The following transcript of Owen Silavwe’s appearance on Sunday Interview, which aired on ZNBC TV1 on 19 June 2022, is for general information only. It should not be used as a substitute for specific and professional advice. CEC accepts no responsibility for the accuracy of the opinions of information contained in this transcript, unless expressly so stated, and disclaims responsibility for any inaccuracies, errors or omissions.
Grevazio Zulu: Good evening, and thank you for joining us on Sunday Interview. I’m your host, Grevazio Zulu.
Now, the Copperbelt Energy Corporation (CEC) has had a long history of supplying power to the mines since the ZCCM days. But not too long ago, the Company’s dealings with the mines and ZESCO came under intense scrutiny, with the government last year issuing a statutory instrument to declare CEC transmission lines as common carriers.
The debate behind all this was that CEC was ripping off ZESCO and the Zambians by buying power at a cheaper price and selling it exorbitantly to the mines and also to create open space for trade in the sector. Well, CEC has gotten back the transmission lines and is about to sign a new Bulk Supply Agreement with ZESCO, but has the story of Zambians losing out gone away?
My guest this evening on the programme is Copperbelt Energy Corporation Managing Director, Mr. Owen Silavwe. Sir, welcome to the programme.
Owen Silavwe: Thank you, thank you Grevazio. How are you doing?
Grevazio Zulu: Fine, thank you. I’ve spoken about CEC and its history since the ZCCM days. That’s a very rich history. I want you to just run us through, give us a brief background on how you have transitioned from this being a state enterprise into a private institution.
Owen Silavwe: Thank you. CEC is, I would actually say, the oldest utility in this country. It goes as far back as 1950, 1951, when the Company itself was formed, and it’s existed under very different names over the years. In terms of the period that you want to focus on, which is the time when it was under ZCCM, that I think starts from 1982.
Grevazio Zulu: That’s CPC, Copperbelt Power Company, into CEC.
Owen Silavwe: That’s right. So that’s in 1982, and it transitions from CPC into Power Division under the ZCCM conglomerate. Under ZCCM, the Company was always in charge of the power side of the business, looking after the power assets, looking after the power needs of ZCCM. Its focus at the time was more ensuring that ZCCM had a secure supply of power. As you would imagine in that setup, really the focus is more of managing the wires, managing the assets, ensuring that it’s got the key skills to manage the infrastructure.
Come 1997, the Company was privatised. At that time, the Government was privatising the separate entities under ZCCM; you could call them divisions, because this was Power Division. This was one of the first companies to be privatised at the time and, if you recall, it was bought by a consortium of National Grid of the UK and Cinergy (Global Power) of the US. The focus then from that time sort of started changing because then you couldn’t depend on the Government. You had to operate commercially, both in terms of how you manage the assets, how you improve the performance of the assets, how you make sure that you reduce your losses and how you look after your important assets, which is human capital and the contracts themselves, because before that, the Company really never had commercial contracts. So, you needed to make sure that if you’re buying power from third parties, which integrate with your own power network, you had sound commercial contracts. Also, if you were selling power to your customers, you made sure that you had sound contracts.
The Company has evolved from that time to where it is today, and if I just talk about what has happened between 1997 to where the Company is today, a lot of things, as I’ve said from an investment perspective, asset growth perspective, the skills in the Company, how the Company itself is managed and what sort of company it is today, the Company has really changed. It’s a totally different company.
Grevazio Zulu: Grown or just changed?
Owen Silavwe: Well, when I say changed, it’s completely changed its complexion, whether you’re looking at the size of the Company, whether you’re looking at its organisation capabilities, whether you’re looking at how we manage the assets, how we manage our relationships, I believe we’ve changed for the better.
If you look at where we are playing today, again, there we’ve changed quite a bit because at some point, which was around 2005, 2006, National Grid and Cinergy decided to exit. Now, I should put this into context, because at the time National Grid and Cinergy used to own 77% of the Company. Government has always been a shareholder of CEC through ZCCM-IH.
At that time, the Government was a shareholder to the tune of 20%, and 3% was owned by a group of Zambians at the time. Now, that was part of the empowerment programme that the government undertook as part of the privatisation at that time.
Grevazio Zulu: Ensuring that Zambians had a stake in the Company.
Owen Silavwe: Exactly, to ensure that Zambians had a stake.
