The Zambia Chamber of Mines has appealed to the Government to diffuse tensions and expedite negotiated resolution of the ZESCO-Copperbelt Energy Corporation impasse

For some time now, the Zambia Chamber of Mines has bemoaned the worsening instability of the mining operating environment that has led to a spreading perception of increasing risk in the industry.

Chamber of Mines Chief Executive Officer, Sokwani Chilembo said says the recent passing of statutory instrument number 57 of 2020 has needlessly re-affirmed the perception presented by the country’s decline on the 2019 Fraser Institute Mining rankings and Oxford Economics-Control Risks Africa Risk Reward Index.

Mr Chilembo said the imposition of access and commercial terms on private infrastructure at levels that tip Copperbelt Energy Corporation into operational and financial distress have echoed around the mining world.

He said this is an unfortunate outcome for what should be a national champion given the home-grown CEC brand’s undeniable delivery of the highest standard of service and efficiency both locally to the Copperbelt Mines, and regionally as part of the SADC power pool for two decades.

“The stalled negotiations and escalating tensions arising from the ZESCO-CEC Bulk Supply Agreement (BSA) can still be resolved in an amicable manner that does not further deteriorate Zambia’s stature as an energy and mining investment destination, said Mr Chilembo.

He has noted that ZESCO being a fully state-owned enterprise, almost a quarter of CEC’s shares being ultimately held by the state, and a significant portion of its shares publicly traded on the Lusaka Stock Exchange, makes a homegrown mutually agreed outcome as essential to keeping industry going as it is to restoring diminished confidence and allaying widening fears of expropriation.

Mr Chilembo said, if Government can come in as the ultimate steward of value to facilitate frank and level negotiations between its two investee companies; a resolution can be found that keeps both businesses afloat while containing any damaging spill-over effect on their corporate and domestic client bases, not to mention potential disruption to the Copperbelt mining industry.

He noted that the alternative outcome will push the high cost of capital for cash-strapped mining operators, mining suppliers, mining contractors and also potential energy investors even further out of reach than it already is.

Mr Chilembo said this will delay and put at risk the crucial pivot from the current decline back to growth and a million tonnes per year of Copper output that the economy so badly needs.

Further Mr Chilembo said the delay reduces the fortunes of us all in the midst of the global COVID-19 pandemic’s accelerating recessionary effects.

He said the Industry earnestly petitions government to take the macroscopic and long-term view to steer the energy and mining sectors clear of this avoidable obstacle to recovery.

Mr Chilembo added that the COVID-19 pandemic has placed significant challenges on businesses – mines are no exception. The actions expected from Government are ones that assist business bounce back rather than compromise it.

The four major copper mines on the Copperbelt-Roan Antelope, Rhokana, Mufulira and Nchanga had individual coal fired power stations using coal from Wankie. Later, the four mines decided to have their individual coal fired power stations interconnected with an installed capacity of 165 MW through transmission lines and the Rhodesia Congo Border Power Company was born, which was owned equally by Anglo American Corporation and by Rhodesia (it became Roan after independence) Selection Trust.

Between 1956 and the early 1960s the shortfall in electricity demand was imported from the Belgian Congo through the construction of the then longest 220 kV transmission line in Southern Africa, a distance of 321 miles from the source at the Le Marinel Power Station, on the Lualaba River, the Southern part of the Congo to Kitwe, Northern Rhodesia, where it was connected to the Rhodesia Congo Border Power Company line. The USA Government loaned $22.4 million to the Rhodesia Congo Border Power Corporation for the construction of the line. The Queen Mother commissioned the Kariba Dam in 1960 and her visit was extended to Mufulira where she also commissioned the Mufulira West Shaft which was constructed with labour from Swaziland or Lesotho and the workers used to wear blankets and were, therefore, known as “bakabulangeti”.

