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Thursday, July 2, 2020

CEC- A Victim of Government Gone Rogue

Columns CEC- A Victim of Government Gone Rogue

By Anthony Bwalya

The statement issued by CEC yesterday (2 June 2020) makes sad reading. For reference, two key paragraphs are included below.

“From the above events, it is abundantly clear that the GRZ has for all intents and purposes taken steps that amount to the expropriation of the CEC infrastructure and CEC is now on the brink of defaulting on all its loans borrowed from international lenders. GRZ’s actions have the full effect of taking away CEC’s commercial and property rights, and completely inhibiting the Company from taking viable business decisions, including enforcing its legal and commercial rights in the best interest of the business.

CEC takes this opportunity to advise all its investors of these actions from the GRZ that are highly detrimental to the well-being of the business and its ability to continue as a going concern.”

Before we begin to analyse this saga and what it means for the Zambian public, let’s lay out some basic facts to clear out any misconceptions:

  1. CEC is a publicly owned company listed on the Lusaka Stock Exchange since 2008. It’s shareholders include in excess of 4,000 Zambians.
  2. Zambians own 65% of the company with the government owning an effective 24% via ZCCM-IH. 77% of profits before tax remain in Zambia.
  3. GRZ through ZCCM (24%) and Corporate tax (35%) effectively own 60% of CEC’s profits.
  4. CEC’s Executive Management Team is 100% Zambian
  5. They own approximately $500m in power generation, transmission, and distribution assets.
  6. CEC was formed out of ZCCM’s Power Division which was privatized in 1997 and acquired by Cinergy Global Power (US) and National Grid (UK). In 2006 it underwent a Zambian Leveraged Management Buyout (MBO), which culminated in its eventual listing in 2008.
  7. ZCCM and GRZ have one representative each on the Board of Directors

Has CEC been ripping off the Zambian public as claimed by the PF?

  1. Since listing in 2008 and upto 2019, CEC has recorded cumulative profits before tax of $352m.
  2. Of $352m in profits, CEC has recorded tax on profits of $186m.
  3. Of the remaining profits after tax, CEC has paid out $172m in dividends to its shareholders, with ZCCM-IH receiving $37m
  4. Therefore the Government of Zambia has effectively received 63% of all CEC’s profits since 2008 via ZRA and ZCCM.

If the Government has benefitted $223m worth of CEC’s profits, is it really fair to say they have been ripping off the Zambian public?

Over the same period Zesco has nowhere near paid the same amount in income taxes and dividends to the Government.

In fact since 2008, apart from Kansanshi Mine, no other mine in the country has paid as much in Income Tax as CEC.

If CEC was absorbed into Zesco, it would have been run unprofessionally and at a loss, resulting in no benefit for the people of Zambia. CEC, and the Bulk Supply Agreement has actually significantly benefited the people of Zambia.

 Is there any truth in the claim that CEC has been funding the opposition?

  1. Under the Companies Act, any political donations need to be disclosed in the company financial statements. CEC has been audited by globally renown audit firms and no such payment has ever been identified or disclosed.
  2. CEC’s largest shareholders are publicly disclosed as ZCCM-IH, Affirma Capital, Zambia Energy Corporation (Largest shareholders are disclosed publicly), Standard Chartered Securities Zambia (Nominees), and other Zambian Pension Funds. These shareholders account for 86% of the shareholding in CEC. The majority of the remaining shareholding is made up of over 4,000 Zambian Individuals and companies.
  3. Based on the above structure, it is clear that if any opposition leader held any shareholding in CEC, it would be immaterial to the company for them to exert any influence over the company. Further, any dividends received would be inconsequential in the context of running a political party in Zambia.

How did we arrive here? Let’s follow the key events that led us to today:

  1. Propaganda and Non-renewal of the Bulk Supply Agreement
    – There has been an ongoing campaign by the PF to paint CEC as a leech that has been ripping off the Zambian public for the past 20 years. Apparently, they are responsible for the mismanagement and consequent losses at Zesco, and have been using their profits to fund the opposition who apparently hold a significant stake in the company. Therefore it was essential for the PF that the Bulk Supply Agreement was not renewed under any circumstance, and if it was, it would be on terms that damaged the viability of CEC. Many of the public have brought into this propaganda without challenging any of the truths.
  2. Illegal takeover and mismanagement of KCM
    – In June 2019, the government hastily through ZCCM-IH, without following agreed provisions of their legal obligations, began a liquidation process against KCM and took over operations. Since then, mismanagement of the mine has meant KCM’s financial woes have deepened, with the company no longer able to meet its obligations as they fall due. Prime amongst those owed was CEC, a key supplier to the mine. Since the liquidator took over, no payments had been made to CEC. It appears as if this was intentional from the onset, in order to squeeze CEC.
  3. Manipulation of legislation
    – Complaints from CEC started to mount in September 2019 around the non-payment of bills from KCM, following legal action from Zesco over their unpaid portion of the debt. Under normal circumstances, CEC would’ve restricted power supply to KCM, as they have historically done over much smaller outstanding amounts. However, since this was now a Government operated entity, CEC demonstrated lenience in good faith. This was the fatal error for CEC, trusting the PF government.