Grevazio Zulu: So how has this shareholding changed over the years?
Owen Silavwe: Actually, that’s what I want to talk to. What has basically happened is that when National Grid and Cinergy decided to leave, at that point, what you then see is again, a group of Zambians, which partnered with a number of international banks, bought this stake which was owned by National Grid and Cinergy.
But within a short time, then they decided to take the Company to the market, which is the Lusaka Securities Exchange and so the Company was listed. I think it was in 2009. In terms of the current shareholding, and I’ll speak to that, the Company has a very, very diverse shareholding, but let me just speak generally about what else has changed before I talk about the shareholding.
So, as I said, the Company today is listed on the Lusaka Securities Exchange, and it is also a member of the Southern African Power Pool (SAPP), which it never used to be before 2008. Again, that’s a plus because what that means is that the Company becomes an international player. It’s able to play in the market within the SADC. It’s able to trade with other utilities within SADC. It’s able to participate in terms of setting the standards and just signing contracts with other utilities within SADC. I’m happy to say today, the Company is one of the largest trading utilities in SADC, or in SAPP, as it were.
All those are things that make CEC a totally different company from the company that was privatised.
Grevazio Zulu: The Company that everybody knew, that was privatised. I know we’ll talk about the benefits and what that has to do with Zambians benefiting totally from the Company as we go on.
But I wanted to take you back. I know in the introduction, I did speak about you being a strong player, a strong name in the energy sector, but then your name was under intense scrutiny. That was last year. One of the major challenges you faced was a frosty relationship with the government, quite a challenging time for your Company.
Owen Silavwe: Well, look Grevazio, there is no secret that that was a very challenging time for the business, but before I speak about that, let me just talk about the shareholding of CEC, because you asked me that question and I didn’t really address that. What’s the current shareholding of CEC?
I think I want to start with ZCCM-IH. ZCCM-IH at privatisation used to own about 20% of the Company, but what you’ll see is that has increased. ZCCM-IH today owns slightly over 24% of CEC. Then, we’ve got a private equity firm called Affirma Capital that owns the majority in terms of CEC, but even that majority is not anything close to 50%. What they own is 34.6%. That is the largest single shareholder in the Company.
Then you’ve got a group of Zambians that owns about 13% through what is called Zambian Energy Corporation. When you actually put together this shareholding and you drill into the detail, what you see is the largest chunk of the Company, slightly over 60%, is actually owned by Zambians, so this is a Zambian-owned Company.
Grevazio Zulu: A Zambian success story, you would want to call it.
Owen Silavwe: I would actually call it that. I think as Zambians we should be proud of this Company and we should be looking to developing a lot more companies like this, because that’s the only way that we will actually develop as Zambians. It’s the only way that will create wealth and ensure that most of that wealth remains at home. I think that is an important consideration.
Now, coming back to the question that you asked me in terms of the challenges that the Company has faced in the last two or three years, the challenges were real. First and foremost, we had a Bulk Supply Agreement between us and ZESCO through which a number of services were exchanged. This is an agreement that, unfortunately, in the last five years or so, was beginning to be misunderstood. This agreement started in 1997, so it came quite far.
Grevazio Zulu: 23 years.
Owen Silavwe: Exactly. And so, what are the services that were exchanged under that agreement?
One of the most important services was obviously CEC buying power from ZESCO, because you have to realise CEC owns the power infrastructure on the Copperbelt, and it’s an extensive power infrastructure starting from a high voltage called 220kV. Zambia has two high voltages: 330kV – at the moment I think it’s only ZESCO that owns the 330kV lines and they are used mostly to transmit power over longer distances. For example, coming from power stations that are owned by ZESCO in Southern Province, let’s say to the Copperbelt. You need that sort of voltage to move large power over long distances.
The second-largest voltage is 220kV and 220kV at the moment, I think, is mostly owned between CEC and ZESCO. The main network, the sort of backbone for the Copperbelt is 220kV. One of the things you will note…
Grevazio Zulu: …in which you have a stake as CEC?
Owen Silavwe: Yes. Most of that infrastructure on the Copperbelt, the 220kV, is owned by CEC. Then, we step down that voltage to 66kV, to other smaller voltages like the 33kV, 11kV, and so on. That’s how the power network works because you need to bring this voltage down to where it’s now usable by the mines themselves, other users on the Copperbelt, industrial, commercial customers and domestic customers like ourselves.
