COPPERBELT Energy Corporation (CEC) Plc chief executive officer Owen Silavwe says Statutory Instrument No. 57 of 2020 was meant to facilitate continued service to a defaulting customer and allow Zesco Limited to have cheap access to private property.
And Silavwe says the Energy Regulation Board (ERB) needs to be independent as opposed to disadvantaging parties before negotiations are done.
Speaking when he featured on Diamond TV’s Costa programme, Sunday, Silavwe said SI effected by Energy Minister Mathew Nkhuwa last month, remained an infringement on property rights and was problematic to CEC as a business.
“The way we perceive it, the SI was basically promulgated to facilitate three things: to facilitate continued service to a defaulting customer, it was done to allow a State utility to have cheap access to a private asset. If we are to operate on the basis of the tariff that has been set by the regulator and I should say, it has no economic basis, we will slowly die as a business. So, one could think this has been put in place to allow you to die over a very short period. So, if you just look at those three reasons, that’s very problematic for a private utility and it is very important that we address these issues. We are continuing to talk to government, we are looking at other actions that are available to the business, but we really need to try and address this. If you look at the three reasons I have given, you declare the whole of CEC, not just one line in CEC, the whole of CEC…and remember, it’s not the whole of CEC that supplies KCM (Konkola Copper Mines). That’s infringing on property rights, this is a customer, who hasn’t paid for 12 months, for heaven’s sake, [and you say] it’s strategic? CEC is also strategic. There could have been ways to discuss this and agree a solution,” Silavwe said.
“Let’s look at Africa today: nowhere in Africa do we have common carriers as we speak, nowhere in Africa! Outside Africa, yes, they do have what is called ‘open access,’ but in all the countries where we have got open access, the market structure is totally different. Our market structure is still very behind to get to a point where we have market access. There are certain things you need to put in place to get to open access. However, when you talk about the SI itself, and I have to be very careful because these are matters that are in court, I will just mention very briefly, the SI itself and all attendant actions are obviously very problematic to CEC, to its investors, its lenders.”
He said an open access system would only work if the industry was unbundled or else the main objective of declaring open access will not be achieved.
“Now, that obviously makes them such a dominant player such that if you are talking about open access in good faith, or common carrier in good faith, it should actually be starting with Zesco. So, for you to implement open access, you really need to ensure the roles of the players in the industry are well segregated. If you have a dominant player in generation, transmission and distribution because there is no way…the whole idea of open access is to try and open up competition and generally competition occurs at generation level, you can’t have competition at transmission, transmission and distribution by nature is a monopoly. Now, if you go into open access and the industry is unbundled, you are basically going ahead of yourself and you are not going to achieve that objective,” Silavwe said.
And he said that the ERB needed to be independent because the new Electricity Act substantially increased its regulatory powers.
“I am a regulated entity and I don’t want to come here and speak ill of my regulator, I think we have enjoyed a good relationship with the regulator, but I have to say one thing: we are obviously shocked with respect to the decision the regulator passed with respect to the wheeling tariff that we should be charging Zesco. That, obviously, we have serious question marks on it. Otherwise, I should say that we’ve enjoyed a very good relationship with the regulator and a lot of these matters are matters that we continue to discuss and we’ve sort of presented our views on the need for the regulator to be independent because if you look at the current Electricity Act, the Act gives so much power to the regulator,” he said.
“We were supposed to commence the negotiations, our colleagues, Zesco and KCM went to court. They started a court (process) in Lusaka so that brought the negotiations to a standstill. There are exploratory steps through government to get the parties talking again. However, as I said, the big concern is that, you see, when I am going to negotiate, all of you need to go to a negotiation in good faith and no party should be disadvantaged by the regulator setting a tariff that’s not based on economic principles, that disadvantages CEC going into this negotiation because the regulator, first of all, writes letters to both CEC and says, ‘this will be the tariff and then they say now go and negotiate.’ This makes negotiation very difficult and in actual fact what it does is it emboldens the other guy to be very unreasonable in the negotiation because he believes the regulator is going to rubberstamp the number that he had given from the beginning.”
He added that there was tremendous uncertainty in the industry at the moment given that there was currently no agreement between Zesco and CEC following the lapse of their Bulk Supply Agreement (BSA) on March 31, 2020.
“At the moment, there is no agreement between CEC and Zesco and that’s why I said this level of uncertainty is not good for anybody. In terms of Zesco supplying power to us, there is no agreement; in terms of us providing transmission services to Zesco, there is no agreement. Now, that’s a very uncertain business environment and it’s not good for Zesco, it’s not good for CEC and it’s not good for customers either. We need to sort these things out. CEC has ended up where it has ended up because of the decisions that have been made by the government, by the regulator and it’s not so much about Zesco, it’s basically government,” Silavwe said.
“We are basically living in a very uncertain business environment, it’s very unfortunate where we have ended up because we have got power flowing, we have got tariffs from Zesco that are called unilateral and non-negotiable. Now, in business, you never have such a thing because this is a business that depends on a contract, and remember, a contract is only a contract if there is a meeting of minds between the two parties. So, we have got tariffs that have been imposed so it’s really a very dicey situation.”
Meanwhile, Silavwe refuted claims that CEC had enjoyed exclusivity on the Copperbelt in terms of unfettered market access.
“Let me address the issue of exclusivity, CEC has never had exclusivity on the Copperbelt. The only one that can give you exclusivity is actually government, and government has never given CEC concessions. CEC has never had a concession on the Copperbelt. What actually existed, and I think people really have to be very honest and truthful when they present this argument. So, when that supply agreement was signed, CEC and Zesco agreed and this was basically a requirement by government because at the time, Zesco had excess power, Zambia had excess power. So, Zesco had told CEC, ‘you are not allowed to buy power anywhere else as long as Zesco has got power.’ This was in the agreement so CEC was not allowed to buy power anywhere else apart from Zesco so CEC said, ‘okay, so you are my supplier and I am not allowed to buy from anybody else, then why don’t we have an agreement where you can’t come and try and get my customers’,” said Silavwe.
“To look at CEC and think that CEC has exclusivity or CEC has got such dominance, it’s actually puzzling because let me simplify this, Zambia has 10 provinces, okay, in nine provinces Zesco is handling that exclusively. Because 100 per cent of revenues from the nine provinces goes to Zesco, CEC exists in one province where Zesco also exists. If you look at the revenues on the Copperbelt, 80 to 85 per cent of those revenues go to Zesco. CEC remains with about 15 per cent of the revenues on the Copperbelt, so who is dominant here, CEC or Zesco? Zesco, today, has been given the role of what is called the system operator. Now, a system operator decides, which generation they want to supply power to the country, which lines should be connected to the system and all sorts of things.
On May 29, 2020, Nkhuwa promulgated SI 57 declaring CEC infrastructure as Common Carrier.
He, however, issued a follow-up statement on June 23 stating that the recent regulatory and statutory changes made it clear that all transmission and distribution lines in the country were declared as Common Carrier to facilitate a move towards a competitive market.
But stakeholders, including International Trade Economist Trevor Simumba, swiftly challenged Nkhuwa to produce evidence declaring all transmission and distribution lines in the country as Common Carrier as the law demands, with the latter yet to show any such evidence.