Zambia Copper Miners See Power Supply Deal as 2020 Top Risk

LUSAKA (Capital Markets in Africa) – Zambian copper producers see their biggest risk this year as the looming expiry of an electricity-supply deal between a state utility and the private company that distributes power to the mines.

A more than two-decade-old agreement where state-owned Zesco Ltd. sells power to Copperbelt Energy Corp., which then distributes it to companies including the local unit of Glencore Plc, comes to an end on March 31, and the government doesn’t plan on renewing it. Copper miners in Africa’s second-biggest producer of the metal are now fretting that this could threaten electricity supply and lead to higher prices.

“There are lots of challenges within the industry, but the uncertainty regarding the power-supply arrangement does pose the biggest risk to production,” Goodwell Mateyo, president of the Chamber of Mines, said by phone Tuesday. “This is only the beginning of the year, and if we are faced with a situation where there’s no certainty in terms of how the power-supply arrangements are going to be, that affects planning.”

Most of Zambia’s copper mines buy power from Copperbelt Energy, while Zesco accounts for almost all generations in the country. The state-owned utility argues that the existing deal favors the private companies, though it has assured mine operators of continued electricity supply regardless of the commercial arrangement.

CEC supplies mining companies that have operations in Zambia’s Copperbelt province, which also include Vedanta Resources Ltd.’s local unit. The mining industry, which accounts for more than half of Zambia’s electricity consumption, so far hasn’t been affected by a protracted energy shortage that’s led to rolling blackouts that leave households and businesses without power for as long as 18 hours a day.

If Zesco decided to supply mines on the Copperbelt directly, it’s unclear how the company would get the electricity to them, as CEC owns the distribution network. CEC, which was privatized in 1997, could source power from other countries in the region to sell to its existing mining customers too. Either way, mining companies may have to pay more, said Mateyo.

“The biggest concern is a lot of the uncertainty regarding an alternative plan,” he said.

Source: Bloomberg Business News