Sensing that supplying KCM would eventually become unsustainable for CEC, and that they had no intentions of renewing the Bulk Supply Agreement, the government swung into action in November 2019, introducing the Electricity Bill No. 16 of 2019. The bill was rushed through parliament, with assent being received only a month later in December 2019, culminating in The Electricity Act, 2019, repealing and replacing the The Electricity Act, 1995.

One of the key clauses amended was Section 15 relating to the common carrier clause. Under the old Act, the minister only had the powers to declare transmission lines as common carrier. This would have been of no use to the PF regime as CEC controlled both transmission lines (Long Distance Electricity transport) and distribution lines (Short distance electricity transport to the end user) to its customers. It therefore conveniently added distribution lines to its range of powers under the Act. Therefore the PF was now able to direct the use of CEC’s transmission and distribution lines, on terms that they set themselves.

This is clearly an abuse of the spirit of the law, which was only originally included to be used in the event a private company held the nation’s energy supply hostage.

What does this mean for the people of Zambia?

  1. Pensions and Life Savings potentially lost for 4500 Zambians who had invested in CEC, or for the hundreds of thousands for whom their pension fund had invested in CEC.
  2. For the past one year, KCM has not paid for any electricity consumed, worth $142m. KCM is the largest consumer of electricity in Zambia and the Zambian public have been paying for their electricity. We have effectively been subsidising the PF governments mismanagement of KCM by giving them free electricity.
  3. By KCM not paying CEC $142m, CEC consequently has not paid Zesco their portion. Therefore Zesco has also lost out on over $110m in revenue, almost 15% of their annual revenue.
  4. Therefore, for every K100 you spend on electricity, K15 has been going towards subsidising operations at KCM. That is why despite excess electricity being available in the region due to Covid-19, Zesco still cannot afford to import.
  5. Continued load shedding due to failure to import electricity despite more than doubling tariffs.
  6. Now with Zesco taking over the supply agreement with KCM, Zesco and the public will continue to subsidise KCM’s operations and mismanagement, increasing the cost of electricity.
  7. Lack of investment and maintenance in key energy infrastructure due to lack of resources at Zesco will mean crumbling infrastructure and more power faults and loadshedding.
  8. Lost tax revenues from CEC due to losses incurred from poor government decisions, similar to the reality for hundreds of Zambian businesses who have been bankrupted due to the incompetence of the PF regime, and their inability to pay their arrears and obligations in a timely manner.

What does this mean for Zambia as an investment destination?

  1. Reputational damage to Zambia.
  2. It will be considered a nation that does not respect laws, or changes laws to suit political agendas.
  3. Lower foreign direct investment as investors will not feel safe investing in a country that can unilaterally expropriate and take control of assets, for the benefit of not even the public, but a private entity.
  4. Ability to renegotiate debt will be impaired as creditors will have no confidence or trust in this government.
  5. The blatant interference of the government in the operations of the board of Zesco is a clear violation of the promises made to the IMF and World Bank for the independent operation of Zesco to avoid privatisation and allow Zambia to obtain HIPC Debt Relief in 2005.

 What does this tell us about the PF Government?

  1. One rule for KCM and one rule for the public. If you don’t pay for your electricity, Zesco cuts the power. No negotiation. KCM equally is a private entity but hasn’t paid for electricity for a whole year, yet they are treated as a special citizen. Should citizens not be offered the same benefit?
  2. They will destroy a Zambian owned company due to their myopic understanding of the business industry and economics.
  3. They will destroy a Zambian owned company for their political agenda and to benefit and enrich themselves and their business associates.
  4. They will spur propaganda and lies to deceive the Zambian public on their true intentions for making certain decisions.

 What about the Board of Directors of ZCCM-IH, Zesco and IDC?

  1. The boards of these institutions have proven themselves to be puppets of the PF government, completely void of any independence and objectivity, rubber stamping decisions that will drive their companies into the ground. They have failed to protect the interests of their ultimate shareholders, the People of Zambia.
  2. How can the board of Zesco agree to supply a customer they know has not paid for electricity for a whole year, and accounts for almost 15% of their revenue, and has no ability or plan to pay?
  3. How does the board of Zesco allow the PF Cabinet and PF Central Committee interfere with their mandate to negotiate the Bulk Supply Agreement? Again, doesn’t this class them as useful idiots?
  4. How can the board of ZCCM-IH completely ignore the terms of a shareholder agreement in respect of KCM, to begin liquidation proceedings, and then allow the mine to be run into the ground, destroying all shareholder value?
  5. What oversight has the Board of IDC been providing to these two subsidiaries to ensure that the people of Zambia’s interests are protected?

The people of Zambia must wake up to the continued lies and deceit of this PF government which has now gone rogue. Corruption is entrenched in every action they take, and it would not be a surprise if that is their ultimate intention after bankrupting CEC. Their lack of general business and economic understanding has resulted in a catalog of poor decisions and errors, for which the public is now having to pay for.

