ZESCO Limited and Copperbelt Energy Corporation Plc (CEC) say they have commenced negotiations for new arrangements for power supply and provision of transmission services between the power networks. In a joint statement, Wednesday, ZESCO Managing Director Victor Mapani and his counterpart Owen Silavwe said the negotiations, which commenced during the week starting January 17, 2022, were expected to culminate into a new agreement to replace the bulk supply agreement which expired on March 31, 2020. They agreed that the strong interconnection which exists between the power networks, coupled with the……

Source: https://diggers.news/business/2022/01/20/zesco-cec-commence-negotiations-for-new-power-supply-agreement/

CEC is deeply concerned by the claims made by Dr. Mbita Chitala, the immediate past Board Chairman of ZESCO Limited (ZESCO), in his recently released book, ‘Corporate Capture: The Political Economy of Electricity Management in Zambia (How Not to Manage a State Enterprise)’. The integrity of the book, which is purported to contain information inter alia suggestive of a CEC scheme in the alleged corporate capture of ZESCO, is questionable and the claims made against CEC meritless. It is extremely disappointing that Dr. Chitala chose to make such serious and unsubstantiated claims against a company bound by strict disclosure obligations as a listed entity, whose information can easily be verified. As one of the leading listed companies on the Lusaka Securities Exchange (LuSE), CEC adheres to strong corporate governance principles and conduct and has clear, transparent and honest communication and disclosures.

Whatever Dr. Chitala’s motives, it is clear that he makes several contradictions, misstatements, omissions of fact and repositioning of narratives to lead the reader to a particular conclusion. Dr. Chitala openly acknowledges various schemes, including the establishment of a new Special Purpose Vehicle, which were considered to take over CEC while he was Chairman of ZESCO. He provides two detailed options which he sketches out in the book. This could explain his motivation to undermine CEC so as to bring its value down and possibly take over the Company on the cheap.

We are continuing to study the book systematically and are still seeking legal guidance on some of the allegations and inaccurate statements. However, in the interest of transparency, we would like to highlight a few of the allegations and inaccurate statements:

