In an effort to diversify its energy mix portfolio, Copperbelt Energy Corporation Plc (“CEC” or “the Company”) commissioned a 33.11MW Solar Photovoltaic Plant (Solar PV Plant) in Kitwe on 15 February 2023. This is an upgrade of its 1.04MW Riverside Solar Photovoltaic Plant.

The solar project is being undertaken by CEC Renewables Ltd, a wholly owned subsidiary by CEC, in which ZCCM Investments Holdings (“ZCCM-IH”) currently holds a 31.03% stake. 

Diversifying the CEC Energy Mix 

CEC’s power energy is heavily reliant on hydro power sourced from ZESCO. This makes up approximately 91.05% of its power since the commissioning of the Solar PV Plant that is largely distributed to the mining firms on the Copperbelt. Owing to its extensive infrastructure, CEC has been the sole supplier of power energy to these mining firms in Kitwe, Luanshya, Mufulira, Chambishi Chingola and Chililabombwe since post privatisation operations commenced in 1997.

CEC’s high dependency on ZESCO for power supply however does put the Company business continuity at high risk. This risk is evidenced by what transpired during the expiration and renegotiating of the Bulk Supply Agreement (“BSA”) between CEC and ZESCO in March 2022. While the BSA has since been renewed for an additional thirteen (13) year period with a clause to safeguard CEC’s operations by granting the Company access to ZESCO transmission infrastructure for domestic wheeling purposes added, the continuity of the BSA was threatened. In addition, ZESCO itself is still heavily reliant (81.5%) on hydro-electric power which is prone to climatic and weather changes.

In view of the above, CEC through its wholly owned subsidiary CEC Renewables Limited has responded by taking the bold step to innovate and investing in renewable sources of energy to diversify the energy mix portfolio in order to avert some of the risks associated with the mono-power source that is largely hydro-based.

The Riverside Solar PV Plant Project

CEC Renewables Limited completed construction of the 33.11MW Solar PV Plant, expanding on an existing 1.04MW Solar PV Plant in Kitwe. The location of the plant was strategic as it is close to existing CEC infrastructure thus simplifying grid connectivity, monitoring and operation, as well as maintenance of the facility. The facility’s current total capacity is now 34.15MW which will be used for domestic wheeling. This is the first major step towards power generation, with CEC now being approximately 8.95% less dependent on ZESCO for power and reducing its operational costs at the same time. 

Future CEC Renewables Projects

In its BSA with ZESCO, CEC has a fixed fee power supply limit of 380MW. The 380MW exceeds CEC’s current demand, however this is anticipated to change in the near future. As such, the Company is targeting to develop an installed capacity of 200MW of renewable energy on the Copperbelt by 2024. To this end, in addition to the Riverside Solar PV Plant, CEC:

Benefits to ZCCM-IH

ZCCM-IH has held a 24.1% stake in CEC in since November 2018. This was increased to 31.03% earlier in the year. The increase is as a result of the confidence in CEC’s business continuity and the projected business growth arising from the expansion into renewable energy that is aimed at delivering maximum shareholder value and return. With the global drive to decarbonisation and net zero, CEC is headed in the right direction to become a leading clean energy producer in Zambia. In addition, CEC has been a consistent dividend payer since 2015 with continuous payments on average of USD22 million per annum to its shareholders.

At an Extraordinary General Meeting (“EGM”) held 31 March 2023, ZCCM Investments Holdings Plc (“ZCCM-IH” or “the Company”) shareholders approved the conversion of the 20% profit-based dividend rights in Kansanshi Mining Plc (“KMP” or “the Mine”) to a 3.1% gross revenue royalty right. This conversion entails that the historically unpredictable dividend rights have been replaced with guaranteed quarterly royalty rights of 3.1% of the Mine’s total revenue to be made over the Life of the Mine (“LoM”).

The estimated life of the mine is at least until 2045, during which the Company’s annual income from KMP is anticipated to be consistent and guaranteed. This is due to royalty income being based on sales of all metal products from the mine licence, as such as long as KMP is producing, ZCCM-IH is guaranteed to receive the royalty from the gross sales. The metals will be sold at obtaining commodity prices.

Dividend Vs. Royalty Structures

Dividends, payable at the discretion of the Board of Directors are a percentage of net annual profits paid out to shareholders based on the percentage of shares held at the time. As is the case with KMP, ZCCM-IH held and continues to hold a 20% stake in KMP (albeit with royalty rights now). This resulted in the Company having limited influence in deciding whether dividends were to be paid for a particular year and how much these would be, which was also dependent on some portion of the revenue being held to fund expansion projects. In addition, dividends are neither consistent, predictable, or even guaranteed.

However, the Company’s royalty income will be charged at 3.1% of the KMP’s total revenue from the sale of Copper, Gold, and all other metal products. These payments take into consideration the S3 Expansion Project currently underway at KMP, and will be made prior to any debt repayments, production costs incurred, or tax obligations being considered. As a result, ZCCM-IH is guaranteed consistent and predictable income paid on a quarterly basis.

20% Dividend Payments Vs. 3.1% Royalty Payments

In addition to ZCCM-IH being guaranteed consistent and predictable income, given prevailing commodity prices and anticipated production at KMP, royalty styled payments also means potentially higher income for ZCCM-IH. For instance, comparing actual dividends received from KMP between 2009 and 2021 which yielded a total income of USD337 million for ZCCM-IH, in the same period if the royalty styled payments of 3.1% were in place, ZCCM-IH would have realised an estimated total income of USD672 million (99.4% more) which is nearly double the income for the Company from KMP.

What Royalties Will Mean for ZCCM-IH and its Shareholders

During the EGM, the ZCCM-IH Board Chairperson Ms. Dolika Banda stated that “the royalty arrangement will give the Company consistent and stable income, and fundamentally, will change the financial health of ZCCM-IH by so doing”.

As detailed in the ZCCM-IH Strategic Plan for years 2020 to 2026 (“Strategic Plan”), the Company will use the KMP royalty income to pursue various key investments encompassing the entire mining value chain. These investments include extensive exploration of critical minerals, through to value addition projects with the ultimate goal of increasing value and return on investment for the Company’s shareholders, and to create national economic success stories for the benefit of all Zambians.

To access the Company’s Strategic Plan, kindly click the following link: https://zccm-ih.financifi.com/download/2018-2023-strategic-plan/