Feeding African mines | fDi Intelligence – Your source of information on foreign direct investment

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When Hakainde Hichilema became president of Zambia 14 months ago, he announced ambitious plans for the country’s mining sector. The new government, he said, would help mining companies increase copper production from 830,000 metric tons in 2021 to 3 million metric tons by 2031.

For over 100 years, copper has been the mainstay of the Zambian economy. The commodity accounts for more than 70% of the country’s export earnings. A key player in President Hichilema’s plans is Copperbelt Energy Corporation (CEC), a private utility that is the country’s second-largest power company and the main supplier of electricity to the Copperbelt mines.

As one of the success stories of Zambia’s late 1990s privatization program, CEC has its roots in the early 1950s, when mining companies exploiting the mineral wealth of the Copperbelt established a mining company. electricity to meet their growing electricity needs.

CEC buys most of its electricity from the Zambian public company Zesco. It resells this electricity to the mines by transmitting it via a distribution network of more than 1000 km. Zesco leases transmission lines from CEC to reach retail and commercial customers on the Copperbelt. And as an active member of the Southern African Power Pool, CEC leases its grid to regional utilities in the Southern African Development Community that sell power to the Democratic Republic of Congo (DRC).

CEC is currently listed on the Lusaka Stock Exchange where its major shareholders are Singapore-based Affirma Capital, Dublin-based Zambia Energy Corporation Limited, and the Zambian government through ZCCM Investment Holdings. Last month, the company reported mid-year revenue of $182.3 million, a 12% increase over the previous year. It also returned $50.4 million to shareholders via its latest, largest interim dividend to date.

Evolving Energy Ecosystem

Today, CEC demonstrates the role that private energy companies can play in Africa’s evolving energy ecosystem. The company is at an important crossroads of growing demand for electricity in Central and Southern Africa, the new Zambian government’s ambitious industrialization plans, the transition to green energy and significant energy sector reforms. energy.

“Zambia has relatively low energy infrastructure spending at the moment,” says Mutale Mukuka, CEC’s chief financial officer. “As a country, we need to invest a lot of money in the transmission and distribution sub-sectors to make sure that we activate much-needed economic growth.”

The World Bank estimates that national access to electricity in Zambia averages 45% – about 82% in urban areas and 14% in rural areas.

According to a 2021 report by Kearney, a consultancy firm, investment allocations to African oil, gas, power and coal over the next two decades should “reflect changing priorities and the needs of most urgent development. It suggests that 30% of all energy investments should be devoted to electricity transmission alone given the demands of rapid population growth and urbanization.

The Zambian government’s Integrated Resource Plan estimates that its ambitious industrialization program would increase global energy demand from 2,143 megawatts (MW) in 2020 to 8,000 MW by 2030, rising further to 10,000 MW by by 2040 and requiring approximately $11 billion in investment capital.

“Funding for any energy infrastructure will be private sector driven, with any public involvement occurring through public-private partnerships,” says Sharon Sakuwaha, co-director associate at Moira Mukuka Legal Practitioners, a law firm based in Lusaka. “I think we will probably soon see a Public-Private Partnership Bill in Parliament that will address the challenges of current PPP legislation.”

It is also widely recognized that due to climate change and its effects on energy assets such as the Kariba Dam, Zambia cannot continue to rely excessively on hydropower which currently provides around 80% of its electricity. With changing rainfall patterns and increased likelihood of drought, the country is likely to experience widespread disruption of electricity supply.

Deepen the dialogue

To address some of these challenges, dialogue between government and the private sector has deepened over the years. Specific initiatives include the creation of the Office for the Promotion of Private Investment in Electricity and the Public-Private Dialogue Forum, which resulted in updated legislation (the Electricity Regulation Law). Energy Act 2019 and Electricity Act 2019), renewable energy feed-in tariffs and most recently the possible introduction of net metering in the Zambian market.

However, CEC is setting ambitious investment plans in motion to meet the growing needs of its customers.

“The company sees great growth prospects for the future based on its strategic focus areas which include meeting expansionary and new demand from mining customers in all our markets, investing in new transmission and distribution and investment in renewable energy sources,” said the CEO. Owen Silavwe said in a statement Aug. 26.

Later this year, CEC will commission its own 34 MW solar photovoltaic installation in the Riverside residential area of ​​Kitwe, Zambia’s second largest city. Work on a 66 MW solar project will follow next year.

The company also views the DRC as an important pillar of its growing regional electricity business strategy. Through its 50/50 joint venture with SNEL, the country’s utility, CEC brought in $85.6 million in 2021, up 11.6% from the previous year.

The DRC is one of the largest countries in Africa. For Zambian companies, it is therefore an important market. In April this year, the two countries signed a Memorandum of Understanding committing “to identify opportunities and facilitate investments to increase Africa’s share in the value chain of batteries, electric vehicles and renewable energy”. Together they hold large deposits of lithium and cobalt, key components in the manufacture of electric vehicle batteries. The DRC-Zambia Battery Council, which has yet to be established, will have an executive committee comprising the two presidents and senior representatives of the United Nations Economic Commission for Africa and the African Export-Import Bank. .

As CEC looks to the future with renewed optimism, recent challenges are a reminder of some of the risks associated with working in a politically sensitive sector.

In 2020, the company faced a series of existential threats, including the previous government’s delay in renewing its 20-year wholesale supply agreement with Zesco, state appropriation of its distribution lines and of transmission and the non-payment of more than 170 million dollars. by its largest customer, Konkola Copper Mines, a subsidiary of Vedanta Resources.

Today, the commodity boom is breathing new life into Zambia’s mining sector and CEC is gearing up to take advantage of it. Whether this will help Zambia close the electricity access gap that is hampering large-scale economic growth remains to be seen.

This article first appeared in the October/November 2022 print edition of fDi Intelligence. View a digital edition of the magazine here.

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