ZESCO's Prodigy Flips Zambia's Energy Switch

Gripped by a power deficit of surpassing 1,300MW, Zambia has endured devastating blackouts for months on end, often lasting over twenty hours a day. This has led to worsening economic conditions, with key macroeconomic indicators such as GDP growth, inflation, and exchange rates declining. ZESCO's subsidiary, Kafue Gorge Lower Power Development Corporation Limited (KGL), launched a robust 10-year strategic plan on 11 December, 2024, that promises to reshape Zambia's energy future.

The strategic plan for KGL completes the transitioning of the utility  from a project-driven entity to a fully operational power generation corporation. As a wholly owned subsidiary of ZESCO, KGL is committed to driving Zambia's green energy sector and supporting the country's ambitious economic targets including quadrupling mining output, digitalisation of the economy and the promotion of sustainable green energy. The company operates a 750MW installed-capacity hydro-power plant, ranking first on installed capacity among Zambia’s independent power producers.

Eng. Wesley Lwiindi, representing the Acting Board Chair, Eng. Justin Loongo, spotlighted the mantra embedded in the corporation's strategic plan: "KGL does not only anticipate the future, it shapes it." He emphasised the organisation's mission to provide safe, sustainable, and efficient green energy services, aligning with Zambia's Vision 2030 ambition to become a lower-middle-income country.

KGL's strategic vision includes broadening its revenue sources, particularly through diversifying energy generation technologies. A key objective is to develop a solar photovoltaic plant of approximately 200 MW capacity by 2030, thereby reducing its reliance on hydro-focused revenue streams and mitigating concentration risk. Furthermore, the introduction of open access regulation presents opportunities for power sales beyond existing supply agreements with the state utility, potentially hedging against single-buyer default risks and enhancing the firm's financial sustainability.

The strategic plan requires an estimated USD 2.44 billion in funding, with approximately two-thirds (USD 1.6 billion) allocated to debt service costs. Despite facing high debt risks, including government-guaranteed external debt exceeding USD 900 million according to the Ministry of Finance's September Debt Statistical Bulletin, KGL remains optimistic about its financial trajectory.

The “% Cost Composition of the Strategy” graph below highlights the forecast costing of the KGL’s 10-year strategic plan. To mitigate potential debt distress, KGL is engaging with Zambia's Ministry of Finance to reduce the debt’s negative impact while strategically optimising revenue. The company forecasts significant improvement in its debt service coverage ratio, projecting a rise from under 2x in 2024 to over 4x by 2032, as reported in KGL's strategic plan document.

A particularly commendable achievement by KGL in 2024 has been the firm's substantial reduction of its debt-to-equity ratio. The ratio is expected to close at approximately 0.75 in 2024, a marked improvement from about 1.8 in 2023. With ongoing debt restructuring efforts complemented by KGL's robust ten-year strategic plan, the organisation is positioning itself for a more stable and promising financial future.

To ensure successful implementation, the strategy includes a robust risk management mechanism. This encompasses continuous review of strategy and milestones, aligning employee objectives with corporate goals, ongoing engagement with ZESCO on payment obligations, and implementing debt restructuring and foreign exchange hedging strategies.

As Zambia faces the darkness, Kafue Gorge Lower will drive the transformation of the nation's energy ecosystem. With its holistic and versatile strategic plan, KGL is not only responding to the current crisis but also impacting and shaping Zambia's energy future.