I was talking about this agreement. One of the things that it does is to allow the buying of power from ZESCO by CEC. Then, you’ve got the other important services that are exchanged in there, which is the usage of each other’s network and it’s important. This is how power networks all over the world work.
Grevazio Zulu: To share in the infrastructure.
Owen Silavwe: Exactly. It’s not really sharing. You buy the use of infrastructure, because sharing might look like you and me sharing a banana, but this is not sharing a banana. This is business. You actually pay for these services. So, when we use ZESCO’s infrastructure we pay for use of that infrastructure, and when ZESCO uses our infrastructure, they pay.
And remember I said we are a member of SAPP. What that means is that other utilities in SADC should be able to use our infrastructure, and again, they pay for use of that infrastructure. We call that wheeling, and there are various levels of wheeling that happen. In my view, those are two very important services that are provided there.
In terms of wheeling, you’ve got the wheeling that takes place within Zambia. And then you’ve got the wheeling, where we sell power outside Zambia. We call that international wheeling. So, again, in international wheeling ZESCO could come and use our infrastructure because we’ve got the interconnection going into the DRC.
We do use ZESCO’s infrastructure to get power, let’s say, from down south. Whether it’s from Mozambique, South Africa, Namibia or Zimbabwe, we will use ZESCO’s infrastructure and then we will pay applicable rates for what is called international wheeling.
That same agreement speaks to how we maintain the interface because our networks interface with each other. How do we maintain that interface? What are the power quality standards which we have to observe? What are the standards of the service that has to be provided?
It also speaks to how you deal with disputes, because in any relationship, just like personal relationships, there will be disputes. Disputes will arise, so you need to foresee these things and provide mechanisms for dealing with disputes. So, the agreement itself provides for how disputes are dealt with such that if you have a dispute, it doesn’t mean the end of the world. You should be able to go through a dispute resolution mechanism and resolve your dispute and move on. It’s not the end of the relationship.
Grevazio Zulu: So that agreement expired, and you were probably hanging without the BSA agreement with ZESCO. Did you fear for the life of the Company at that time?
Owen Silavwe: Look, an agreement coming to an end or expiry is, again, provided in the agreement, and what happens after that is also provided. Ideally what should happen is well before the agreement expires, you need to discuss whether you want to renew the same agreement or you want to enter into a totally new agreement. That becomes quite important. For us, that is something that we always looked forward to, to start new discussions and be able to resolve that.
I don’t want to focus so much on what happened. There were challenges at that time. We’ve gone through that, spending too much time on that…
Grevazio Zulu: You want to run away from the challenges?
Owen Silavwe: Not so much that.
Grevazio Zulu: You’re about to sign a Bulk Supply Agreement with ZESCO and ERB has approved that. You’re happy now? How soon will this be done? Everybody’s looking forward to it.
Owen Silavwe: That’s correct.
Grevazio Zulu: It’s been a contentious issue. It’s been a long time of waiting, of debate, of discussing.
Owen Silavwe: That’s right. Look, we lost two years, which is 2019, 2020. We didn’t have any agreement there and we obviously traded on disputed terms. That’s a period which we need to clean up. When the new management at ZESCO came in, we engaged and we agreed that let’s focus on resolving the terms on which we trade going forward because that’s key. Then, once we’ve resolved that, we’ll come and discuss what terms actually apply to the last two years, which is covering 2019 up to, let’s say, end of March, this year. So, we’ve had very constructive discussions.
Grevazio Zulu: So, you’ve skipped 2019 and 2020, and you’re negotiating the new one. How do you hope to resolve that?
Owen Silavwe: I’ll speak to that. We’ve skipped those two years. What we’ve done is agreed the commercial terms going forward, and I’m happy that we’ve managed to wrap this into a formal agreement, which as you have correctly said has been approved by the regulator. The two parties, which are CEC and ZESCO, did initial this agreement to signify that we do agree with the contents of this document. With the agreement having been approved by the ERB, obviously, the next stage is to have that agreement signed, so we are working on a process to get to that point where we sign the agreement. My sense is that we should have the agreement signed before mid-year which is the end of this month. I’m quite sure that we’ll have it signed because I don’t see anything standing in the way of that. Both parties are happy with the agreement and, as I said, it’s gotten regulatory approval which basically means the terms of the agreement are fair and beneficial to both parties.
