Konkola Copper Mines provides clarity on power issues
June 4, 2020
CHINGOLA, 4th June 2020: Following events of the last few days, which culminated into the Copperbelt Energy Corporation (CEC) temporarily restricting power to Konkola Copper Mines Plc (KCM) for a few hours on Monday, we seek to update our stakeholders and the nation on the matter.
In the last 20 years, Konkola Copper Mines had a Power Supply Agreement (PSA) with the CEC, which was underpinned on the Bulk Supply Agreement (BSA) between Zesco Ltd., and the CEC. Our agreement with the CEC expired on 31 March 2020, but was extended by mutual agreement between the two companies to 31 May 2020. KCM extended the agreement to the end of May to allow CEC to agree on a new Bulk Supply Agreement with Zesco or any other Power Producer. To date CEC has failed to agree with any producer for a Bulk Supply Agreement.
This state of affairs left KCM with no other choice but to enter into an agreement directly with Zesco, leading to the signing of a Term Sheet Agreement by the two parties. This turn of events precipitated the initial restriction notice, given with two days advance notice instead of the contractual 14 days’ notice. This restriction notice came against a backdrop of negotiations to pay the outstanding invoices in instalments. The CEC invoices were allowed to accrue to the extent that they did based on a written agreement between the parties that the debt would enjoy priority upon the sale of KCM and in turn for as long as KCM was still CEC’s customer, CEC did not make any demands for the debt.
The decision by KCM to enter into an agreement with Zesco makes for commercial efficacy on account that the power sourced from Zesco shall be cheaper than CEC’s power. KCM wishes to inform stakeholders that CEC used to buy electricity from Zesco at a cheap rate and charge a mark up to the mines on the Copperbelt. Further, Zesco has experience in supplying electricity to the mines as it has been delivering power to Kalumbila and Lumwana mines in the North-western Province.
KCM views Monday’s attempt by CEC to restrict power as an act of lawlessness and in contempt of a Court Order obtained from the Kitwe High Court. Indeed, whilst the agreement between CEC and KCM has expired, the power that KCM is receiving does not belong to CEC for CEC to interfere with.
The debt owed by KCM to the CEC, is a direct consequence of the insufficient investment by Vedanta into KCM, which created a situation where the costs have remained at a higher level compared with the company’s revenue. The attempts to restrict power at KCM by CEC are not new, in 2014 CEC restricted power to KCM for two weeks.
A company is only placed in Provisional liquidation if it is unable to pay debts as and when they fall due. The placing of KCM in provisional liquidation is a step in resolving the problems at KCM. Ultimately, the solution lies in selling the company to an investor with sufficient capital to operate the company.