The CEC – Zesco saga: Another view

[By Xylon Mpenda]

I WOULDN’T call myself an energy expert but I have keenly followed the happenings in the sector over the past few months, reading and digesting a lot of things being written and said about the sector. I have also been attentively listening to what is not being said.

Now that my curiosity is piqued, I read the June 6, 2020 statement by Zesco Limited’s director of strategy and corporate services, Patrick Mwila, titled “ZESCO SECURES BINDING AGREEMENT FOR POWER SUPPLY TO KONKOLA COPPER MINES PLC (“KCM”)” with interest.

It’s one thing to present a story as you see or know it and quite another to present a story with the intention to sway opinion in a particular direction. The latter usually requires the storyteller to be economical with the truth or even to tell a few lies. I found Mwila’s statement to lean towards the latter.

An enquiring mind such as mine had a few questions and wished that I had an opportunity to ask them verbally in person so I did the next best thing – asking them in writing.

1. Artificial imbalances arising from a commercially disadvantageous contract:

The said contract was in place for 23 years. I wonder what these disadvantages were and more importantly, why would Zesco wait 23 years to right a commercial imbalance, which caused them to lose, ultimately, taxpayer kwachas. Every good contract has dispute resolution and termination provisions. Why didn’t Zesco invoke those provisions to get out of a bad contract? Zesco themselves have told us that the BSA was amended at least once; surely it could have been amended to remove anything that was as onerous as they want us to believe. I wouldn’t want to be so disrespectful as to suggest that a company as big as Zesco with access to distinguished legal minds could have failed to achieve that.

2. The lucrative Copperbelt mining market could only be supplied by CEC:

CEC was locked in a 23-year contract to buy all its power to supply the mining market from Zesco. This means that Zesco has been the sole supplier of electricity to the Copperbelt mining market for 23 years albeit through CEC because it [CEC] owns the infrastructure which connects the power network on the Copperbelt to the mining companies. All the mines in North-Western Province are supplied directly by Zesco. It’s very hard to see, therefore, how that between these two companies, it is Zesco crying foul, especially when you appreciate that CEC keeps not more that 20 per cent of the value of every unit charged.

3. Government’s new policy framework supports an open Electricity Supply Industry intended to encourage participation in generation, transmission and distribution:

It is surprising that these words came from Zesco. Of all the existing participants in the electricity industry, it is only Zesco that is fully integrated and provides generation, transmission and distribution services. Zesco keeps resisting unbundling, which would truly encourage participation. It is ironic that they can talk about encouraging participation while at the same time they are strangulating existing participation.

4. New entrants will be free to negotiate with owners of infrastructure on commercial terms for the use of infrastructure:

It’s funny that CEC, an existing infrastructure owner, was not accorded the right to “negotiate for the wheeling (or transportation) of their power with owners of infrastructure on commercial terms across all transmission and distribution lines as long as capacity is available”. Mwila’s own words convict him or is this a privilege reserved for “new entrants” in the electricity trade? When CEC’s transmission and distribution lines were declared Common Carrier, it (CEC) was given neither chance nor time to negotiate commercial terms with Zesco for the use of its infrastructure. Does Zesco see this bright future as being attainable to those yet to enter the market but not those existing in it already?

5. The “common carrier” declaration typically unlocks resources and avoids “hoarding” of transmission capacity:

This would make sense if the transmission and distribution infrastructure of every power company in the country owning such was made common carrier, of which the most extensive network belongs to Zesco. As it is, the unlocking Mwila talks about affects the infrastructure of one private sector company, leaving thousands of Zesco transmission and distribution lines wholly untouched. The playing field has not been levelled because the declaration is not reciprocal. CEC cannot use the Zesco infrastructure to move its power because the infrastructure is not common carrier.

6. Zesco continues to make power available to CEC despite CEC owing Zesco millions of dollars in unpaid arrears under the expired Bulk Supply Agreement:

I would imagine that Mwila expected some commendation for this “benevolent” act from Zesco but I know this is not some altruistic action from them but rather because they need CEC’s infrastructure to supply their customers on the Copperbelt, mining and otherwise. As for the money owing, again we know that arises from one non-paying customer. Zesco should tell us if CEC owes them for any other customer than KCM but rather than work together with CEC to collect that money, they sign on the erring customer!

7. Entering into a long-term agreement with KCM: I left this for last because I find it the most bizarre that a company wailing about making losses has entered into a contract with a customer who has badly defaulted on payments to its last service provider. Just how does Zesco explain the sensibility of this? They’ve taken CEC to court over money owed to them because of a customer that has not been paying but happily take on that same customer and describe it as a “landmark agreement”. Really? Will KCM pay for power or is this the whole plan that because they are not interested in paying for a critical input such as electricity, take them under the wings of a state entity because they too are, for the present, essentially a state entity. Zesco won’t attempt to enforce payment and it will be the other users of electricity – households and businesses – who will foot the bill for the power being consumed by KCM.

This statement sounds to me like an indictment on the government and Zesco. A plan hatched to grossly disadvantage a company that for whatever reasons they would rather see doing badly.

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