Grevazio Zulu: Now, I know you’re quite happy, very happy with the conclusion of this deal, and as a company, it’s worth celebrating. But not everybody shares in your happiness, and I think you understand that. Maybe I should ask you, why do you think the Bulk Supply Agreement is seen as the devil, is seen in a very bad light? Why will you be celebrating? Zambians still look at it with suspicion, and this is something that even influential people have bought into.
Owen Silavwe: I’m actually surprised that you say the Bulk Supply Agreement is seen as the devil. I think there are few people in our society who have a whole misunderstanding of what the Bulk Supply Agreement is about. I think maybe I should use this opportunity to try and put this into context.
When I look at ZESCO – and this is my perspective – when I look at ZESCO, ZESCO today is capable of generating anything between 2,400 – 2,600MW. I’m not talking about Zambia, but just ZESCO alone is capable of generating that much. When you look at that, when KCM was part of CEC’s customers, CEC would buy between 400 – 450MW from ZESCO. I’m trying to put that into context in terms of how much ZESCO generates and how much it sells to CEC. Now, with KCM today being supplied directly by ZESCO, CEC is only buying around 200MW from ZESCO. So, out of the 2,600MW that ZESCO can generate, CEC is buying 200MW. Then somebody out there says, “Oh, look, CEC is a big problem to ZESCO because of the 200MW.”
Look, I don’t want to talk about ZESCO making money. I’m not an expert on the ZESCO business, but I can speak to the benefits that this Bulk Supply Agreement has and this is the nature of the electricity industry.
When you look at the electricity industry, generally the investments that are required in this industry are huge and returns take long. You’re talking about a full return on investments that could take anything between 15 to 25 years, which means you actually need to back your investments with long-term agreements. That’s why when you look at the energy sector in general in the world, it’s actually operated through these sorts of long-term agreements or electricity markets that are viable or bankable if I can put it that way.
You need the long-term agreements like this Bulk Supply Agreement or the Power Supply Agreements that we have with the mines to try and support the viability of the sector. When you look at some of the issues that have been raised by those who claim that the BSA is a devil – and I should say these are very few and some of them, I think it’s probably an issue of not having had the chance to speak to experts. There are a lot of experts in the industry that should be able to explain this, and also just misunderstanding – assuming they have seen the agreement itself – just misunderstanding the contents of the agreement.
In my view when I look at, let’s say, the tariffs, this is something that has been talked about quite a bit claiming that the tariff in the BSA is one where CEC is actually subsidised. When you look at the tariff in the BSA, and I’ll give a general understanding here, because we have what are called customer categories in the industry. You’ve got the retail customers, which is basically the domestic customers. Then you’ve got the commercial customers, industrial customers and then you’ve got the mines who are bulk power buyers, and you could have some bulk power buyers in the industry category as well.
Some of these customers actually take power from higher voltages. One would ask what are the costs associated with taking power to these bulk customers? Therefore, you would be deciding the tariffs based on certain factors because these guys are taking power before other investments are done downstream, which means in terms of causing those investments that you’re doing downstream, they’re not involved in doing that, hence, they would have certain tariffs.
However, it’s also understood in a society like ours that depending on the policy, you could have some subsidies across. Generally, you should have subsidies within a customer category, but there are rare cases where you have subsidies that go beyond or across customer categories, and we’ve had that sort of thing and when I look at the tariffs and, again, I don’t want to go into too much detail, what I actually see is that CEC and in general the mines have been paying a relatively higher tariff in comparison to the other customer categories.
Grevazio Zulu: The story out there is that you’ve been ripping off ZESCO and, in turn, ripping off the Zambians, and an ordinary person pays a higher tariff than you buy the power for from ZESCO. At that point you may need to go into detail, and people need to understand. How much do you buy power for from ZESCO?
Owen Silavwe: I’ll again give a high-level perspective on this. When you look at the domestic, commercial and a number of these industrial customers, for most of them the tariffs actually tend to be in Kwacha. At any particular moment, if you want to compare with customers whose tariffs are in US dollars, then you either want to convert the US dollars to Kwacha, or the other way around – convert the Kwacha to US dollars.
