Mining and export Power utility, CEC Zambia Plc, has informed its stakeholders that it has received notice of intention to arbitrate from ZESCO Limited over failure to liquidate debt it owes its main supplier and wheeler of power, according to a statement from the company.
“In accordance with Section 3.4(b) 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 it is in receipt of a notice of intention to arbitrate from ZESCO Limited (“ZESCO”), pursuant to the Bulk Supply Agreement (“BSA”) and Article 3 of the UNCITRAL Arbitration Rules 1976”, read a statement issued on SENS by Company Secretary of CEC Zambia, Julia Chaila on behalf of the Board of the power company on 27th September 2019.
CEC Zambia is currently in the epilogue stage of a contentious 20-year Bulk Supply Agreement (A power purchase agreement) with ZESCO which the latter only until recently advised it would commence on discussions regarding a possible future arrangement post the expiration in 2020.
According to the details of the arbitration results, “ZESCO’s claim that CEC has failed to pay money due to them for electricity supplied under the BSA. The amounts outstanding relate to the supply of power by CEC to Konkola Copper Mines Plc (“KCM”), which supply KCM has not paid for”. Zambia Consolidated Copper Mines Investment Holdings (ZCCM-IH) applied for provisional liquidation of KCM in May 2019. KCM is 79.4 percent owned by Vedanta and 20.6 percent by ZCCM-IH.
Furthermore, “ZESCO’s disagreement with a statement in CEC’s 2018 annual report relating to the contingent liability arising from the 2014 Energy Regulation Board (“ERB”) electricity tariff increase specific to the mining companies, which the mining customers have legally contested and were granted a Court injunction pending determination of the matter by the High Court for Zambia”, is another issue that has been raised.
“In its 2018 annual report, CEC stated that should the High Court rule in favour of the ERB and upon receipt of the Owings from the mining customers, the Company would pay the amount due to ZESCO”, the company has stated. However, “ZESCO contends that the purported funds owing should be paid to them in full by CEC upon receipt of a ruling by the Court in favour of the ERB, irrespective of whether the mines would have paid CEC or not”.
CEC Zambia believes that “the arbitration may have a material effect on the price of the Company’s securities and shareholders are accordingly advised to exercise caution when dealing in the Company’s securities until further information is published”. As at the 27th of September, the CEC security was trading at K1.32.
Recently in June 2019, the Ministry of Energy had indicated that it would be granting permission to the company to import electricity from South Africa as the company was part of the Southern African Power Pool (SAAP). This imported power would require wheeling over transmission lines, inland, that are not owned by CEC Zambia hence the significance of its relationship with counterparties. Bloomberg reported that according to the company, the Liquidation of Konkola Copper Mines was going to “financially constrain the business and the entire electricity value chain, in a commentary in their 1H earnings statement. CEC at the time had impaired $28.8m in its financial statements that it was owed by Konkola.