I remember as an eleven year-old in 1960 lining the road leading to Mufulira West waving a miniature union jack to welcome the Queen Mother and at the end we were given ice creams, my first taste of ice cream. The Rhodesia Congo Border Power Company abandoned its thermal power plants and stopped importing power from the Belgian Congo after the Queen Mother commissioned the Kariba Hydropower project and started buying power from CAPCO, Central African Power Corporation.

In 1964, it became known as the Copperbelt Power Company (CPC) and with the ‘Zambianization’ drive of the 1980s, CPC became part of the mining conglomerate, Zambia Consolidated Copper Mines (ZCCM), as the Power Division in 1982. The Copperbelt Energy Company (CEC), was the Power Division of ZCCM. It was sold separately from the mines, ZCCM, which were also privatized.

Cinergy Global Power of the United States of America and National Grid of the United Kingdom, jointly acquired a controlling stake of 77% in the Company; making it Sub-Saharan Africa’s first electric utility privatization. Subsequently, in 2006, the two investors sold of their shares.

The company purchases electricity from ZESCO and retails it to copper mining companies. In 2003, revision of the Electricity Act, Cap 433 allowed the participation of private companies, which have subsequently begun selling electricity to ZESCO, generated by their own small power stations.

Since the government of the day, MMD to be specific, did not sell ZESCO , it would have been logical to align the Power Division of ZCCM to ZESCO but apparently the people responsible for privatization, perhaps HH, decided to sell it separately. Because HH was responsible for privatization and hence the birth of CEC this is why some people suspect CEC to be funding UPND and that is why the PF has told ZESCO not to renew the bulk supply agreement.

CEC owns and operates an electricity transmission network in the Copperbelt area with 246 km of 220kV power lines and 678 km of 66kV lines. The company purchases electricity from ZESCO, the national power utility, and sells this across its transmission network to 8 Zambian mining customers with a combined demand of 520MW. In 2014 CEC supplied 4,208GWh of electricity to its customers which was 29% of Zambia’s total generation of 14,453GWh. CEC also operates 6 gas turbine generators at Luano, Maclaren, Kankoyo and Bancroft for emergency power supply to its mine customers with a total installed capacity of 80MW. It is not clear to me whether ZESCO has its own transmission lines to the mines. CEC also owns the Zambian portion of the Zambia – DRC 220kV interconnector line which has a capacity of 250MW and supplies electricity to mining customers in the Katanga Province. The company is developing the 40MW Kabompo Gorge hydropower project on the Kabompo river in the North-Western Province of Zambia.

Author Ronald Lwamba Former Senior Manager, Civil Engineering, ZESCO

Konkola Copper Mines says it views the recent attempt by the Copperbelt Energy Corporation to restrict power supply to the company as an act of lawlessness and in contempt of a Court Order obtained from the Kitwe High Court.

KCM General Manager Corporate Affairs Shapi Shachinda says whilst the agreement between CEC and KCM has expired, the power that KCM is receiving does not belong to CEC for CEC to interfere with.

Mr Shachinda said the debt owed by KCM to the CEC, is a direct consequence of the insufficient investment by Vedanta into the company which created a situation where the costs have remained at a higher level compared with the company’s revenue.

He says the attempts to restrict power at KCM by CEC are not new as they in 2014 restricted power to KCM for two weeks.

Mr Shachinda said a company is only placed in Provisional liquidation if it is unable to pay debts as and when they fall due.

He said the placing of KCM in provisional liquidation is a step in resolving the problems at KCM.

Mr Shachinda said ultimately, the solution lies in selling the company to an investor with sufficient capital to operate the company.

In the last 20 years, Konkola Copper Mines had a Power Supply Agreement with the CEC, which was underpinned on the Bulk Supply Agreement between Zesco Limited, and the CEC.

“Our agreement with the CEC expired on 31 March 2020, but was extended by mutual agreement between the two companies to 31 May 2020. KCM extended the agreement to the end of May to allow CEC to agree on a new Bulk Supply Agreement with Zesco or any other Power Producer. To date CEC has failed to agree with any producer for a Bulk Supply Agreement”, said Mr Shachinda.