• Throughout the book, Dr. Chitala tries to build the narrative that CEC’s shareholding is dominated by foreign interests. In Table 60, he presents a “CEC shareholding at becoming public” which is completely fabricated. Two shareholder groups in the table which he credits with a combined 45.1% shareholding in the Company were not even shareholders of the Company at the time. ZCCM- IH and ZECI, two entities representing Zambians, held over 72% of the shares which is not captured therein. In Table 61, he again continues with the misrepresentation showing shareholding in 2018 with ZCCM-IH at 13.25% instead of 20%. CEC is a listed company on the LuSE and, therefore, its shareholding is a matter of public record and easily verifiable by anyone. It is surprising that Dr. Chitala, whose biography at the beginning of the book refers to him as, “a registered Finance and Investment Adviser with the Zambian Securities and Exchange Commission” couldn’t verify this basic information which he relies on to make a key argument in his book.
• An allegation he makes consistently is that CEC disadvantages ZESCO by paying a suboptimal tariff. Dr. Chitala contradicts himself with regard to what the actual tariff CEC pays ZESCO. On page xvii, he states, “[ZESCO sold] to the mines through CEC at an average tariff of US$c 6.33/kWh. This was simply poor business.” Yet on page 114, he states, “Under the BSA, CEC obtained power from ZESCO at an average tariff of US$c 8.11/kWh.” If the Chairman of ZESCO for 5 years is not clear what their largest customer buys power at, why should we expect any different from those he reported to? No wonder Mr. Ronald Chitotela recently argued in Parliament that under the BSA, ZESCO sold power to CEC at US$c 3/kWh.
• CEC – Mopani Tariff Negotiations of 2017. Dr. Chitala on page 148 writes: “Until I left ZESCO, CEC had not concluded its tariff discussions with Mopani and failed to provide any progress to ZESCO or government.” This is, again, another blatant lie by Dr. Chitala. The truth is that CEC and Mopani completed these negotiations within 2017 and signed an addendum to their Power Supply Agreement (PSA) reflecting the agreed changes in tariff. It is again difficult to understand the motive behind blatant lies as presented on this subject by Dr. Chitala. Following the signing of the addendum between CEC and Mopani, CEC proceeded to inform both ZESCO and the Government and proposed a draft addendum to the BSA to ZESCO. However, under the leadership of Dr. Chitala, ZESCO was unwilling to review the addendum from CEC nor to sign it.
• Dr. Chitala makes a claim that the BSA through Clause (b) (i) and (ii) gave exclusivity of supply to CEC on the Copperbelt to the detriment of ZESCO and its business. In similar fashion as all the other points that Dr. Chitala raises as issues that ZESCO had with the BSA, what has been presented in the book is, unfortunately, nothing but misrepresentations and half-truths. However, for brevity, we will only cover the issue dealing with exclusivity of supply because of its alleged business implications on ZESCO. On page 97, he writes: “Clauses 10 (b) (i) and (ii) gave Exclusivity of Supply by CEC to the Copperbelt and was bad as it was discriminatory and violated all laws of commence. By this clause CEC was granted an ‘exclusive franchise’ for the supply of power on the Copperbelt. This entailed that only CEC could supply all mining and mining related activities. This exclusively was very restrictive and provided a monopoly to CEC with regard to supply of power to the mining customers on the Copperbelt, a position not commercially viable. Further, the said clause prohibited ZESCO from constructing, owning or operating transmission and distribution lines in these MineCo sites. The net effect of the foregoing was that ZESCO became restricted in owning or expanding its network on the Copperbelt. Section 8 of the Competition and Consumer Protection (CPC) Act, prohibited Parties from entering into Agreements that restrict competition.” However, Dr. Chitala completely omits an important aspect of the BSA contained in Clause 1 (a) (iii) which prohibited CEC from purchasing the power it supplied to its mining customers from any other source but ZESCO, unless in situations where ZESCO had no capacity to supply CEC’s power requirements. The BSA, therefore, exclusively reserved the Copperbelt mining market for ZESCO’s power and, thus, solidly protected ZESCO’s business interest in this respect. It was always clear that under the BSA, CEC could not and did not buy power from any other company but ZESCO.
• Dr. Chitala makes various claims of CEC owing ZESCO an amount ranging from US$225 – 325 million. On page xxix, he pegs CEC’s alleged owing to ZESCO at US$325 million and on page 120, when discussing his proposal for ZESCO to acquire CEC, he states, “ZESCO would have to pay a cash price of US$288 million. However, ZESCO also noted that CEC owed ZESCO about US$257.1 million and that this amount would be used to offset the price for the purchase of any ordinary shares from CEC.” However, Dr. Chitala goes on to contradict himself on page 124 by stating that the purported money that CEC owes ZESCO is the subject of Judicial Review proceedings in a case brought by the Chamber of Mines against the Energy Regulation Board (ERB) in 2014. Dr. Chitala states, “If the ERB decision is determined to be lawful by the Zambian High Court, ZESCO would be entitled to claim US$ 225 million from CEC.” Worth noting is that CEC would also be entitled to claim a similar amount from the mines in such a case. Further, Dr. Chitala omits to state that the decision of the ERB, while being the subject of the ongoing judicial review, has also been stayed by the High Court.
• Dr. Chitala misrepresents a number of the court cases involving the companies.
  1. Common Carrier Proceedings (Statutory Instrument 57 of 2020) – this is a matter in which CEC commenced judicial review proceedings against the then Minister of Energy’s decision to declare CEC’s transmission and distribution lines as common carrier on 29 May 2020.Dr. Chitala selectively does not take the reader through to the final outcome but rather chooses to end with the following, “The court of appeal refused to grant CEC an order of stay of execution of the Minister’s statutory directive. This meant that ZESCO would be enabled to use CEC’s assets to supply KCM and other mining companies on the Copperbelt who so wished at a tariff set by the ERB and the CEC action appeared to be academic actions with no legal import.”

     The real final outcome is that High Court Judge Elita Phiri Mwikisa found that the applicant (CEC) succeeded on all grounds and accordingly quashed the decision of the Minister of Energy to declare its transmission and distribution lines as common carrier (SI 57). In a 71 page judgement, Judge Mwikisa stated, “whereas the Applicants concede that the minister does have power under section 15 (1) to declare a transmission line as a common carrier, they argue that he does not have power to declare the entire interconnected power system as common carrier and that he acted in excess of his powers. The Applicants contend that this action by the minister amounts to expropriation. I tend to agree with the submissions of the Applicants to the extent that the Minister’s decision was ultra vires as he acted in excess of his powers,”

  2. ZESCO and KCM Injunction – this is a matter in which ZESCO and KCM were granted an ex-parte injunction against CEC which stopped CEC from interfering with the supply of power by ZESCO to KCM following the expiry of the PSA between CEC and KCM. CEC counterclaimed, accusing ZESCO and KCM of colluding, which led to CEC not being paid US$144 million relating to unpaid invoices for power CEC had supplied to KCM under their PSA.Again, Dr. Chitala selectively does not take the reader through to the final outcome but rather chooses to end with the following, “ZESCO considered the CEC action as groundless, not least since ZESCO had not been privy to that PSA and was itself free as the Electricity Act 2019 provided to compete for business.”

     The final outcome is that the matter came up for a status conference in August 2021 at which both ZESCO and KCM informed the court that they were discontinuing their actions following the quashing of SI 57 of 2020 by the High Court upon which they had grounded their respective claims. ZESCO finally filed its notice discontinuing the action.

We are deeply concerned with the way Dr. Chitala’s book is positioned and with its depiction of CEC. Our Board is discussing any additional action the Company could take, about which our stakeholders will be informed accordingly. CEC remains committed to transparency and full disclosure.

The Company reassures all its stakeholders that it is engaging constructively with the new Board and Management team at ZESCO, the Ministry of Energy and the ERB with the key objective of advancing the interest of the sector in a fair and equitable manner.