The Board and Management of CEC must continue to protect the interest of the Zambian public as they have done so far.

The people of Zambia must stand up and protect what belongs to them. We must demand that the PF government takes a step back and allows the Boards of the respective companies to meet at a roundtable to thrash out an agreement, without any political interference. If they fail to reach consensus, let the due legal processes play out.

We must demand #AccountabilityNow and #ChangeNow.

[Read 1,410 times, 1 reads today]

20 COMMENTS

    • African leaders deliberately impoverish their own citizens for the sole purpose of holding on to power, they know that once they impoverish you they know you will sing any praise song for them just to get the bread crumbs falling from their table, they want you to sing adada and amama of the nation forgive me am your child.

  1. PF’s Hard of hearing will deal Zambia a big blow. Investors look to countries with low or zero political risk

  2. CEC is not the Post Newspaper or Prime TV. They are a voice to be reckoned among the mining houses, and Zambia is largely dependent on mining right. Even yo new gold in NW was going to be powered by CEC.Touch them,and half of the country ll die. Watch what ll happen next. …..ine i ll jst be watching & laughing when things turn against Gvnmnt.

  3. On this one the Gvnmnt wont win, babepele fye. Those drunkards are cheating themselves…u can take away Mopani but u cant take away CEC. You are lying to yourselves BF bafoons. Cos CEC is a power producer(even if they buy 80% from Zesco). Do u think they ll jst fold their tales for ka lungu & mumbi phiri? PF , know where to hit, know who is a coward & who is not. Iyi yeve nimulilo!!!! wina azanyeka.

  4. PF has dared this country for long starting with rigging 2016 elections in broad daylight by playing tribal politics and taking advantage of a coward opposition…But on this one they have gone too far…..Mark my words

  5. They use mugabe style propaganda to rouse their kaponya rats into a frenzy ………

    PF needs free power to KCM to fund PF operations

    Don’t forget PF have a monthly bill that runs in millions to bribe unemployed youth they use for violence against opponents

  6. Founder of CEC is Tonga, Habeengi or something.
    PF just hates anything with H.
    PF don’t like even being HAPPY….

  7. Your statements sounds very political with No respect for the government. No wonder you are being associated with an opposition polical party. I did expect to read this crap from an corporate organizational like CEC. Who wrote this?

  8. Diasporans come back home. You are not wanted there abroad. Why stay in a place where you are considered inferior and killed. However we will only let in those with no criminal records and you will have to regain your citizenship the right way. No sacred cows here.

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  9. Why the outry about Cec, a powerful opposition vp resigned from his post in the opposition updn he knows more, you dared him that he is nobody these are the results he has jst started next the party updn will be finacialy banckrupt ni vanu ivo,

  10. What a load of drivel!! Total cow dung!! If CEC had set up a generation plant like Maamba, would they be at this juncture today??? But they found a GRZ that saw through their rip off. A upnd GRZ would even privitise ZESCO, look at the [email protected] written by this fanatic.

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  11. Zambian citizen

    “…..A upnd GRZ would even privitise ZESCO, look …..”

    Of what benifit is a GRZ ZESCO to Zambians ??

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  12. @Zambian citizen,
    I thot Zesco also owes Maamba? And whether CEC has an Electricity generating plant or not is NOT the issue. Whose are the lines that PF has approriated?

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  13. Excellent Analysis from Anthony
    Is there a single individual in the PF who can intelligently analyze issues like this.
    All they offer is thuggery from head to toe.
    The choice in 2021 is clear.PF has no place in a developed Zambia

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  14. THIS IS HALF THE STORY. IT DOES NOT DISCLOSE THE NAMES OF THOSE INVOLVED IN THE MANAGEMENT BUY-OUT AND HOW THEY ARE VOCIFEROUS SUPPORTERS OF UPND AND OUTRIGHT OPPONENTS OF PF. THE LANGUAGE FROM THE PIECE SPEAKS FOR ITSELF.
    THE MASSAGED STORY DOES NOT OFCOURSE TELL HOW SHARES WERE MASSIVELY DILUTED THROUGH SHAREHOLDER MANIPULATION SO THAT THE CORE SHARE HOLDERS IN THE MANAGEMENT RECEIVE PREFERENTIAL TREATMENT WHEN DIVIDEDENTS ARE DECLARED AND THE MENTIONED ZAMBIAN SHAREHOLDERS GET PEANUTS. ASK THE ZAMBIAN SHAREHOLDERS GET AND YOU WILL APPRECIATE THE SCAM WHICH WAS CONCOCTED.
    GRZ GETS SOME BENEFIT BUT WHO RIPS THE BULK OF THE PROFITS?
    THAT’S WHY THE PIECE IS A DISTORTION. THERE OUGHT TO BE AN ENQUIRY.

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  15. But why does CEC buys electricity from Zesco at much cheaper rate than Zambian domestic users and sell to mines at much higher profits.
    That’s not fair

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