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Thursday, July 2, 2020

The CEC—ZESCO Saga: Another view

Columns The CEC—ZESCO Saga: Another view

By X.J. 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 6 June 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% 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: 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’d imagine that Mwila expected some commendation for this “benevolent” act from ZESCO but we 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 acustomer 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.

[Read 1,366 times, 1 reads today]

16 COMMENTS

  1. Sounds scary for mother Zambia, you need money yourself and yet you proudly take a customer whom you know has failed to pay your colleagues a debt of $140m. And you expect that clearly broke customer to somehow find money to pay you? Is Zesco that desperate to have a mine customer? What kind of strategy is this mr Mwila if I may ask you a direct question?
    This Zesco do they know what they are doing?

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  2. Zambia is “bewitched” with politics of poverty. Those village mentality “prostiticians” and thieves that have occupied govt since 1964. They hate to see a fellow Zambians succeed in business. They call it national security. A weird concept of national security were the economic means are placed in foreigners..Don’t get me wrong I am not advocating nationalisation. I am advocating indigenous Zambian ownership/participation in the mainstream economy. Enough of thug political prostitution.

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  3. Well articulated article. This a case of a government working from stand point of abysmal ignorance. The so called minister is just a PF carder placed in a position that is clearly above him and it also exposes Mr Mwila. This is how Zambia has been governed from the time PF took office. Putting carders to run strategic economic sectors like mines, ZESCO etc. spells disaster to the economy. Using power (statutory instruments) wrongly to bulldoze. There are consequences to the economy. Wrong methods do not give a correct answer in mathematics, no matter how many times you try. Sad that most Zambians don’t see PF for what it truly is – ignorance based leadership. small knowledge is more dangerous than no knowledge at all. That is PF for you.

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  4. Clearly the writer has missed some points here and commented well in view of PPAs and Power Market Structure unfolding in Zambia The decision to allow Zesco supply directly and allow it play power balancing on the grid an implement the grid code is correct transmission and sell of power operates in control areas also Reading the article clearly shows some missed points that requires putting into right flame but ultimately it should be to the benefit of Zambians electricity customers and the move by government is towards that

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  5. I support the decision to make electric power transmission and distribution lines a common carrier. It makes sense in the economics of the electric power industry. But I want to see this extended to Zesco lines also. If another electric power producer was to emerge in Zambia, they would hv a tough time getting their power to consumers if transmission and distribution lines already existing were not a common carrier. Other issues the author raises are sound arguments and I hope Zesco will see it fit to respond to them.

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  6. To make the argument above clearer, imagine if every power producer had to build their own transmission and distribution network. It would lead too many wires and pylons all over the place. This would be unpleasant to look at. That’s why I hv said I support minister of energy Matthew Nkhuwa’s decision. It’s a decision solidly founded in the economics of this industry. If there are some who disagree, let’s tangle on this issue.

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  7. That’s why the need to have one system control leader to be responsible for balancing the supply and demand of electricity in Zambia on an ongoing basis with reliable grid frequency all others can have their independent managed lines to either evacuate power to their customers or sell into the grid operated by balancing company Zesco with sufficient security of supply there is also no such a thing as open common carrier what’s there is a transmission operating company fitting into the energy resource plans for a country like Zambia there must be orderliness responsibility control security balancing and settlements in our power sector Zambia
    There must be a grid operator role for coordinating, planning system congestion management coordinating including scheduling maintenance…

  8. But you have to negotiate with the owner commercially and not just bulldoze by SI. You might find after negotiation its even cheaper to sell your power to the owner or paying him for using his facilities. Which ever way. The owner has invested in his property. Next you will go for private generators just because KCM is failing to pay the bills.

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  9. Nothing is straight forward with PF govt too much greed and corruption…they are Patriotic Thieves will steal anything.

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  10. These are just common thieves, these PF.

    This is not much different to how they let their thugs controll bus stops and markets.

    To them this makes economic sense.

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  11. its probably only in Zambia where a highly indebted parastatal company such as Zesco can be allowed to supply power (essentially take on more debt) to another company which itself is indebted to the tune of $140m just to one supplier and not be questioned by parliament or civil society.

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  12. It would be interesting for ZESCO to reveal their landmark profitable fees they are now charging a defaulter KCM compared to what CEC was charging. In all fairness and transparency, ZESCO lines should also be declared common carrier lines.

  13. Typical of any wrong doers, has Nkhuwa declared the CEC emergency standby generators as common generators and at what fees and will CEC ignite them in any KCM emergencies.??? Lol

  14. Whatever power market structure you want to have there must be a role of independence systems operator for control trades and settlements You can have discos transmission lines operators but there has to be a regional systems operator to ensure security of supply resilient planning and orderly development of the national energy resource plans in most cases the systems operator will play a major role in bulk supply of electricity and systems modelling including regional power balancing and that role fits ZESCO

  15. We need to move and ride on the minister’s decision and develop an organized market regional power market with a ZESCO as a regional transmission organization -RTO or independent system operator -ISO operates day ahead and/or real-time energy markets playing the role of power market including like explained playing a wider role in the modelling of the energy sector for the ministry but those brilliant minds at CEC must be assimilated also into this national energy modelling n

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