Vedanta, Glencore Xstrata Agree to Start Zambia Power-Cost Talks

Zambian Mines and Energy Minister Christopher Yaluma said companies including the local units of Glencore Xstrata (GLEN) Plc and Vedanta Resources Plc (VED) agreed to start talks to pay more for power in Africa’s biggest copper producer.

“They are willing” to re-negotiate the contracts, he said on Nov. 2 by mobile phone from Lusaka, the capital.

Zambia is building new power plants to end an electricity shortage that has led to daily cuts. Mines, which are struggling with declining copper prices and rising costs as they follow ore bodies deeper underground, pay about half the cost of generating for new projects, according to Copperbelt Energy Corp., the biggest supplier to operators.

The Energy Regulation Board has granted state-owned power supplier Zesco Ltd. a “double-digit” tariff increase for its non-mining customers, such as households and companies that include the local units of SABMiller Plc (SAB) and Illovo Sugar Ltd. (ILV), Yaluma said, declining to provide the actual percentage increase for the utility. The increase is “much lower” than the average 26 percent Zesco applied for in July last year and will probably become effective in January, he said.

Zesco produces more than 90 percent of Zambia’s power, some of which which it sells to Copperbelt Energy that in turn sells to mines owned by companies including Vedanta, Glencore Xstrata and China Nonferrous Metals Co. Zambia’s mining industry accounts for about half of the country’s power demand.

Job Cuts

Vedanta’s Konkola Copper Mines unit on Nov. 1 said it will cut 1,529 jobs as it seeks to lower costs and boost productivity. Copper for delivery in three months fell 0.6 percent to $7,200 a metric ton by 12:29 p.m. on the London Metal Exchange yesterday, extending the drop this year to 9.2 percent.

Copperbelt Energy increased its tariffs to mines by 28 percent in January 2011, except for Vedanta’s KCM, which agreed to increases over five years. Mines owned by Barrick Gold Corp. (ABX) and First Quantum Minerals Ltd. (FM) buy their power directly from Zesco.

Zambia needs higher power tariffs to be able to grow supply and upgrade its distribution network, Yaluma said.

“This network has been totally neglected,” he said. “Come next year December there will be sufficient supply outstripping demand but we don’t know if the network will be in such a shape to transmit the power.”

Cephas Sinyangwe, a spokesman for Glencore Xstrata’s Mopani mine, declined to comment when contacted by e-mail. A Konkola representative didn’t respond to a message for comment. Emmanuel Mutati, president at the Chamber of Mines of Zambia, couldn’t be reached after four calls to his mobile phone.

To contact the reporter on this story: Matthew Hill in Lusaka at mhill58@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.