• Government says it can't afford to subsidize electricity
  • Mines minister expects power crunch to be solved by next year

Mining companies operating in Zambia will have to get used to higher power tariffs because the government can’t afford to subsidize them and needs to encourage private investment in generation to alleviate a chronic supply shortage, Mines Minister Christopher Yaluma said.

“The tariffs have been very, very low and far from cost-reflective,” Yaluma said in an interview at the Investing in African Mining Indaba conference in Cape Town on Wednesday. The mining companies “want us to pay. They must be realistic.”

The government increased electricity charges for mining companies to 10.35 U.S. cents a kilowatt-hour from Jan. 1. While it reversed a 200 percent increase in charges for commercial and industrial customers on Feb. 6, two months after it came into effect, no concession was announced for the mines, which utilize more than half the southern African nation’s power.

Zambia, Africa’s second-biggest copper producer, get most of its electricity from hydropower plants, which have been hobbled by drought. Some power is being imported at a cost of 19 cents per kilowatt-hour, meaning mines are still being subsidized and the government will consider further price increases, Yaluma said.

“We must get cost-reflective tariffs, so we allow independent participants in power generation to come in,” he said. “We have liberalized but they can’t come in because of the low tariffs.”

The old electricity prices differed from mine to mine. Vedanta Resources Plc said last month said the charges at its Zambian unit, Konkola Copper Mines, increased by 25 percent, adding $3 million a month to its costs.

In 2014, mining companies filed a lawsuit challenging proposed power tariff increases, a case that is still being considered by the Lusaka High Court.

Yaluma said power shortages will ease when the 300-megawatt Maamba coal-fired project comes into operation in June.

“By next year, we’ll have adequate power to cater for our mining needs,” he said. “It will be from renewables, it will be from coal. We are getting another 120 megawatts from hydro. The only problem is if we don’t have sufficient water.”

The minister also said the government is still evaluating proposals from the nation’s Chamber of Mines to introduce a new sliding-scale mine royalty system, with the levy that operators pay determined by metal prices.