When I look at, for example, where we are today with the current exchange rate, what you see is the domestic, commercial and industrial customers, for most of them their tariff is between 4 to 6 cents. That’s US cents per kilowatt-hour. When you look at tariffs for CEC and the mines in this country, those tariffs are north of 8 cents. Most of them are ranging between 8.5 to, let’s say, 10 cents. Now, to say that these are paying lower tariffs than the other customer category is not true.
Grevazio Zulu: Buying at a lower price and selling at exorbitant cost to the mines.
Owen Silavwe: It’s obviously not true, and that’s why you have a regulator in this country. First of all, the regulator would not allow CEC to do that. Also, if you think about who are the most savvy power customers in Zambia, it’s basically the mines. The mines are not stupid. They know where the tariffs should be in this country and, therefore, generally conversations of tariffs with the mines in this country are very, very complex and tend to be protracted.
The reason is that this is a power user who is very knowledgeable, so he understands, first of all, the cost of the power infrastructure. He does understand what an efficient cost is from an inefficient cost. They wouldn’t allow you to actually overcharge them, and if they did, that will probably be for a very short time, because before long they’ll actually realise that you are ripping them off.
CEC has been supplying power to the mines for years. Just looking at CEC, starting from 1997 when the privatisation was done, you actually realise that CEC has delivered a lot of value, not just to the mines, but to other customer categories in the markets where we operate. We’ve been quite transparent in explaining the changes in tariffs, whenever those have occurred. Almost all these changes are increments that we’ve passed on to ZESCO, or they have been initiated either by the ERB themselves or the Ministry of Energy and then, because these are our customers, they have to come through CEC.
In that process, I think we’ve been quite open in terms of what constitutes the tariff. How do the tariffs compare to the other customer categories? Why do we need the tariffs to go up and all those things. I actually don’t think it’ll be possible for CEC to charge anything close to – in terms of what remains at CEC – anything close to what we pay to ZESCO.
If you look at whenever we’ve done the analysis, we’ve always come to demonstrate that between 15 – 20% of the tariff stays with CEC and 80 – 85% of that tariff – now I’m talking about the final tariff to the mines – is actually passed to ZESCO. That gives you a perspective that there is no way CEC…
Grevazio Zulu: …that you’re going to make more money. But maybe I need to ask you this question a different way. You’ve concluded the BSA, the Bulk Supply Agreement. Why should Zambians celebrate with you?
Owen Silavwe: I think it’s a key milestone, not just for CEC and ZESCO. It’s actually a key milestone for Zambia. Why do I say that? If you look at 2019, 2020, the electricity sector faced serious challenges. It lacked stability, it lacked contracts. What you used to hear about is disputes. This one takes this one to court, that one takes this one to court.
Now, this obviously spilt over to the mining sector as well. The mining sector was always complaining about the need to have stability in the sector, because then it allows the businesses, particularly the private sector – because remember businesses flourish in a stable environment. It’s very, very important that you’ve got a stable environment, an environment that encourages private sector investment. So, with the issues that we had in the last two or three years, you actually will see that most of the intended investments, both in the mining and the electricity sector, were not coming. Those were not coming.
Grevazio Zulu: Because of your Bulk Supply Agreement?
Owen Silavwe: It’s one of the big issues. With CEC and ZESCO signing the Bulk Supply Agreement, investors – as I said, to invest in the power sector, you always look forward to this long-term agreement, because that becomes your bankable document which you can use to borrow money and all these things. Now, without the existing players having the ability to put in place a long-term agreement, you don’t give confidence to anybody out there to think they can come into Zambia and invest. But, with these sorts of things happening now, you begin to give confidence to others.
I mean, this market has been opened up and it is important that we continue to encourage more capital, and indeed private capital, to come through. The government is talking about the need for public-private partnerships, and for that to happen, first of all, the private sector has to believe that the business environment is conducive, the business environment is assuring of your property rights. That is quite key.
I think the Bulk Supply Agreement to be signed between CEC and ZESCO is one of those very important signals to the market and to the would-be investors. But, it’s also more important to us, ourselves CEC and ZESCO, because then we’ll have the ability to use this document to borrow more money and to continue to invest in the sector, but also to go and sign more agreements with others. In all that, there are a lot of benefits, first of all to the electricity sector, to the mining sector, to the wider economy and to the larger Zambian society. It is important that we actually give this signal. I look at it as a very important economic signal to all those that are interested in doing business in this country.
