Adjusting to new mining tax regime hurting CEC customers; CEC 2019 Half year Report
Copperbelt Energy Corporation Plc, Energy

Zambia’s largest supplier of power to the mining companies, CEC Zambia Plc, has reported a 10% reduction in consumption of energy by its clients due to protraction in the making adjustments to the new mining tax regime, according to the company in its half-year performance review for 2019.

 

Our customers consumed about 10% less energy at 1,636GWh compared to 1,817GWh during the same period in 2018”, reported the company in its Operational Performance Update published on 29th August 2019 on SENS.

 

CEC identified a number of factors that caused the depreciated consumption. “This is attributed to operational constraints experienced by some of them; triggered by unrelated factors that include the time it is taking for them to adjust to changes to the mining tax regime introduced in 2019

 

Former Finance Minister Honourable Margaret Mwanakatwe, in her 2019 Budget speech announced changes to the Mining Tax Regime which included an increase in mineral royalty rates by 1.5 percentage points at all levels of the sliding scale and the introduction of Sales Tax that had been received with mixed reviews from the mining sector.

 

However, the energy company remains optimistic following an environmental scanning that indicates that sector demand will bounce back. “Fundamentally, prospects for demand recovery and growth remain very good as a number of customer expansion projects are still in ramp-up phase”. Furthermore, “mining customers faced with short-term operational constraints should return to normal operation by year-end, while new expansion projects implemented by a number of our customers are expected to register steady growth in demand over the next 2 to 3 years”.  

 

Interestingly, the company also took this opportunity to alert shareholders and stakeholders that the company remains bullish on signing commercial contracts with mining perspective. “The company has, during the period under review, signed two new power supply agreements (PSA) with upcoming mines in the Copperbelt that are expected to reach commercial operation in the next 3 to 5 years.”

 

The timing of the signing two PSAs comes at a time when there have been disconnected statements issued by the company and their main supplier vis a vis wheeler of energy. On the one hand, CEC has advised stakeholders that workstreams around discussions with the Government and ZESCO for a successor agreement to the bulk supply agreement signed about 20 years ago were ongoing. The company has further called on key stakeholders to support the move. On the other hand, ZESCO has advised that it would not be renewing the 20-year Bulk Supplier Agreement. All eyes will be on how this matter will be resolved or play-out before the expiration date.

 

In a period of depressed national generation due to the lowest water levels in many years, the Government of Zambia through the Minister of Energy recently awarded CEC permission to import 200MW, according to the Zambian Observer website would enable it to continue to service its clientele. The company has also indicated its long term commitment to increasing its energy mix with the commissioning of a 1 MW solar farm in May 2018. The company has further entered into discussions with Dangote to take upto 10MW of its excess energy from the coal fire plant at its cement factory.

 

In terms of stock exchange performance, during the first six months of 2019, the CEC Zambia security traded at its lowest level on K1 per share 24 June 2019 (share price peeked at K2.10 on 24 February 2019). Although the share price has rebounded to K1.33 (at the time of publishing this article), the trading price is still far below the offer that CDC made when they attempted to acquire asset when they made the mandatory offer of US$0.2338 per share in January 2018.

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