Zambia wants to renegotiate power supply agreements with mining companies including local units of Glencore Xstrata Plc (GLEN) and Vedanta Resources Plc (VED) that it views as unfavorable, according to Mines Minister Christopher Yaluma.
“To continue maintaining the future of the network, we need that cost reflectivity,” he told reporters today in Lusaka, the capital of Africa’s biggest copper producer. “If we don’t do that, where are we going to get the money, apart from huge borrowings?”
Higher costs will put pressure on Zambia’s mining industry, the largest power user, as falling copper prices lead to threats of thousands of firings. The country needs to invest about $5 billion to meet a supply shortfall, according to Zesco Ltd., the state-owned electricity company. The price of copper for three-month delivery has dropped about 12 percent this year.
Zambia’s government signed long-term power purchase agreements with mining companies as part of a privatization process that began in the 1990s. The energy regulator approved a 30 percent electricity tariff increase for some mines in 2011.
“The contracts which were signed were not very favorable,” Yaluma said. “Whoever did that didn’t think.”
It will be difficult to cancel the contracts, and government will need consent from mining companies to renegotiate them, he said. Yaluma will meet the Chamber of Mines and Zesco on July 29 for discussions.
Current power tariffs cover about half the cost of generating electricity from new projects, Copperbelt Energy Corp., which buys power from Zesco and sells it to the mines, said last month. Yaluma called for a gradual increase in prices.
Konkola Copper Mines Plc. Vedanta’s Zambian unit and the country’s biggest power consumer, is considering building its own coal-fired power station to shield it from rising electricity prices. Its contract with Copperbelt Energy ends in 2020.
While Zambia needs higher prices, it must also ensure electricity suppliers meet quality standards. If they don’t, they should pay financial penalties to customers for loss of business, Yaluma said.
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