CEC plans on raising tariffs to cost-reflective levels By Ch

[bingogo]

CEC plans on raising tariffs to cost-reflective levels
By Chiwoyu Sinyangwe
Tue 06 Apr. 2010, 04:01 CAT [41 Reads, 0 Comment(s)]


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Copperbelt Energy Corporation executive chairman Hanson Sindowe with the trophy for best energy company in remitting tax to ZRA during the Taxpayers Appreciation Day at Mulungushi International Conference Centre last Tuesday - Picture by Collins Phiri
Copperbelt Energy Corporation executive chairman Hanson Sindowe with the trophy for best energy company in remitting tax to ZRA during the Taxpayers Appreciation Day at Mulungushi International Conference Centre last Tuesday - Picture by Collins Phiri
THE Copperbelt Energy Company (CEC) plans to raise electricity tariffs for mining companies to cost-reflective levels to fund investments for new projects, managing director for corporate development Michael Tarney has revealed.

CEC and mining companies have long-term contracts of between 15 to 20 years to ensure stability of supply to avoid frequent power increases, which might affect the planning programme for the mines.

The last time CEC increased electricity tariffs for the mines was in 2008 by at least 35 per cent.

CEC, an indigenously-owned power company, purchases about 41 per cent of Zesco’s power output under the Bulk Supply Agreement for onward distribution to the mining projects under its network.

Key mining units that purchase power from CEC include Konkola Copper Mines (KCM), Mopani Copper Mines (MCM) and Luanshya Copper Mines (LCM) among others.

Tarney last week said the shift expected to be achieved in the next three years was in line with regional trends as power utilities in southern Africa were increasing electricity tariffs to cost reflective levels.

Tarney said the planned increase in electricity tariffs would also enable CEC, the sole power distributor to the mining companies on the Copperbelt, to remain consistent with the government policy of ensuring the country achieved cost-reflective tariffs by next year.

However, he said CEC had continued to increase electricity tariffs to the mining sector on an annual basis to reflect the movements in the annual inflation rates.

“As CEC, we support the migration towards cost-reflective tariffs for our customers and we understand that the government seeks this to happen over the next three years or so…that is what we have heard from the government,” Tarney told the Business Post. “And in our case, we do increase the tariffs by inflation every year, that happens automatically, but from time to time, there has to be further increases to reflect the tasks of new generation and new investments that are being made in the sector. We have had some increase in the last two to three years at the rates of inflation. We expect that process to continue in the next two to three years as we migrate to the tariffs where they should be.”

Tarney stressed that CEC desired to increase the tariffs through negotiations to ensure the deal was fair to all parties.

“We have to do it in a kind of way that the tariffs seems to be fair on both the consumer and the investors and Zesco as well and that is where the regulators to make sure there is fairness in the manner the tariffs are calibrated,” Tarney said.

He said the increase in tariffs would help CEC expedite its expansion of the existing power transmission and distribution and also for investments into power generation facilities.

CEC, whose sole power generation facility is a standby 80 megawatts thermal power summoned for emergency mine rescue operations in events of abrupt power cuts, plans to construct some new power stations including a 33 megawatts Kabompo Gorge project in North Western Province.

The Kitwe-based company plans to build the Kabompo Gorge project, which was estimated to cost US $300 million with part of the funds likely to come from the Millennium Challenge Corporation of the United States.

CEC planned to construct some new power stations in partnership with Chinese and US power firms and one of such projects was the proposed 300 MW Mumbotuta project in Northern Province which would likely cost about US $1 billion.

“The benefits of this upward tariff adjustment are that there will be sufficient money to pay for the new generation stations that people are constructing. For example, the ongoing Kabompo Gorge project, and then we have things like Kafue Gorge Lower, Maamba Collieries, Itezhi Tezhi is another one,” he said. “So, automatically, it will mean there is a bit more service to the consumers in the country both industrial consumers and the residential consumers when these investments are made.”

Tarney said the tariff increase would also help to boost revenue earnings of the state power utility Zesco.

When asked how the increase would be done, Tarney said: “It’s not for me to say that but that’s what we have heard and the best thing is that you should speak to them ERB as well to get their view rather than me quoting numbers, but that is our understanding of what the government policy is and that’s the policy we would support…we also have to negotiate these tariffs with Zesco and the mines when the government directs inflation. We did that a couple of years ago and I guess we will be doing it again in the next couple of years as well.”

Tarney said CEC fully supported the migration towards cost reflective tariffs in the country, as it would boost the revenue earnings for Zesco and at the same time, allow for attractiveness of private capital into new power generation investments.

He said the increase in electricity tariffs would also help to boost the confidence of CEC in the estimations of key shareholders like pension funds and individual Zambians and also make the company attractive to future investors.

“This is important so that the private sector can play a part in investing in future projects,” said Tarney. “Obviously, a lot of increase tariffs goes to the benefit of Zesco. At the moment, Zesco is undertaking the largest investments; they are doing Itezhi-tezhi, Kariba North Bank, they are running the main transmission system in the country,” Tarney said. “So, they need the funding for all those investments…we fully support Zesco getting cost reflective tariffs. For us, it will help us make our investments in Kabompo among the projects we want to do. And obviously, the tariffs going up means that we will have enough money to repay the banks and also to repay the shareholders who want to invest in our company.”

Tarney said CEC, the newest entrant into the Southern African Power Pool (SAPP), would also meet regional trends by raising electricity tariffs.

“This increasing electricity tariffs is also taking place in a number of other southern Africa countries. For example, in Eskom, we have recently seen the South Africa tariffs increase by higher rate than inflation. We have seen the same thing in Zimbabwe, we have seen the same thing in Mozambique and I think Zambia should emulate the trends we have seen elsewhere in southern Africa,” said Tarney.

Recently, the National Energy Regulator of South Africa (NERSA) approved Eskom’s increase in tariffs to 24.8 per cent in 2010/2011, 25.8 per cent in 2011/2012 and an increase of 25.4 per cent in 2012/2013.

Eskom Holdings, the supplier of 95 per cent of South Africa’s electricity, was allowed to raise fees by 24.8 per cent from April, less than requested, easing concern that inflation would remain above the government’s target.

Power prices increased by 25.8 per cent in the year through March 2012 and 25.9 per cent the year after that. The increase was below the 35 per cent sought by state-owned Johannesburg-based Eskom, and follows a 31.3 per cent increase last year. Higher prices would help Eskom finance a five-year, 460 billion-rand US billion expansion plan aimed at overcoming a power shortage that temporarily shut mines in 2008.

The lower-than-requested increase may help to keep inflation inside the three per cent to six per cent target range, leaving the door open for further interest rate cuts.

The Reserve Bank’s forecast that inflation would drop into the target in March is based on power prices rising 25 per cent this year and in 2011.