The Lusaka Securities and Exchange-listed supplier of electricity to the Copperbelt mining companies, CEC Plc, has announced the end of its long term power purchase agreement with the national electricity utility effective 31st March 2020 bringing an end to a 23-year-old contract that was signed at the pinnacle of the mining companies privatization, according to a statement released by the company.
“In accordance with Section 81(1) of the Securities Act No. 41 of 2016, the Board of Directors of Copperbelt Energy Corporation Plc (“CEC” or “the Company”) advises the Company’s shareholders, and the market, that further to the Market Announcement issued by the Company on 2nd January 2020, the power purchase agreement or Bulk Supply Agreement (“BSA”) between CEC and ZESCO Limited (“ZESCO”), entered into on 21 November 1997 came to an end on Tuesday, 31st March 2020”, read the statement sent to shareholders and stakeholders of the company issued by Company Secretary Julia C Z Chaila on 1st April 2020.
The company indicated in the statement that he had been in round table negotiations with the national utility for several weeks prior to the epilogue of the contract. “In the last circa seven weeks, CEC and a Government of the Republic of Zambia (“GRZ”) team, which included ZESCO, have been engaged in negotiations for a new power supply agreement”. The company further indicated that although it went into the meeting with the national utility with a view of a short term agreement, it soon occurred to the negotiating team that what discussions lend towards a wholesome agreement. “While the initial understanding was that the parties would work to put in place an interim agreement, it became clear during the negotiations that the intention was to agree a wholesomely new agreement with totally different terms”.
Although the issued statement does not provide details of what different terms were being proposed, the Minister of Energy’s statement at the end of the contract provided some points of departure. “There are disagreements concerning the effective tariffs for both the power supplied to CEC as well as reciprocal transmission- service charges are also known as wheeling charges, amongst others”, read an extract of the speech by the Minister of Energy. “additionally, and most importantly, it has come to government’s attention over the last few days, that CEC is in fact not even willing to sign an agreement with a twelve (12) month tenure, which has been the basis of all negotiations conducted by the two parties over the last seven (7) weeks and, which was initially proposed by Government and ZESCO”.
The company admitted that the negotiating parties were unable to agree to a number of terms by the last day of the contract. “At end of day on 31st March 2020, the parties had not reached agreement on account of certain terms seen as key requirements from either side and which so far are not acceptable to either party”.
CEC believes that agreeing to some of the terms would affect the company’s financial performance. “On its part, CEC has faced some terms being demanded by the GRZ team which, if accepted, would be injurious to the CEC business and impact its ability to continue operating as a going concern”.
Issues related to financial performance related to how much the product electricity is sold by either negotiating party and what are acceptable margins. On Wednesday 11th October 2017, the then Minister of Energy David Mabumba, announced policy measures that were being taken to migrate electricity tariffs to cost reflectivity for all customer categories. “Madam Speaker, in December, 2016, negotiations were held between ZESCO, the Copperbelt Energy Corporation (CEC) and the mining houses in good faith on moving tariffs towards cost reflectivity and achieving closure on all outstanding billing issues by January, 2017”, read the speech by the Minister available on the National Assembly website. “Madam Speaker, arising from the negotiations, the interim average mining tariff was determined at US$9.3/kWh effective January, 2017, pending the conclusion of the cost-of-service study”. Therefore, it is not surprising that the issue of agreeing on tariffs was one of the issues cited by the current Minister of Energy as one of the points of departure.
The company is resolute in its determination to find a lasting solution and is bullish on a new agreement being signed. “In CEC’s view, achieving a mutually acceptable power supply agreement between the parties remains of strategic importance to the electricity sector and the country. Therefore, CEC remains confident that the parties will use the next several weeks to narrow the negotiation gap so as to achieve the much-required new power supply agreement between them”.