Unfair treatment by ERB shocks CEC

COPPERBELT Energy Corporation managing director Owen Silavwe says at the moment it is difficult to differentiate between Zesco and the Ministry of Energy.

And Silvawe says the current uncertainty among industry players in the energy sector is very bad for business.

Meanwhile, Silavwe says his company is shocked by the unfair treatment it has been subjected to by the regulator, the Energy Regulation Board (ERB) over the decision of the wheeling charge awarded to Zesco following the minister’s move to declare CEC infrastructure a common carrier via a controversial Statutory Instrument number 57.

Silavwe says there are no common carriers in Africa, making Zambia the first of its kind on the continent.

He says where there is open access infrastructure outside of Africa, the market structures are totally different from what’s obtaining in Africa.

Silavwe was speaking in a wide-ranging interview during a programme dubbed ‘Costa’ programme on Diamond television hosted by Costa Mwansa on Sunday evening, where he demystified half-truths that government has been peddling to justify its expropriation of CEC infrastructure.

He allayed lies that CEC had exclusively monopolised the supply of power to the Copperbelt, especially the mines to the detriment of other players, particularly Zesco, saying CEC operations on the Copperbelt were premised on agreements contained in the expired bulk supply agreement.

“I have heard a lot of discussions about CEC having a lot of exclusivity on the Copperbelt. CEC has never had exclusivity on the Copperbelt, the only one that can you says has exclusivity is actually government, government has never given CEC a concession. CEC has never had a concession for Copperbelt. I think people have to be very honest when they present this argument. When the BSA was signed, CEC and Zesco agreed, and this thing was basically a requirement by government because at the time Zambia had excess power so the government told CEC that you are not allowed to buy power anywhere else while Zesco has got power, this was in the country, this was in the agreement. CEC was not allowed to buy power anywhere else other than Zesco. So, then CEC said ok you are my supplier and I’m not allowed to buy power anywhere else then why don’t we have an agreement where you can’t come and try and get my customers, and you see this all the time. I mean this sort of contracts are very common. That was a commercial arrangement between CEC and Zesco, that’s not exclusivity, actually it’s Zesco that has exclusivity because we couldn’t get power from anybody else other than Zesco,” Silavwe stressed.

He said the idea that CEC monopolised power supply did not make sense because Zesco was exclusively supplying power to nine provinces alone while CEC was only present on the Copperbelt where it also shared clients with Zesco.

“To look at CEC as having monopoly or exclusivity is actually puzzling. Let me simplify this; Zambia has 10 provinces okay, nine provinces, Zesco is there exclusively, it means, 100 per cent 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 per cent of those revenues go to Zesco, CEC remains with about 15 per cent. So, who is dominant? Zesco today has been given a role of what is called system operator, now a system operator decides which generation they want to supply power to the country, which lines they want to supply power to the country, now that obviously makes them such a dominant player. If you are talking about open access in good faith, you should actually be starting with Zesco.”

Silavwe said the whole idea of open access (common carrier) was to encourage competition.

He said in the energy industry, competition generally occurred at generation level.

“Transmission and distribution are by nature monopolies, competition is at generation. Now if you go into open access and the industry is unbundled, you are basically going ahead of yourself,” he said.

On ERB’s behaviour, Silavwe said it was shocking that the energy regulator decided the wheeling charge first, and afterwards asked Zesco and CEC to go and negotiate.
“However, the big concern is, you see when you are going to negotiate, all of you need to go to the negotiation in good faith and no party should be disadvantaged. By the regulator setting a tariff that’s not based on economic principles, that’s disadvantaging CEC because the regulator first writes letter to both saying this should be the tariff then they say now go and negotiate. It makes negotiations very difficult and in actual fact, what it does, it emboldens the other guy to be very unreasonable in the negotiations…he believes that the regulator is going to rubber-stamp the number that has given from the beginning,” he lamented.

Silavwe said the fact that there were no binding agreements between CEC, Zesco and KCM made the whole business environment so uncertain, which he said was very harmful to industry, the economy and business.

He said in a business, every player must pay for the use of the other partner’s services.

He said for KCM to continue enjoying power supplied by CEC to run the mines, it must pay for that power.

He said KCM was CEC’s biggest client, which accounted for almost 50 per cent of CEC revenue and by the mining giant not paying for its power usage, it was killing CEC gradually.

Silavwe also said the mining industry required long-term agreements.

“The BSA is a very standard, typical industry agreement. I think if you look at how agreements work in this industry and if you ask anyone who understands how agreements work in this industry, they will tell you that first of all the agreements have to be long term and the question is why agreements have to be long term. If you look at the investments in the power sector, you look at the investments in mining because this infrastructure, the bulk of the of customers it supports is mining, these business are long term. In terms of investments, you require huge investments upfront and in terms of returns it takes a long a time to recoup your investments. So in terms of investments, it has to be long term. And that has not changed, it’s a standard world over unless you can come up with financial instruments that are able to support investments in this sort of industry. At the moment Zambia is not that sophisticated, we don’t have other financial instruments that can support the sort of industry, so we need this long agreements,” he said.

He said the Statutory Instrument 57 was promulgated to protect a defaulting customer believed to be KCM ( though he did not mention the mining giant) and to allow the state utility to have cheaper access to private property.

Silavwe complained that SI 57 had been very problematic to CEC investors, its lenders and the mining community.

He said the Minister of Energy needed to operate on the principle of a parent that should treat all children equally and guided accordingly as opposed to the current scenario where the ministry behaved like Zesco and vice-versa.

He said the ownership of CEC was open and was easily accessible at the Lusaka Stock exchange for all to see.

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