It's not profiting Zesco to subsidise mines - Sisala

It's not profiting Zesco to subsidise mines - Sisala
By Joan Chirwa
Friday September 14, 2007 [04:00]

IT is unacceptable that Zesco should continue subsidising mining companies when the mines have been making huge profits in the last few years, Zesco Limited managing director Rhodnie Sisala has said. During Radio Phoenix's Face the Media programme on Wednesday, Sisala said it was not profitable for Zesco to continue with heavy subsidies for the mines considering that the mining sector had recorded huge profits over the years following a boom in copper prices on the international market.

"Tariffs with the mining companies were negotiated around 1996 and 1997 when copper prices were not at their peak. This was to encourage more investments in the sector," Sisala said. "The environment was extremely difficult for the mines that time, so favourable tariffs were given as an incentive to the mines. But now that the scenario is different as a lot of profits are being recorded, it is just important for us to re-negotiate the agreements on tariffs."
Sisala said preliminary discussions were being held with various mines in an effort to agree on a tariff structure that would benefit both parties.

"We wrote to the mines through Copperbelt Energy Corporation (CEC) indicating that we needed to re-negotiate the agreements on tariffs," Sisala said. "Preliminary discussions on the re-negotiation of the tariffs with the mines are currently in place. The mines are making healthy profits and it is unacceptable that Zesco should continue to provide subsidies to the mines because of huge profits being made."

Sisala said increased copper production by the mines was putting a lot of pressure on electricity generation by the power utility.
"Copper production is in excess of 600,000 tonnes per annum and various mining companies have indicated that they hope to hit one million tones per annum in the next few years," Sisala said.

"There is a lot of growth in the mining sector and this requires a lot of electricity. Kansanshi has begun production, Lumwana is in its advanced stage of construction. There is the Konkola Deep project by KCM, the Nchanga Smelter, the Chambeshi Smelter as well as the Milyanshi Mines. All these are being developed and this means the amount of electricity being consumed by the mines will increase from the current 50 per cent."

And Sisala said projects being undertaken by the power utility would continue being disadvantaged if tariffs remained at a low level.
"Zesco's ability to repay loans is also going to be compromised. We have been making a loss, this is why a substantial increase in tariffs is absolutely important for Zesco Limited," Sisala said.
"The revenue stream becomes much lower for a utility that supplies power to a country at low tariffs. The robustness of that project becomes much weaker."

Zesco Limited has proposed an increment of electricity tariffs for domestic, commercial, social services as well as maximum demand consumers by 60 per cent.
The power utility is hoping to use part of the money from increased tariffs to finance some of its projects countrywide, although the proposal for a tariff adjustment has not been welcomed by a number of stakeholders.

Sisala reiterated that the Zambian financial market did not have the capacity to lend huge sums of money required for the power utility to effectively carry out rehabilitation of existing power stations and construction of new generation plants.
"We are looking for long term financing, not short term. The Zambian market doesn't have the capacity to provide the volumes of money required. That is why we are looking at international financing," Sisala said.

"We need amounts of close to US$2 billion (approximately K7.9 trillion) for us to rehabilitate some power stations, extend the Kariba North Bank, Kafue Gorge Lower and the construct the Itezhi-tezhi Upper power station."
The current capacity for Zambia's power system is 1,680 mega watts (MW).

About 450 MW is currently out for rehabilitation, meaning the only available power is about 1,230 MW against a peak demand of about 1,550 MW.
It is hoped that total capacity for the power system will be increased to around 1,890 MW at the end of the rehabilitation projects in the next few years.