Grevazio Zulu: Now, you’ve spoken about investment coming into Zambia. One of the issues you’ve spoken about is stability and guaranteeing the would-be investors that their property rights would be respected, but there’s another issue that definitely needs attention – that coming to invest in Zambia will definitely require a market. Maybe I need to ask you, how do you describe Zambia’s energy market structure? Good for private investment?
Owen Silavwe: Look, the energy market is always evolving. What is important really is to know when to evolve further as a market, and we as Zambia have come quite far. Not too long ago, the market was kind of closed, and I think in the late or mid-90s, the Zambian electricity market started opening up. It’s still, of course, dominated by ZESCO, being a vertically integrated utility operating in generation, transmission and distribution. But one could clearly see that the market has been liberated, and that has allowed players like ourselves, who got into existence through privatisation, to begin to invest more and more in this market. You’ve seen IPPs like Lunsemfwa, Maamba, Ndola Energy, come up as well. That is a good thing, but that’s only a stage of the evolution of the market. There’s need to move to the next stage, and one would ask what is that stage?
Grevazio Zulu: What is the next stage?
Owen Silavwe: The good thing is there’s already a lot of work being done by both the government and ERB as the regulator of this market. What that next stage is, is more liberalisation of the market.
What is to be expected in that process? We need to ensure that the market gets opened up further. One of the important stages in that is to set up the rules, so the market rules begin to change. We’ve seen something called grid code being drafted. The first version of that, I think, came out a few years ago and there is now the next version that is being worked on.
What that does is basically spell out the rules through which one can be connected to the grid. It speaks to how new demand can be connected to the grid. You’re talking about the loads, customers and all that. Then you’re looking at how new supply, which is new generation, can also be connected to the grid. So, it begins to open up these markets, such that anybody with interest in terms of investing in the electricity market can actually get connected.
Then you start talking about open access. Now open access speaks to how we give access to the transmission infrastructure, because not everybody needs to own the transmission infrastructure. The transmission infrastructure is like a road. If we already have a road between Lusaka and Kitwe and it’s adequate for the traffic at that particular point, there’s no need for you to go and build your own road just because you want to be moving between Lusaka and Kitwe, otherwise it becomes uneconomic.
What we need is if a road exists, we need to have rules that allow anybody who wants to use that road to use it. If they need to pay, use toll gates and that sort of thing. It’s the same thing with transmission. I’m sure you’ve heard about open access.
Grevazio Zulu: Open access now is actually in the energy legislation, the Electricity Act of 2019, so Government has been looking ahead. Do you think, where we sit now, that this is something viable, something attainable? With the Act in place and all the movements that you’re seeing, do you think this is something we can attain as a country? Having open access, having so many investors after that?
Owen Silavwe: It’s just the beginning. What open access does – as I said, it’s one of those factors that encourages investment, whether you’re talking about generation and all the other sectors of the economy. Because open access basically gives users of the transmission infrastructure access to that infrastructure, which means if you want to set up, for example, a mine in Mkushi, and you have identified your power source, let’s say, in Western Province, you should be able to buy your power in Western Province, knowing that transmission already exists, I won’t need to build transmission to move my power from Western Province to Mkushi. All I need to do is approach the operator of the transmission and they are under obligation, as long as you are willing to pay, to give you access to that transmission. That’s what open access does.
Grevazio Zulu: Was declaring your lines common carrier part of the move to enhance this open access?
Owen Silavwe: It’s not. Open access and declaring a network open carrier, or transmission lines in a particular network open carrier, are obviously not the same. Open access is basically a fair way of giving people access to a transmission network, because then they are not discriminated against. They pay a prescribed fee. You basically get treated the same way as any other user of the transmission network, whereas when you declare common carrier – and unfortunately, in our case the Act that you’re talking about was actually not followed in–declaring CEC infrastructure common carrier, because what was said at the time was that the fee for usage of our transmission infrastructure will not be set by us. It will be set by somebody else.
Now, what tends to happen is that I own the infrastructure. I need to set the fee for use of my infrastructure, because obviously I know the capital that goes into this. I know the operations and maintenance costs. However, to make sure that it’s fair, then there is regulation. So, then, I will submit how I arrive at my cost, and I try to justify that to the regulator. Then, the regulator will come in and we will have a conversation. Maybe I need to change that and change that, and we’ll justify that. Once we agree, then it means anybody who wants access to my infrastructure should be charged at that rate.