For more information, contact:

Chama Nsabika
Senior Manager Corporate Communication
+260 212 244914
+260 966 792922
nsabika@cec.com.zm

Source: https://cecinvestor.com/cec-strongly-refutes-claims-made-by-dr-mbita-chitala/

THE Copperbelt Energy Corporation Plc says it remains hopeful its 2021 net profits could almost double that achieved in the half-year period ending June 30 on account of a continued strong financial performance.

Since announcing its half-year results in September this year, where the utility earned a huge profit of around US $25.5 million in the period ending June 30, 2021, coming from a loss of $32.5 million in the prior period, CEC’s share price jumped from K1.40 per share in early September to K1.80 in trading sessions on the Lusaka Securities Exchange (LuSE) by the end of that same month.

Analysis from data made available on the company’s share chart shows that its share price peaked to an all-time high of K2.65 per share this month since going public on the local bourse back in
January, 2008, opening at K0.45 per share.

Market data availed by the LuSE revealed that the power utility’s share price has soared to K2.65 per share as at December 28, 2021, compared to just K0.96 per share 12 months ago. Commenting
on the strong share price performance posted by the utility this year, CEC chief financial officer Mutale Mukuka expressed confidence that the company’s performance on the local bourse would
continue in view of major developments that have occurred this year, such as the shift in segmentation of its biggest customer Konkola Copper Mines Plc, triggering significantly reduced
receivable impairment losses.

“I think that the share price or investors are essentially looking at the value that the business has posted to date. Secondly, they are also valuing the business and looking at the outlook. We are
coming from a situation where the business was posting impairment losses as a result of the KCM non-payment and to a larger extent, that was then tied to the SI Common Carrier status that the
business was given,” Mukuka said in an interview. “Now, with a change in segmentation from supplying power to transmission, use of system provision to that mine, that meant that we are not
taking the full credit risk for KCM and from a numbers point of view, it significantly reduced the level of impairment. So, with those levels of impairment coming off and reducing significantly to numbers below US $10 million, it meant that the business was back to being profitable just from an earnings perspective. So, moving from a loss position to being profitable once again. We hope that as we are getting to year-end, we could get to a number that probably is very close to double what we had at half-year. If you look at it from that perspective, then you are essentially looking at a very profitable business.”

He added that CEC’s consistent rewarding of dividends to its shareholders positively impacted investor sentiment in the company.

CEC declared a dividend to its shareholders amounting to 2.1 US cents per share for the 2020 financial year following an improved performance during the second-half of last year.

This was followed-up with an interim dividend of 2.3 US cents per ordinary share this year, which translated to K0.3727 per share following its half-year profits.

“The second issue is that the business itself is a dollar business. Most of the businesses that we see around have a kwacha exposure. If you look at it from a dollar perspective, their income is not
dollar-based. Now, in this instance, the income itself is dollar-based, which means that when you are valuing this business, it’s a business that is valued in dollars, then you apply the exchange rate.
So, to some extent, the valuation that investors are applying also have some assumptions around the effects; what sort of exchange rate are they applying?” Mukuka said. “The third issue when you
look at it from a performance perspective is the fact that this is a business that has consistently rewarded its shareholders with a return in form of dividend. And if you look at the dividend payments over the years, it’s something that has been growing over the years, and the growth has been reasonably okay if you compare to what other investment options that investors are looking at. So, just based on that, I think these are the sort of drivers that have impacted on the share price.”

And Mukuka explained that Zambia’s mining sector, which now has a positive policy direction and outlook, also influenced the company’s share price performance.

“…The business is largely linked to mining in Zambia. If you look at the policy direction of the mines that the government has put up, it is an ambitious plan to get to three million tonnes (of copper) in the next decade. If that is growing, it means that most of the suppliers to the mines, CEC included, they have to grow with that ambitious plan. So, if you are looking from outside, you are essentially looking at all these factors: the current things that have happened and then, going forward, what are the things that will happen that will impact positively on the business,” he said. “I think for most of the businesses, not just CEC alone, the environment is right, and the policy direction is that we need to push and grow the economy. Now, as the economy is growing, which sectors are contributing to the growth? My expectation is that if mining is growing, then all the suppliers are growing, CEC will grow. So there is quite a lot of optimism in that area.”

Meanwhile, Mukuka welcomed the recent appointment of renowned energy expert and proprietor of Petrotech Oil Corporation Limited, Reynolds Bowa, as the Energy Regulation Board (ERB) board chairperson.

Bowa, up until last year, was a non-executive director on the board of Copperbelt Energy Corporation Plc, representing ZCCM-IH.

“Mr Bowa was our vice-chair. He has a lot of expertise in the energy sector having been part of the Oil Marketing Companies (OMCs). Subsequently, he owned his own. And his expertise where he worked with CEC and others, I have no doubt that he’s got what it takes to be part of the team that regulates this sector. So, we can only wish him well and look forward to them pushing the sector forward. Overall, it’s a very good competent team, which we look forward to working with,” said Mukuka.