He said this state of affairs left KCM with no other choice but to enter into an agreement directly with Zesco, leading to the signing of a Term Sheet Agreement by the two parties.

Mr Shachinda has explained that decision by KCM to enter into an agreement with Zesco makes for commercial efficacy on account that the power sourced from Zesco shall be cheaper than CEC’s power.

The government says it has released K6.73 billion for the month of May to finance developmental and other public service delivery programs in the country.

Ministry of Finance Secretary to the Treasury, Fredson Yamba disclosed that debt service and dismantling of arrears received the highest lump sum of K2.86 billion while infrastructure programs and rural electrification received the least amount of over K311 million.

“Of this amount, K604.92 million went towards transfers, subsidies, and social benefits, K311.13 million was channeled to infrastructure programs and rural electrification, while other developmental projects, programs, and general operations received K677.39 million in total.

“ The Government also spent K2.86 billion on debt service and dismantling of arrears. Further, a sum of K2.28 billion went towards the public service wage bill. A sum of K223.15 million from cooperating partners went towards supporting developmental programs in various sectors,” Mr. Yamba revealed.

In a statement by Ministry of Finance Public Relations Manager Chileshe Kandeta, Mr. Yamba indicated that the release of funds to recipient Ministries, Provinces, and Agencies came against a backdrop of competing demands and constrained revenue inflows caused by the outbreak of the Coronavirus pandemic (COVID-19), among other challenges such as climate change.

He has therefore assured that prudent utilization of resources will be closely monitored and evaluated by the Ministry of Finance and the Office of the Auditor-General through tightened controls in the application and management of public resources while scrutinizing the implementation of austerity measures so as to meet fiscal consolidation targets.

“The worldwide economic downturn triggered on the domestic front by severe drought in the 2018/2019 farming season, floods in the 2019/2020 season and the ravaging effects of the on-going COVID-19 pandemic, have been the biggest disrupters to the livelihoods of citizens, the well-being of the local production chain, and the performance of domestic revenue sources. Resources are now scarce.

“ Nevertheless, our resolve to ensure that Ministries Provinces and Agencies continue to prudently utilize resources has been strengthened by the instruction of His Excellency the President of the Republic of Zambia Dr. Edgar Lungu that the Ministry of Finance and the Office of the Auditor-General should further tighten controls in the application and management of public resources,” he pointed out.

Mr. Yamba indicated that the measures will advance the country’s developmental programs while positively influencing the well-being of all Zambians through sustained resource supply to various social sector programs.

He added that with the reduction of revenue inflows, his Ministry has embarked on a process of reviewing the 2020 budget to adjust planned expenditure in line with the revised revenue projections stating that social spending will be a priority.

He has thanked cooperating partners for continuing to stand with the country during the difficult period for the world’s health and economic sectors, assuring exchange of information on policy choices that are being pursued in dealing with fiscal challenges, public debt, and other macro-economic issues key to the country’s economic stabilization and recovery beyond the Covid-19 era.

Mr. Yamba appealed to the development partners to continue with their support especially with programs targeted at health, education, social security, youth and women empowerment, and private sector development and growth.

The Mine suppliers and contractors Association of Zambia has appealed to Copperbelt Energy Corporation (CEC) to support and engage Konkola copper mines (KCM) in private over the 140 million US dollars the later allegedly owes the power utility.

Association president Augustine Mubanga says the deteriorating relationship between KCM and CEC if left unchecked can have far-reaching devastating effects on the economy and sustainability of the mine.

Mr. Mubanga in a statement to ZNBC news in Kitwe says KCM just like other mining companies are passing through a difficult time that requires everyone’s support, especially in the wake of the COVID-19 outbreak which has punched holes in the production benchmarks.

He said Both Konkola Copper Mines and Copperbelt Energy Corporation are strategic Assets of the nations and therefore their actions have far-reaching consequences on the economy and the people of Zambia.

Mr. Mubanga urged CEC and all players in the Power sector to accept the government’s move to liberalize the energy industry.