Now, if you’re taking away that right of me looking at what it’s costing me to run this business and deciding what I charge, that’s not the same thing. That’s not how open access works. Now to take it beyond that, what the market then needs is to ensure that when you have open access, you then need to make sure that you’ve got a system operator, and in this case you need an independent system operator. Now, why is that important? Again, the system operator ensures that there’s fairness in terms of how the whole network is being run.
I think that’s the next phase where we need to go as a country. Beyond that, we also need to look at…I talked about these bilateral agreements, things like the Bulk Supply Agreement, the Power Supply Agreement, are obviously very important agreements, and those should continue to exist because I should be able to do a fair deal with whether it’s another company or it’s an individual who’s got power to sell. That should continue to exist, but there should also be a market. We need to set up a market if we can. That’s the next evolution.
Grevazio Zulu: In the next stage, do you think ZESCO should be unbundled? There’s been a proposition that it should be divided into distribution, generation and transmission.
Owen Silavwe: Unbundling is obviously driven by the need to achieve certain objectives. I should say in terms of moving the market to the next phase, it’s always a very important consideration. It’s always a policy decision from a government perspective, if that’s where they want to go. But in terms of efficiencies, what I can say is speaking from an expert perspective, it’s been proven all over the world that generally unbundling tends to drive efficiencies.
Because when you look at the way the power market works, you’ve got generation which is a totally different business from transmission, and then you’ve got distribution, again, which is very different from transmission and generation.
So, the way you move to unbundling tends to be driven by policy, what you want to achieve and the path that you follow. Obviously, there will be very unique situations depending on the country, and those are the things that I can speak to, but I think one of the things that I’m confident to say here is that generally it’s been proven that where you’ve got unbundling, the efficiencies tend to be higher than when you’ve got vertical integration in the market.
Grevazio Zulu: How do you see the business evolving? I know after some time the industry will be so complex. What do you see as the energy landscape in Zambia, moving forward?
Owen Silavwe: The ultimate market phase is basically where you want to drive efficiencies in generation, because as I said generation tends to be the competitive sub-sector of the electricity market, so you can actually create competition in generation.
Transmission is a natural monopoly, unfortunately. Once somebody has built, let’s just talk about the transmission line between, let’s say Lusaka and Kabwe. Once I build a transmission line there, until the capacity of that transmission line is used up, there’s normally no point in building more lines. If you continue to build more lines, what it means is that all that cost has to be passed to the consumer, because remember at the end of the day, the consumer bears all these costs.
So, if we’re doing that, we’re basically introducing inefficiency in the market. Then, when you look at distribution, again, you can introduce some level of competition in distribution. My sense is that we will look at how we want to move in terms of introducing competition in generation, and then the monopoly that I talked about in terms of transmission. But, because it’s a monopoly, what then you tend to do there, you need to create what is called an independent system operator, which then just superintends over the network. Then, you introduce again some level of competition in transmission.
Grevazio Zulu: Do you see yourselves as CEC operating at the same level, operating the same business that you’ve run 25, 60 years? Are you ready for the change that is coming?
Owen Silavwe: As I said, the Company itself has changed quite a bit, we are not the same business that we used to be, let’s say 10 years ago or 20 years ago. Of course, over the years we’ve grown. When I look at some of the market reforms, market design changes that are being discussed and the issues of open access, that is something that the Company has been primed for.
I believe that the Company is ready for that sort of market. If you look at the way we operate today, we provide certain services here in Zambia, which is supplying power. People look at supplying power to the mines and they think that’s the only thing that we do. We do supply power to some domestic customers in Kitwe. It’s a small area that we supply, but the good thing is we have experience in that area of the business.
We do provide, as I say, transmission services. We do move power within our infrastructure and we’ve got the skills associated with running transmission and distribution infrastructure. We also do move power on behalf of others across the borders into the DRC, but we have CEC-DRC company, a subsidiary of CEC which we set up in DRC. We are able to supply power to a number of DRC mines there where we have partnered with SNEL. SNEL is the equivalent of ZESCO in the DRC, and we work together to supply power to the mines there.
So, we’ve evolved and we are certainly able to adapt to any changes in the market.
