Economics Association of Zambia (EAZ) has called for Energy reforms that will commercialize ZESCO’s activities and not turn it into an insurance company underwriting market demand for independent power producers.
EAZ Copperbelt Chairperson, Mathews Muyembe said the Association has been carefully studying the issue surrounding the Bulk Supply Agreement between ZESCO and Copperbelt Energy Corporation (CEC) and has come to believe that the matter between the two institutions is purely commercial and should be understood as such by all stakeholders.
Mr. Muyembe noted that there were many difficult terms and conditions that ZESCO had to endure during the more than twenty years that the Bulk Supply Agreement ran which gave CEC an exclusive franchise for the supply of power on the Copperbelt.
“It should be noted that we enjoy warm relationships with both companies and pronouncements that have been made in the energy sector the past few years have been very encouraging because they promote win-win situations for all players in the energy sector including ZESCO, CEC and above all the Zambian people who are the consumers.”
He observed that the exclusiveness was very restrictive and provided a monopoly to CEC with regard to supply of power to the mining customers on the Copperbelt, which indicates that though ZESCO was investing in assets to ensure firm supply to the mines, it was never able to recover the full cost from the mines which it was unable to negotiate in terms of pricing and supply.
“A joint agreement between the Government, ZESCO and the mines agreed that the mines would pay an effective tariff of US$9.3/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$8.11/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$6.8/kWh resulting in a further loss of approximately $2.5 million per month or $30 million annually,” he said
Meanwhile, Mr. Muyemba said the Association is aware that the largest beneficiaries to the entering of Agreements by ZESCO and the Independent Power Producers (IPPs) have been the mines.
He stated that as is evident through the drought seasons of 2014-2015 and 2019-2220, 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 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 10 million US Dollars per month or 120 million US Dollars annually. This situation is completely unsustainable going forward,” he observed.
Mr. Muyembe said EAZ is ready to guide all stakeholders through its extensive network of experienced energy experts because Zambia is a country for everyone to develop in.
“These are the energy reforms we have been calling for, Energy reforms that commercialize ZESCO activities and not turn ZESCO into an insurance company underwriting market demand for independent power producers because at the end of the day, it’s ZESCO consumers that foot the bill.”
“It is understandable that ZESCO no longer wants to carry the loss on behalf of others. We hope that all parties see these developments in a positive way,” Mr. Muyembe stated.