In conversation with Muyangwa Muyangwa on greening Zambia’s energy mix

In this interview, Muyangwa Muyangwa, Director General of NAPSA, delves into the key issues that Zambia’s energy sector faces and discusses the Authority’s initiatives.

For energy projects to materialise, funding is essential. In Zambia, the National Pension Scheme Authority (NAPSA) was established to create a vehicle for mobilising national savings to support priority projects.

In the energy sector, NAPSA is projected to invest nearly half a billion by 2026. So far, NAPSA has already invested $400 million in two major energy projects, and more investments are anticipated through recent renewable energy initiatives.

In this interview, Muyangwa Muyangwa, Director General of NAPSA, delves into the key issues that Zambia’s energy sector faces and discusses the Authority’s initiatives.

Interviewer: From your perspective, what are the most significant challenges Africa, especially Zambia, faces in its journey toward energy transition?

Mr. Muyangwa: First, let me lay the overarching context for my responses — energy projects are capital intensive. With underdeveloped capital markets and nationalistic policies, the resolution of energy challenges has therefore not matched the pace of the demand for economic development. 

In Zambia, key issues include the following:

1. Low tariffs, which are not cost-reflective

Over the years, the average electricity tariffs in Zambia have been at 5.1 cents per KWH. At such tariff rates, developers could not cover project development and production costs and provide a reasonable return on energy investments. This ultimately led to low appetite by providers of capital to stake capital in the energy sector, affecting the bankability of projects. 

Now, this is not a problem for the private sector participation only. It also affected our sole state electricity utility — its capacity to invest for growth in new projects (from generation to transmission and distribution infrastructure) was hamstrung. 

Fortunately for Zambia, the new government has lifted the lid on the tariff levels. We are seeing a gust of investment proposals, especially in the renewable energy space.

2. Inability to exploit local capital

This arises from both the low tariffs discussed above and failure to explore domestic options for raising capital. With low rates and perceived country risks, it has been difficult to attract foreign capital. However, the potential for local institutional investors to fill some of the capital gaps remains unexploited. I am glad that this is changing in Zambia. Two of the largest institutional investors in the country recently worked together with private sector to finance an energy project, and we think more is to come.

3. Regulatory bureaucracy

Where bankable projects are available, slow length and cumbersome processes for regulatory and permit approvals cause delays which adversely affect project timelines and resulting in higher project costs. These delays frustrate potential investors. However, government has introduced some reforms which aim to shorten the licensing and regulatory approval process.

4. Policies on ownership of key infrastructure 

Key generation and distribution infrastructure has been owned by the state utility with a monopoly for transmission and distribution. With financial capacity inhibited by factors such as low tariff rates, such policies further negatively impacted the development of key infrastructure, such as transmission infrastructure. 

Fortunately, the new government has introduced much need reforms in the area, with private sector players now encourage to participate. 

In addition to these, achieving our energy transition goal is also a people issue; therefore, attitudes and perceptions need to change to achieve the transition. 

I have spent all my years equating electricity to a public good solely provided by the state. A shift is beginning to happen. But are we there yet? Far from it. We still need more. We must still overcome the issues of non-base load generation requiring battery storage transmission infrastructure, including interconnectors to access countries with stranded power grids. However, a lesson others may learn from Zambia is never to waste a good crisis.

Interviewer: Can you discuss any specific projects or collaborations that NAPSA is involved in that aim to boost Zambia’s energy resilience and sustainability?

Mr. Muyangwa: NAPSA has provided $190 million in debt financing for the completion of the 750MW Kafue Gorge Hydro Power Project and $200 million for the expansion of the Phase 2 of the Maamba Energy Limited 300MW thermal power plant.

Furthermore, in line with its investment strategy, NAPSA is also intending to invest in bankable renewable energy projects in a bid to contribute to the nation’s energy mix.

Interviewer: Zambia heavily relies on hydropower. Given the challenges with hydropower, what other forms of renewable energy is NAPSA considering for investment, and how are these expected to complement Zambia’s existing energy infrastructure?

Mr. Muyangwa: The Authority is currently reviewing proposals in this regard to provide financing for about five solar projects, whose average generation capacity is 50MW, over the next three years, with some emphasis on storage facilities and transmission capacity. 

Consequently, the energy infrastructure will be augmented. Once implemented, these alternative energy projects will improve Zambia’s energy mix, creating an energy sector more resilient to climate-related risks.

Interviewer: How can Zambia benefit from diversifying its energy sources to include more renewables? Given your background in financial and fiscal policy, including roles at the IMF and the Zambia Revenue Authority, how do you use your expertise to guide NAPSA in supporting Zambia’s strategic energy diversification?

Mr. Muyangwa: The benefits are immense, but clearly, what we need as a priority is a ramped-up base load capacity to meet the economic transformation targets. Therefore, more needs to be done within the policy, financing, and people issues spaces. 

In the policy areas, addressing the policy bottlenecks that inhibit smooth investing is key. In the financing space, opening the space for private capital investment and ownership and seeking out financing partnerships that lead to stronger collaboration between local and foreign capital are key to addressing generation and transmission bottlenecks. Lastly, encouraging increased household participation can release more power from domestic consumption to industry/production.

Regarding my expertise and experience, I think my little influence has been more focused on ensuring that Zambia’s largest pension fund begins proactively addressing one of its mandates and becomes a key player in national development. Armed with lessons learned from other economies, especially the “how-to” and “how-not-to,” one may — in their own small way — begin to influence decisions that seek better medium- to long-term outcomes for the country.

However, for this to become a reality, we should never underestimate the power of the correct political economy environment. And it’s an environment that finds solutions to existing and yet-to-materialise problems now rather than one that kicks fundamental decisions down the generational street.

Muyangwa Muyangwa is one of the speakers at the upcoming Africa Energy Leadership Summit, which is themed “Investments, integration, infrastructure, and governance to fuel the energy transition.” The summit will be held as part of the first-ever Africa Energy Expo, taking place in Kigali, Rwanda, from November 4 to 6, 2024. 

Africa Energy Expo, endorsed by the Rwanda Ministry of Infrastructure and supported by the Rwanda Convention Bureau, will gather key African decision-makers to tackle the continent’s energy and power infrastructure gap. The event supports COP27 Africa climate pledges and the Africa Power Vision. Register now!

Join us at the Africa Energy Expo from 4 - 6 November in Kigali Centre Rwanda and experience the Africa energy landscape at its finest. The event will serve as a scene-setter to the Africa Power Vision by bringing key energy stakeholders together to increase the level of international support and facilitate access to modern, affordable and sustainable energy solutions in Africa. Register now!