Govt tensions with power firm CEC bad for investment- Zambia Chamber of Mines
The Zambia Chamber of Mines believes that the government’s attempt to force Copperbelt Energy Corp (CEC) to open up its infrastructure to other power producers has dented the country’s image as an investment destination.
Energy Minister Matthew Nkhuwa issued a decree last Friday compelling CEC to allow others to transmit electricity via its infrastructure. Though it can negotiate terms, CEC said the energy regulator had also cut the tariff it can charge to 30% of the current price.
CEC, formerly a state-owned firm before it was privatised in the 1990s, said the directive and other steps taken by the government amounted to expropriation.
The Chamber of Mines said in a statement the decree could undermine CEC’s ability to supply power to the mining sector and spread perception of increasing risk in the industry.
“The imposition of access and commercial terms on private infrastructure at levels that tip CEC into operational and financial distress have reverberated around the mining world,” it said.
Relations between Zambia and the mining sector – one of its most vital industries – became tense last year after the country tried to impose higher taxes.
The government also appointed a liquidator to run Vedanta Resources local unit, Konkola Copper Mines (KCM), which raised concerns of resource nationalism in Africa’s second-largest copper producer.
The government’s move concerning CEC came after the company said it would stop supplying power to KCM, currently at the centre of a legal dispute between the government and Vedanta.
Talks between CEC and state-owned power utility Zesco on a new bulk power supply agreement have also stalled.
CEC owns over 1,000 km of high voltage transmission lines and 43 substations across Zambia’s Copperbelt.
The infrastructure remains CEC property but other power producers, including Zesco, could use it on agreed terms and conditions, Nkhuwa said.
The Chamber of Mines said the stalled negotiations and escalating tensions arising from the Zesco-CEC agreement could be resolved without denting Zambia’s investment climate.
In accordance with Section 11.40 of the Lusaka Securities Exchange Listings Requirements (“LuSE Listings Requirements”), the Board of Directors of Copperbelt Energy Corporation Plc (“CEC” or “the Company”) wishes to inform shareholders and the market that the Power Supply Agreement (“PSA”) between CEC and Konkola Copper Mines Plc (“KCM”) came to an end on 31 March 2020 but was extended, through mutual agreement of the parties, to 31 May 2020. Consequently, effective 1 June 2020, there is no contractual basis upon which CEC can continue to supply electricity to KCM.
The market is further advised that KCM has accumulated a USD144.7 million debt to CEC in unpaid power charges representing twelve (12) months of consumption, which remained unresolved at expiry of the PSA.
To agree on the terms to further extend the PSA, CEC and KCM entered negotiations which have since broken down, despite CEC’s best efforts in good faith towards securing a new contract and engaging in comprehensive and cooperative negotiations.
Further, on 29 May 2020, KCM notified CEC that they had signed a term sheet for power supply with ZESCO Limited (“ZESCO”). The same day, the Government of the Republic of Zambia issued Statutory Instrument No. 57 of 2020 declaring CEC transmission and distribution infrastructure as “Common Carrier” to enable ZESCO distribute or wheel power through the CEC infrastructure to supply KCM. Subsequently, on 31 May 2020, the Energy Regulation Board set a wheeling tariff equivalent to about 30% of CEC’s current network tariff.
The combination of these developments, and as the deliberations around the settlement of KCM’s debt and the review of the contractual arrangements in respect of KCM continue, may have a material effect on the price of the Company’s securities and shareholders are advised to expect a more comprehensive announcement to be issued and are hereby advised to exercise caution when dealing in the Company’s securities until further information is published.