Africa’s second largest copper producer Zambia is witnessing a wind of policy change following the outcome of the August 2021 polls. As political risks subside, the Southern African nation is seeing more policy inclined changes that are more private sector skewed as the red metal producer signals to the world that its is indeed open for business. One landmark development in the week is the reuniting of the state power utility ZESCO Limited with Lusaka Securities Exchange (LuSE) Copperbelt Energy Corporation in agreeing a new power Bulk Supply Agreement (BSA) which was effected on April 01. This development is key in signaling stability in energy supply to the mines whose outlook is positive with greater production prospects that spells greater demand for energy. The BSA in tandem with the earlier reversal of Statutory Instrument No.57 that prescribed the state utility as common carrier improves sentiment in the energy sector for investment purposes.
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A little trip down memory lane, ZESCO and CEC underwent a frustrating divorce after a stalemate in agreeing the terms of reference of the old agreement that expired on March 31, 2020. This bred tension between the two and made business collaboration very difficult to threaten the existence of CEC. A successful BSA marks the genesis of a new mutually beneficial relationship of the two largest utilities in the country. A shift in political regime has seem reversal of unfavorable legislation, acceleration of reforms and a stronger private sector focused drive towards supporting thriving in the energy sector.
Copperbelt Energy Corporation Head Office in Kitwe, Zambia.
ZESCO Directorate in Livingstone at the Victoria Falls power station.
Speaking jointly at the initialing ceremony, the Managing Directors of the two utilities, Engineer Victor Benjamin Mapani and Engineer Owen Silavwe, had similar messages summarized as follows:
“We are glad that the negotiations that our two companies commenced in January 2022 have progressed according to plan and finally borne fruit. As we declared at the very start of the negotiations, the discussions were driven by the desire to find a solution that would be mutually acceptable and beneficial to the two companies. We firmly believe that this new BSA encapsulates this aspiration and will help carry our business relationship to a next level and bring stability to the power sector and effectively support the country in its quest to revive the economy.”
The two companies are confident that the strong interconnection that exists between their power networks, coupled with the need to closely coordinate operationally will continue to be the cornerstone of their ongoing efforts to foster a cordial, transparent and commercially sound business relationship going forward.
A copper smelter at one of Zambia’s mining entities. The mines consume over 55% of electricity from the grid.
ZESCO and CEC are committed to working together through the enhanced public private partnership framework to help catapult the country’s energy agenda to the next phase in support of the goal of achieving reliable, sustainable, and affordable electricity for all.
The copper producer still awaits completion of a cost of service study that will provide clarity around cost reflective tariffs that will help the energy regulator create a more attractive environment for investment purposes. Zambia’s mines consume 57% of the energy grid for which CEC remains a key player in mining value chain. Mining tax reforms remains critical to driving greater investment in exploration which scale production higher which in turn spells higher energy demand.
POLICY IMPLICATIONS ON CEC STOCK
Inferring from the CEC price trajectory over the last 8 months, the BSA agreement seems to have been already priced into last year’s price whose momentum has soared 28% this year already. Institutional investors are likely to forecast a BSA following the August 2021 poll outcome. With this development CEC stock outlook looks positive thought downside risks from an outstanding debt of $168 million with Konkola Copper Mines following operational challenges leading to its liquidation. Zambia’s energy outlook remains positive with latitude for attract stronger investments should reforms full complete. The power distributor will be paying its highest dividend ever after a FY21 stellar performance.
The Kwacha Arbitrageur