CEC’s sales volumes in the DRC market up 25% – Silavwe
Copperbelt Energy Corporation Plc (CEC) has disclosed that it has continued to grow its business in the Democratic Republic of Congo (DRC), resulting in a 25 percent sales volume boost in 2019 despite increased pressure on its margins.
Reviewing the Company’s performance last year in the company’s much-delayed 2019 annual report, managing director Owen Silavwe stated that CEC’s business in the DRC market had continued to grow each year, as the Company delivers on meeting the increasing power demand of mining customers in that country.
“Our business in the DRC market, where we work closely with our partner, SNEL, the State-owned utility, has continued to grow year after year as we deliver on meeting the increasing power demand of mining customers in that country. With our local office well established, we continued to step up our marketing activities,” Silavwe wrote in the CEC 2019 annual report released last week.
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“We also worked on improving our understanding of the market landscape. Our sales volume for the year increased by 25 per cent though we saw increased pressure on the margins due to factors, such as artificial transmission path constraints in Zambia, which affected overall pricing. We continue to work on resolving some of the transmission path challenges facing the business.”
And Silavwe stated that to avoid grossly affecting the company’s commercial viability, there was need to quickly resolve the challenges surrounding Statutory Instrument (SI) Number 57 of 2020, which made the company’s transmission and distribution infrastructure common carrier, while CEC was still being blocked from accessing Zesco’s power infrastructure.
“…This action [SI 57 promulgation] was immediately followed on 31 May 2020 by a decision by the ERB [Energy Regulation Board] declaring an interim transmission tariff for use of the CEC network, which is about thirty percentage points of the normal CEC transmission tariff. The Company’s view on this matter is that the combination of the actions of the Minister of Energy [Mathew Nkhuwa] and the ERB have the effect of taking away the Company’s property and commercial rights, which if not redressed, may in the medium-term grossly affect the viability of the Company,” Silavwe added.
“With no doubt, government and ERB actions were taken to aid KCM to continue receiving service from CEC without meeting its payment obligations. This has the further effect of allowing the state-owned utility, Zesco, access to the CEC infrastructure at very sub-economic rates. It should be noted that while CEC’s transmission and distributions lines have been declared common carrier, state-owned nationwide infrastructure operated by Zesco has not been declared common carrier and Zesco continues to block CEC’s access to its infrastructure – a matter that remains unresolved despite having been brought to the attention of the Minister of Energy on several occasions.”
Recent information from the Ministry of Energy indicates that the Ministry was still reviewing Zesco’s transmission and distribution infrastructure, which could be considered as common carrier.
According to Ministry of Energy acting Permanent Secretary Sandra Ndhlovu the process to review was ongoing as at September, 2020, but should be concluded soon.
And Silavwe stated that KCM’s failure to settle its outstanding US $144.7 million electricity bill to the CEC reduced the power utility’s profits by 78 per cent last year.
“Non-payment by our largest customer, KCM, constituted the largest risk to the Company’s financial performance during the year. Subsequent to the action in the High Court for Zambia by ZCCM-IH to commence winding up proceedings of KCM, followed by the appointment of the Provisional Liquidator, KCM struggled to pay its electricity bills. This resulted in significant accumulation of arrears. The consequential impairments due to KCM’s debt accumulation negatively affected the Company’s annual financial results,” disclosed Silavwe.
He added that total revenue decreased by three per cent from about US $421.0 million in 2018 to around US $408.0 million in 2019, mainly on account of an eight per cent demand reduction by mine customers in Zambia, while domestic wheeling services to non-mining consumers also reduced by seven per cent year-on-year.
“Profit after tax came in at about US $12.3 million compared to US $55.9 million in 2018, representing an annual decrease of 78 per cent. There was an increase of US $53.3 million in net impairment provision, necessitated by the challenge of the KCM payment default.”
Meanwhile, Silavwe revealed that mining companies’ overall energy demand dropped considerably last year, mainly induced by the 2019 mining fiscal regime, combined with KCM’s operational challenges following the appointment of its provisional liquidator in May last year.
“Our customers consumed about 13 per cent less energy at 3,206GWh compared to 3,673GWh in 2018. This is attributed to operational challenges that some of our customers experienced, triggered by unrelated factors that included the lag in adjusting to changes effected in the mining fiscal regime in 2019, the winding up proceedings of KCM commenced by ZCCM-IH (one of the mine’s shareholders) and planned smelter outages at MCM [Mopani Copper Mines] and KCM for purposes of effecting plant overhaul,” he stated.
Silavwe, however, stated that prospects for a rebound in energy demand within the mining sector remained strong.
“Fundamentally, the prospects for a rebound in demand going forward remain good as MCM returns its smelter to commercial operation and a number of customer expansion and new projects continue to ramp up demand over the next 3 – 5 years. The key downside risks to demand performance is the KCM liquidation, as uncertainty remains with respect to timeframes to resolution of the impasse affecting the business and the effects of the COVID-19 pandemic, which are yet to be fully understood,” he stated.
He further stated that CEC had continued to engage with both government and Zesco in its pursuit of a win-win solution to contractual arrangements following the lapsed Bulk Supply Agreement (BSA).
“Resolving this contractual matter remains a top priority for the Company given its importance, not only to CEC and Zesco, but to the Zambian economy as a whole as it underpins service provision to the entire Copperbelt Province,” stated Silavwe.