Grevazio Zulu: When we look at CEC, you’ve spoken about undertaking power generation projects. If I remember very well, and of course, I think people do remember, you’ve spoken about Kabompo, Luapula, among those projects. You’ve spoken about this loudly, but we don’t see much movement around there. Does the Company have a problem executing these projects?
Owen Silavwe: No, I don’t think so. We are quite keen as a Company to contribute to Zambia’s energy mix. There’s a buzzword at the moment where people are talking about the energy transition agenda, clean energy, green development and all that. Zambia is quite lucky in that respect because over 80% of our electricity today comes from green sources. By us trying to venture into Kabompo, trying to venture into Luapula, trying to venture into solar and wind, we obviously want to make the contribution to Zambia’s growth in terms of further development of clean energy sources.
The last two years have been difficult for us in terms of developing any of those projects. If you look at, let me start with Luapula, Luapula is one of those rivers that’s endowed with a lot of hydro potential. When we did the studies on the river basin, we identified five potential sites there, and at the time we were keen to develop two. We did submit that report to Government.
Unfortunately, we didn’t get the go-ahead to work on those projects. We remain keen to revisit those conversations with Government, because at the time the talk was that Government needs to work with the DRC, government to government to set up certain infrastructure that was required to support the development of those projects – things like the River Authority and anything else that goes with that.
We obviously want to support Government in that process to ensure any of those things that are required are actually put in place. Then, ourselves, and indeed other interested investors could go and invest in the potential that lies in that river.
Grevazio Zulu: Kabompo?
Owen Silavwe: Kabompo has been, again, one of those challenging projects.
Grevazio Zulu: It’s a longstanding project.
Owen Silavwe: Yes. We’ve faced a number of issues with Kabompo. The permits that we needed to get to develop Kabompo unfortunately we couldn’t get in time. The land itself was a big challenge. It’s difficult to get funded if you don’t have the title to land.
So, it’s one project that we’re still looking at. We actually did the initial engineering of Kabompo. It turned out to be quite a costly project. We went back and reengineered it and it’s something that we’re still looking at. We are looking forward to discussing Kabompo with Government because it’s a project that we had looked at submitting to the GET FiT Zambia Small Hydro Programme that Government and KfW have been running. That programme has stalled at the moment, but we are looking to engaging should that programme come back as we understand it.
So, it’s something that we’re still looking at, but like many other projects, there are challenges that we need to cross before we can talk about implementation.
Grevazio Zulu: Before you can confidently speak about them and the execution. Let’s look at the mines as we close. I think we’re running out of time. You’ve had some challenges with the mines and the contracts running out and them owing you. KCM is one of the mines that you’ve struggled with and, again, had a very frosty relationship if I call it that again.
Owen Silavwe: I should actually say, overall we’ve had a very, very good relationship with the mining sector in general, and I think up to this day we enjoy a very good relationship with the mining sector. The challenges that we had with KCM are very unfortunate, and I have to say obviously those challenges started when the provisional liquidator at the time took over the running of KCM.
A lot of these issues are in court – I have to say that – so it’s probably something that I wouldn’t speak to in detail, but suffice to say after the takeover of the provisional liquidator of KCM, payments became a challenge. To this date, KCM owes CEC, I think now it should be over US$170 million, and we’re looking forward to resolving the issues surrounding that mine. It’s an issue that as a listed company is a big challenge because our investors expect that if we provide a service and somebody owes us, then we need to be able to collect the money. We intend to collect that money and, as a result of that, the agreement that we had with KCM requires that these issues are resolved through arbitration.
As we speak, that matter has gone through to arbitration, but we remain open to resolving this matter through dialogue. It’s quicker if these matters can be resolved through dialogue, and we’ll be engaging the new liquidator to try and see whether these matters can be resolved, inasmuch as it’s a matter that’s still under arbitration.
Grevazio Zulu: Mr. Silavwe, it’s been a pleasure having you on the programme.
Owen Silavwe: Thank you so much Grevazio Zulu, and I’m quite happy you could have me here.
Grevazio Zulu: Well, you’ve been watching Sunday Interview, and our guest this evening was the Chief Executive Officer for the Copperbelt Energy Corporation (CEC), Mr. Owen Silavwe.
We’ll be back next week, same time. Pleasant viewing.