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Friday, 5 December 2008

Dora sees sense, but more questions awaits...

It was most gratifying reading this Daily Mail piece with the news that ZAMTEL will be partially privatised - we hinted that this was being considered a while back. Not only has GRZ accepted what we have been saying ever since this blog started (see for example the memorable discussions on Mulongotism and Zamtel's monopoly....why I oppose it ), but it appears they also concede that inaction has been a recipe for disaster. But more importantly, they admit the failure to act was largely down to the parastatal madness mentality. Excerpt :

Government is seeking an equity partner to partially privatise Zamtel with the transaction process expected to be completed by March 2009. Minister of Communications and Transport Dora Siliya said Government had already identified a firm to do the company asset evaluation, which would be completed this month end.

She said next January, government would begin to look for a strategic partner. Ms Siliya, who was addressing workers at the Zamtel College in Ndola yesterday, said only after the asset evaluation process would Government open the tender for interested parties to bid for the shares.

She said she would this Saturday sign a memorandum of understanding with the company engaged to do the asset evaluation.
Ms Siliya said the decision should have been made earlier because the value that government would get out of Zamtel currently would be lower than what it would have got earlier due to the global financial crisis.

She said Zamtel needed to change its business strategy, which includes the business fundamentals, structures and work culture. “Unless we move fast and find an equity partner, Zamtel will continue sinking. In fact, it has only survived this long because it is a parastatal company,” she said.

But I refuse to get too excited just yet. We shall keep asking the tough questions : What is the nature of this new arrangement? Why "partial privatisation" when previously we heard all options were on the table ? Is the ZANACO model really ideal for ZAMTEL, given its inherent monopolistic position? What about conflict of interest? Government taking part in an industry it regulates, that does not sound right? What is to be done about Cell-Z? What about the international gateway? Will it be made independent? How will it be funded? What about the international gateway fees, shouldn't they be reduced? How do we get towards efficient access, is the sequential model proposed on this blog viable? What about the regulatory regime? Surely the problem is not just ZAMTEL, but also Communication Authority (CAZ)'s weak powers? So with that in mind, where does the Draft ICT Bill 2007 which has never been implemented, fit into all of this? And I have questions for the Competition Commission too! The questions are plenty, and we have touched on many of them on this blog. I suppose if I can summarise my thoughts : as much as I appreciate the latest move very much, my hope is that it is undertaken within a new policyand operational framework for the communication industry. We need a communication strategy not a ZAMTEL strategy.

Update - 5/12/2008 :

The Post is reporting that "sources within Ministry of Transport have indicated that the government has already identified a telecommunication company from the Middle East to partner with Zamtel". The article also carries comments from National Union of Communication Workers (NUCW) general secretary Emmanuel Kasonde, who appears to have welcomed the latest government moves : "We have seen the downfall in the business performance of Zamtel. The privatisation of the company is in the interest of all people and stakeholders. The development will change the business fundamentals of information technology sector in the nation....The government has lamentably failed to run Zamtel because the company has enough facilities that could make Zamtel a leading telecommunication service provider on the continent".


  1. Hint: Look for a similar country that has privatized its telecom industry and see if anything can be learnt from them.

  2. Kafue,

    While I agree that the experience of Rwanda is laudable and that there is much perhaps that can be learned from their example with regard to Zamtel restructuring, I am not certain that it really qualifies as a similar country.

    Rwanda has one of the highest population densities in Africa, with about 9 million people occupying 26,338 km2, while Zambia has a slightly higher population of 11.6 million people spread over 752,614 km2, or about 3/4ths of the population in an area less than 1/28th the size. Rwandan population density is about 22 times that of Zambia, presenting very different consumer markets and infrastructure development challenges from both a cellular and fixed line telecom perspective.

  3. Yakima,

    The only difference I see is that Zambia is larger in land area, hence the question of the extent of subsidies to build telecom infrastructure for rural areas that may not be able to afford higher prices covering this infrastructure buildout.

  4. Kafue,

    Well, yes.

    Location. Location. Location.

    The profitability of a telecom startup or franchise is going to be determined by their ability to leverage limited fixed overhead and second party network access expenses to as many customers as possible. This is especially true for cellular companies, where tower reception and transmission capacity is relatively fixed by geographic and atmospheric interference, therefore making population density a key indicator for feasibility of successful market penetration.

    The same phenomenon happens within countries, where licensees often must be required to provide access to less populated areas as a prerequisite to access to highly profitable, densely populated regions. Rwanda is an exceptional African market in the sense that it has no regions which are not densely populated, making licenses to service its national market particularly attractive to cellular telecoms.

  5. Kafue,

    "Hint: Look for a similar country that has privatized its telecom industry and see if anything can be learnt from them." -

    There's of course much we can learn from others, and indeed Mozambique has recently undertake similar reforms in the sector - Mozambique gets it...why can't we?. However, we must be wary of Sakism. It therefore follows that we need to be clear at what STAGE do we consider other people's experiences. A reasonable approach is to first define the problem / constraints, and the intendend outcomes. And then see what policies can eliminate those constraints. Now the experience of other country becomes useful in identifying "an unintended consquences" from policy reforms. The problem with simply looking at Mozambique and Rwanda straight away is that you will miss the nuances of effective local policy making!

