ZESCO Limited says it was losing over US$200 million annually to the “unfair and one-sided” nature of the Bulk Supply Agreement with Copperbelt Energy Corporation (CEC) that expired on March 31, 2020.
And Zesco says CEC is the one that rejected the bid to renew the BSA as they did not agree to pay a higher tariff to Zesco for off-taking power.
In an interview, Zesco director of Strategy and Corporate Services Patrick Mwila further accused CEC of not being transparent in its metering process, hence benefitting an additional 50 to 100 megawatts (MW) that was not accounted for, leading to losses on Zesco revenues amounting to US$67.2 million annually.
“As operators of its infrastructure, CEC did not grant or provide access to its meters or metering data to show the true consumption by the mines that showed the true peak on the ZESCO system. As such, CEC enjoyed the additional benefit from what is known as simultaneous maximum demand. This is a situation which occurs as a result of the mining companies reaching their maximum demand consumption at different times to the Maximum Demand readings at the ZESCO CEC bulk supply points. This then results in CEC’s summation of its capacity sales to the mines exceeding the actual capacity delivered by ZESCO at the bulk supply points. CEC derives this benefit singularly with no benefit to ZESCO and led to a difference of power readings between 50-100MW in any given month. This meant that ZESCO was losing revenues on unaccounted for power ranging from 50-100MW monthly. This amounted to approximately US$2.3m to US$5.6m monthly or up to US$67.2million annually,” Mwila said.
“There were many onerous terms and conditions that ZESCO had to simply endure during the more than twenty (20) years that the BSA ran. These onerous terms included the following issues: In 2017, a joint agreement between the Government, ZESCO and the mines agreed that the mines would pay an effective tariff of US$9.3c/kWh. However, given the BSA, a challenge still existed on the final tariff that the mining companies paid to CEC. In recognizing the CEC asset on the Copperbelt, ZESCO agreed to charge CEC an effective tariff of US$8.11c/kWh which was effected in two parts, a Capacity Charge and an Energy Charge. However, due to the use of an unrealistic Load Factor in determining the two-part tariff, the cash flow tariff to ZESCO was US$6.8c/kWh, resulting in a further loss of approximately $2.5million per month (or $30million annually). Meanwhile, during this same time, ZESCO was purchasing expensive power to supply all consumers, including the mines from various IPPs (Independent Power Producers) at prices ranging from US$8c/kWh to US$13.5c/kWh (Average of US$11c/kWh) representing a subsidy of up to US$6.7c to both CEC and the mines on every unit supplied.”
He added that the company was losing about US$120 million annually due to the mismatch in price paid by CEC and the actual cost of producing electricity that was being sold to CEC.
“The largest beneficiaries to the Agreements by ZESCO and IPPs have been the mines as is evident through the drought seasons of 2014/15 and 2019/20. Mines have continued receiving a significant amount of power for their operations from ZESCO and the majority of the power in a drought season from IPPs. The average cost of power from IPPs is US$11c/kWh against a selling price to CEC of US$6.8c/kWh. The price to CEC does not represent ZESCO’s true cost of providing the power at the points where ZESCO delivers the power to CEC. If ZESCO was to add the cost of wheeling to the supply of power to the mines on the Copperbelt, it would cost in excess of US$ 13.0c/kWh. The loss in monetary terms due to mismatch between the CEC price paid to ZESCO and the actual cost of supply (paid to IPPs by ZESCO) amounts to approximately US$10m per month or $120 million annually. This situation is completely unsustainable going forward,” Mwila said.
He said Zesco stuck to the agreement despite the mismatch but will not allow itself to enter into a similar arrangement.
“The previous governments used to just surrender because they were so scared that if this guy lays off people, I will become unpopular. So mines have been playing that game, blackmailing of the government by corporate entities, that’s what’s been going on. So Zesco has to stand by the public, we are not going to allow that…We have respected the law, there was a contract which ran for 23 years. Because there was a contract, contracts are laws, we repeated the law, we stuck with government, we stuck with CEC, we said well, it was a done deal, we need to respect this but once that contract is over, people should have plan B,” Mwila said.
“…So they will select, it’s called cherry picking. It meant that CEC had the right to cherry pick then Zesco has to find money to supply the entire country and supply CEC at a loss. So how do you get out of this, if you are smart, it’s a Catch-22, you are caught in an agreement which is lose, lose, lose. Are you going to sign it again and renew it?…I think when they were signing, they thought they were signing something good, they didn’t know that the people they were signing with are cruel, these mines and all their friends, they are cruel.”
He further wondered why CEC, through the board chairperson, wrote a letter two days to the expiry date of the BSA that the people Zesco was negotiating with, including the chief executive officer, did not have the mandate of the company.
“I mean the guy I was sitting with across the table was their CEO…and their board comes and says last minute that these guys didn’t have the mandate so we are withdrawing, no deal. So who said no deal? It’s not Zesco, it’s not government and now the talk there is they have not given them a deal. No, we are not going to give them the old BSA, it will never happen, that will never happen. Maybe because they think they have been oiling some people here and there they think that maybe government is weak but there are people who are watching and nobody is going to allow that,” Mwila alleged.
Meanwhile, Mwila said the deal that Zesco has signed with Konkola Copper Mines is better than the one it had with CEC.
“…None of the mines want to go out in the public and give an exact figure but I can tell you that what we have signed with KCM is much, much better than CEC and for them, it’s better than what they had with CEC,” said Mwila.