Priority Sector Incentives and Micro and Small Enterprises
Investors that invest more than $500,000 in a multi-facility economic zone, an industrial park or a priority sector (the latter including energy), or invest in a rural enterprise as defined under the ZDA Act can receive favorable tax and import duty incentives. Developers may be entitled to zero percent tax rate on dividends for five years from the first declaration of dividends; zero percent tax on profits for five years from the first year of operation; zero percent import duty on capital goods, machinery, and specialized motor vehicles for five years. Projects also receive non-fiscal incentives, including investment guarantees and protections against nationalization. Projects meeting the criteria but requiring between $250,000 and $500,000 of investment may receive the non-fiscal incentives.
Micro- and Small Enterprises in urban areas may be exempt from income tax for the first three years of operation, while those in rural areas may be exempt for the first five years.
Rural Electrification Fund (REF)
The Rural Electrification Fund is a crucial instrument to drive energy access in Zambia. The fund is managed by the Rural Electrification Authority. It comprises public budget, consumption tax that is collected by ZESCO and additional contributions. The REA uses the fund to invest in the expansion of rural grids and projects that use renewable energy resources. The agency has realized some mini-hydro power stations, solar power and hybrid mini-grids as well as grid extension. According to the REF Operational Manual, the agency grants budget support of up to 100% for publicly-led rural electrification projects. Privately-driven rural electrification projects are subsidized by up to 50% of the capital costs, with remaining funds to be secured by the developer with a minimum level of 20% of equity, and a minimum internal rate of return of 10% before grants. However, information on access to this fund is not publicly available.
Zambia’s Industrial Development Corporation (IDC) is holding tenders to bring online 300 MW of solar power, in collaboration with the International Finance Corporation’s ‘Scaling Solar’ program. Projects will be structured in line with the Scaling Solar initiative, – including advisory services, contracts, financing, guarantees and insurance – designed to allow solar power to be developed quickly and transparently. On 27 May 2016, the IDC announced two provisionally successful projects from a NEOEN and First Solar consortium (45MW) at $60.2/MWh and Enel Green Power (28MW) at $78.4/MWh. The facilities will be located in the Lusaka South Multi-Facility Economic Zone, with construction planned to begin in March 2017. Round 2 of the targets a further 250MW of solar PV-based Generation.
The Global Energy Transfer Feed in Tariff (“GET FiT”) Program is an initiative launched by KfW, whose purpose is to fast-track a portfolio of a number of RE generation projects (1 MW-20 MW) promoted by private developers. The GET FiT Program consists of three instruments:
- The GET FiT Premium Payment Mechanism (top up per kWh),
- A Guarantee Facility to secure against off-taker and political risks, as well as
- A Private Financing Mechanism that will offer debt and equity at competitive rates.
GET FiT Premium Payments are additional payments per kWh, above and beyond the regulated REFiT tariff. Initially it is expected that payments will be availed on a grant basis at the beginning of the project cycle. Projects will be selected following a tender process, which will be initiated when the REFiT strategy of the Ministry is in place.