  6. Why doesnt the govt also move to restructure ZESCO and by implication the electricity market. ZESCO like Zamtel is ineffiecient and uneconomic. ZESCO should be split into three companies so as to fast track a real national electricity grid and mass access to energy.

    1.All the current ZESCO Generation infrastructure should fall under a new company, say Kariba Energy. This new company would be focused only on Generation activities and development of new generation infrastructure. It would sale bulk power to new Distribution companies. The current ZESCO would be one of those companies. The distribution companies would focus on increasing the number of people with access to electricity. Finally the third company in this new structure would be a company responsible for running the national grid or the bulk carrier for all distribution companies. We can call this company ZAMGRID. This company should also play a developmental goal i.e it should have an explicit mandate to expand the national grid to all corners of Zambia. All the three companie should be quoted on the lusaka stock exchange. The government can ensure control by retaining a quarter of shares in each company.

  7. Frank,

    With regard to your excellent question, "Why doesnt the govt also move to restructure ZESCO and by implication the electricity market. ZESCO like Zamtel is ineffiecient and uneconomic. ZESCO should be split into three companies so as to fast track a real national electricity grid and mass access to energy?" I think you point to an important issue, one which has been dominating my attention recently.

    ZESCO has a current asset value estimated at around US$3 billion, so offering of a 75% stake on the LSE would presumably be aimed at raising in excess of US$2.25 billion in private capital in exchange. That is certainly a lot of money, though getting stocks to trade at objective fair value these days can be tricky, and overall, initial public offerings are a rarity on the world markets currently as a result. I estimate the entire combined market cap of the LuSE to be currently right around US$3 billion as well, so the proposed public offering would necessitate an overall increase of 75% in domestic investor capital. I suspect something more gradual would be more effective at preserving the value of taxpayers' existing investment in ZESCO.

    I think that there may also be difficulties in the process of division, as indicated by this from UNDP and ensuing discussion in recent commentary here.

    There's also the problem of making the business of electric delivery in Zambia attractively profitable for new distribution companies or equity stock purchasers of the transmission and generation monopolies. For example, the current tariff charged to commercial customers using up to 700 kWh/month is fixed by the Energy Regulation Board at 165 kwacha/kWh (about US$0.036). That is up only 2 from 163 kwacha/kWh in 2007, the smallest increase for any class of customer, however meter inspection fees have increased 2000%, and installation inspection fees have increased 1000%, reconnection fees 300%, and security deposits (for new or reconnecting customers) by 900% (Cho, this may explain why so many new temporary employees in distribution, to extract all these fees, perhaps with pliers ;).

    A longstanding Canadian municipal power company which underwent restructuring in 2000 from a utility to a fully incorporated company under the Ontario Business Corporations Act, Hydro Mississauga distributes over 1,600 MW (peak) of electricity from Ontario Hydro, charges eligible small businesses and consumers in the municipal, university, school and hospital sectors a fixed tariff of CA$0.05 (181 kwacha) for the first 750 kWh/month, and CA$0.059 (213.6 kwacha) for the remainder. Rates charged to regular commercial customers are set by the marketplace and fluctuate, but are presumed to be significantly higher, and both sets of tariffs do not include fees for maintenance of distribution, transmission, meter reading, billing or other fixed account costs.

    My local private power company here in hydro-heavy Oregon, the Enron-ravaged Portland General Electric, provides power to non-residential customers up to 1,000 kW at prices which vary daily based on the Dow Jones Mid-C Daily Price Index, but those who opted for average annual cost of service plans for 2008 are paying US$0.05479(252.1 kwacha), while those paying by monthly averages are paying US$0.05746(264.3 kwacha) off- and US$0.06667(306.7 kwacha) for on-peak kWh.

    Eskom in South Africa has tariffs set by a regulatory board similar to Zambia, but with a different set for each of about 160 localities. For small commercial pre-paid customers random sample tariff rates are: City of Umhlathuze - 0.45 rand/kWh (200.98 kwacha), Central Karoo - 0.47 rand/kWh (209.92 kwacha), Cederberg - 0.5295 rand/kWh (236.49 kwacha), and Umvuziwabantu - 0.5617 rand/kWh (250.87 kwacha).

    I suspect that now that the days of exporting abundant and relatively cheap to produce hydropower appear gone, Zambia will have to adjust tariffs upward in line with regional if not global averages, especially if private investment capital for new capacity is going to be attracted to the sector.

  8. Yakima,

    Cho, this may explain why so many new temporary employees in distribution, to extract all these fees, perhaps with pliers"


    On Frank's point, I make a note in the "Mulongotism" post that we have some players already in the generation market, demonstrating clearly that that market is indeed viable.

    By the way, in that post, I forgot to bring your attention to another development discussed here:

  9. "The country joins Rwanda, Uganda, Kenya and South Africa in providing one license for an array of services including Internet and mobile telephony"


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