In January 2008, the Copperbelt Energy Corporation (CEC) became the first privately owned power utility company to list on the Lusaka Securities Exchange (LuSE) in an attempt to boost appetite for local investment and increase ownership by Zambians. The Initial Public Offering was, needless to say, over-subscribed as many local individuals and companies successfully bought a stake in CEC. Twelve years after the company first floated its shares, it has on its register more than 4,600 shareholders, including several public and private pension funds, among them the Public Service Pension Fund, National Pension Scheme Authority, Kwacha Pension Trust Fund, Local Authorities Superannuation Fund and the Workers’ Compensation Fund Control Board. At least 4,400 ordinary Zambians also have a stake in CEC.
The combination of local companies, institutions and individuals with shares in the company places Zambians in the majority, in terms of ownership at over 52%. This marks CEC as a truly indigenous and Zambian majority-owned power utility company. However, the recent happenings affecting the company, including stalled negotiations between CEC and ZESCO over the Bulk Supply Agreement (BSA), expiry of the power supply agreement with Konkola Copper Mines and the debt owed by KCM as well as the designation of its assets as common carrier have adversely affected CEC’s market valuation on the LuSE in addition to heightening concerns regarding the firm’s ability to continue “operating as a going concern”. What does the prolonged impasse over the supply contract entail for Zambia’s tax revenue base and the appetite to invest in the capital market?
By far, CEC is one of the major tax payers in Zambia. There is clear evidence that CEC has significantly contributed to the growth of the tax revenue base and overall economic growth in Zambia. As a successful indigenous entity, CEC has contributed in the past five years an approximate total of US$272 million in corporate tax, Pay As You Earn, customs duty, and Value Added Tax respectively to the Zambia Revenue Authority (ZRA). These are official figures of CEC’s contribution to the government. In addition, a total of US$1.5 million was disbursed to the local authorities in the form of council rates. With such a track record, one wonders why it is not in the best interest of the country that CEC stays afloat and continues to operate profitably. While ZESCO Limited is within its rights to advance the argument that it has the capacity to power the mines, it doesn’t explain how it will efficiently provide the forgone tax revenues or fill the tax revenue gap that will result, in the event that CEC ceases to operate after the expropriation of its assets.
CEC has also immensely contributed to the cash flows and capital investments of a number of businesses and institutions, and the move by ZESCO to enter into a long term agreement with KCM is regrettable because it jeopardizes the financing sources and options for these institutions. Case in point: in the past five years, CEC has disbursed US$108.2 million in dividends to all its shareholders; notably ZCCM-IH has received nearly US$30 million while pension funds have earned for their members US$25.7 million and companies have taken US$52.1 million.
The disbursement of dividends to shareholders such as pension schemes has not only ensured that funds continue to invest in capital projects around the country but also has guaranteed the sustained payout of pensions to an enlarged set of beneficiaries. Moreover, CEC has massively contributed to Zambia’s development agenda through its disbursements to ZCCM-IH. At the micro level, the company has disbursed an approximate total of US$7.5 million to over 4,400 individual shareholders, thus supplementing the government’s efforts of improving household incomes. All the aforementioned benefits associated with the existence of CEC are, however, on the brink of extinction, and potentially drift into the abyss if a new beneficial power supply agreement is not reached. As such, it is an optical illusion to think that the expropriation of CEC’s assets will not affect its massive contribution to tax revenues and the cash flow incomes of shareholders, the majority of whom are indigenous Zambians.
It is important that the CEC-ZESCO standoff is maturely handled and an amicable solution is reached. Considering the many documented positive contributions of CEC, one would expect ZESCO to immediately strike a new beneficial deal with CEC. Besides, it is public knowledge that the foreign owned mines have ripped off the Zambian economy through capital flight and tax avoidance, yet ZESCO chooses to side with a mining company that will eventually be sold to a foreign entity at the expense of CEC’s financial stability and maximum tax revenue collections for the national coffers. We should not kill local investment. The ongoing constructive nationalisation of CEC should be halted because it has the potential to adversely undermine the promotion of local investment, especially when one considers the state’s previous decisions to fatally kneel on the necks of other local companies like The Post Newspapers and Prime TV.
Expropriations that are selfishly and hurriedly implemented are likely to disadvantage ordinary shareholders, who stand to lose out due to the loss of market value as is happening with CEC. Moreover, the apparent nationalization of CEC’s power infrastructure will dangerously affect local investors’ appetite to invest in Zambia’s capital market, and subsequently reduce the liquidity levels that local listed companies can tap into for expansion purposes. To this end, the move by the government to expropriate CEC power assets has the potential to negatively affect the growth of the LuSE and create unnecessary bottlenecks associated with the lack of capital injections as a result of the loss of investor confidence. Although ZESCO can potentially buy off the stock in the event that CEC is delisted from the LuSE, such a move would further reduce its liquidity levels and deny the sector the much-needed investment. Therefore, stock buybacks may have dire consequences and drain ZESCO’s treasury coffers, undercut essential investment, considerably weaken ZESCO’s credit position and affect its ability to efficiently support the energy sector.
It is also disturbing that positive externalities such as social investments in education and primary healthcare that are associated with CEC are on the verge of being wiped out. By all indications, CEC has positively supplemented governments efforts and one wonders how this imminent vacuum will be filled by this expropriation. The government’s shortsightedness will surely choke CEC’s ability to operate profitably, and in the long term adversely affect Zambia’s tax revenues, cash flow incomes of shareholders and the growth of the capital market, all of which will combine to stifle Zambia’s economic prosperity. As an adult in the energy sector, ZESCO should rise above its narrow, non-commercial and non-investment related interests and put the country first by returning to the negotiating table for a new beneficial power supply agreement that not only benefits ZESCO but also ensures that CEC retains its position as a buoyant and successful indigenous majority owned Zambian company. Hello ZESCO; hello government, is anyone listening? Over to you…
Maka Bunda Tounkara, a Rhodes Scholar and an Oxford graduate, is a lecturer at the University of Zambia in the Department of Economics. He is interested in, but not restricted to, the economic transformation and emancipation of Zambia. In his spare time, Maka enjoys listening to conscious and mind provoking music as well as watching football.