nation, without unduly stifling investment in both "halves" of the sector. I hope ;)

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  38. The model is good...how feasible is it for you to write it up..first in order to preserve it as a self standing blog for reference..(especially given the wider application)....it will be stored in the tool bar as on-going dialogue.....secondly, and more importantly, in order to use it to explain to Ms Siliya some of the alternative she should be looking at....I am hoping to write a letter to her on these matters..and may put "media pressure" in way of an additional open letter in the press...

    It strikes me a little bit of activism on this matter can only do good...

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  39. Cho,

    I have tried several approaches to presenting the model, and I realize not for the first time that my tactical nature is often not well suited to discussions with strategists. I tried first to include everything I thought might be relevant, and to try and explain and justify each part as tactically effective, but I just bog down for lack of active feedback from the intended audience. Eventually I gave up the attempt and tried starting over, and left out everything I possibly could, and the result may confuse some, but at least it is short enough to be digestible:

    Incremental Ownership Transfer via Consumer-Driven PPP in Increased Capacity Investments, Possible Zamtel Applications:

    Step 1: Segment the present Zamtel corporation into two separate entities, one encompassing domestic telecom delivery and customer service (Zamtel-Dom), the other managing the international gateway and related long distance infrastructure (Zamtel-Int). Restructuring of Zamtel-Dom and Zamtel-Int can then be treated as separate challenges, and unique solutions devised for each. The aim of this proposed model is to provide a solution for Zamtel-Int primarily, with provisions imposed on Zamtel-Dom solely for purposes of compatibility with Ztel-Int in its new form, and identical to impositions on other domestic market participants.

    Step 2: Determine an appropriate base-tariff rate to be charged to domestic corporations by Zamtel-Int for access to a certain amount of transmission capacity or bandwidth, whatever standard metric is agreeable to regulators and sector participants, which are herein referred to as "slots" solely for convenience. The tariff should be sufficient to sustain normal operations, as well as a reasonable margin for error or profit, but not both.

    Step 3: Determine an appropriate minimum base-rate for investment in new or improved international gateway and related long distance infrastructure, to be collected from domestic telecoms at the same time as the tariff for each slot they obtain. Domestic telecoms will then presumably pass this cost on to customers in the form of user fees on long distance calls made. These investment tariffs will be deposited and managed in an Increased Capacity Investment Fund (ICIF) until such time as Zamtel-Int, in conjunction with regulators, determines that the accumulated amount is sufficient to undertake a project to increase long distance telecom capacity.

    Step 4: Divide nominal ownership of (but not operational or policy control over) increased capacity, or "new slots", between Zamtel-Int and domestic telecoms 50-50%, with any amount determined by regulators to have been expended on avoidable or unreasonable cost overruns or other mismanagement deducted from the Zamtel-Int share only. New slots would then be allocated to domestic telecoms in direct proportion to their relative contributions to the ICIF expenditures on the project.

    Step 5: Going forward, slots which are owned by domestic telecoms would be made available to them on a single-bidder, non-transferable basis, at the base-tariff and base-investment tariff rate. Should they be unwilling or unable to make use of their slots temporarily, they would revert to the general Zamtel-Int pool of slots available for auction. All slots in Zamtel-Int control would be auctioned off to the highest bidder(s), with any excess above the base-tariff being deposited in the ICIF, and credited to the domestic telecom and Zam-Int at the standard 50-50% split.

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  40. From Business Day:
    Ethiopian energy gets a boost

    RISING demand for power in Ethiopia has led to substantial and lucrative investment opportunities. Ethiopian energy policy has result ed in sizeable investment from the government and donors.

    Over $780m has been invested in the upgrading, maintenance and expansion of existing equipment and on new installations.

    Frost & Sullivan energy analyst Moses Duma says power sector reforms have attracted significant investments from the World Bank, the European Investment Bank and the African Development Bank. While the Ethiopian industry has been opened up to private participation, private companies are obligated to sell power to the state utility through power purchase agreements.

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  41. There is a well written Business Day Editorial on the future of sustainable (or otherwise) power generation in South Africa. In addressing the current Eskom policy of increased coal-fired generation capacity rather than wind farms and other renewables the editor(s) wrote in part:

    The response, logically, is to accept a degree of environmental degradation while we buy ourselves enough time — and accumulate enough capital — to find alternatives.

    The trouble is that the calculation on which that argument is based is deeply flawed. Most importantly, the true cost of so-called cheap coal-fired power stations is neither reflected nor accounted for by Eskom or the government.

    In what the proponents of alternative energy sources call “externalities” the true and immediate, but unacknowledged, cost of continued coal mining is apparent in the catastrophic level of acidification from mining runoff of all the significant natural water resources in the country. The biota that depend on these aquatic systems are already severely compromised and their waters have been rendered unfit for human consumption, unless treated in municipal works that are now widely acknowledged to be in a state of collapse.

    Air quality is in a similar state, with research showing notable increases in pulmonary disease causing workforce absenteeism and compromised childhood development, among many other health problems recorded in areas polluted by coal mining. The consequences are increased poverty and deprivation; for the people living there, rapid growth and development have not arrived and conditions are arguably no better.

    The cost of coal mining and combustion has also been externalised into commerce, the most obvious examples being the drastic increase in demand for bulk transport that has seen SA’s freight parastatal, Transnet, favour the highly profitable coal-shipping business, the destruction of our road network and the cost of establishing and maintaining an electricity transmission infrastructure.

    Clearly, power from coal-fired power generation is not as cheap as it is made out to be, which makes investment in alternative energy compellingly affordable.

    Similarly, gains from avoiding long-distance transmission and the transport of fuel inherent in locally produced and distributed energy have not been calculated properly.

    To make the alternatives work, however, policy makers have to shift their mindset in two fundamental ways: energy, of any alternative type, does not have to be converted into electricity to be directly and locally available; and, where it is being converted into electricity, industries with co-generation capacity should be supported in contributing to the national power grid.

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