Zambian Mining Companies Disputing Power-Tariff Increase

  • Talks between companies and government over increase continue
  • Mines facing low metal prices, government's finances strained

Most mining companies in Zambia, Africa’s second-biggest copper producer, are disputing an electricity-price increase and aren’t paying the tariffs that came into effect in January, Deputy Energy Minister Charles Zulu said.

The government raised power prices for companies including Barrick Gold Corp. and Glencore Plc to 10.35 cents per kilowatt-hour to help fund expensive emergency imports amid a severe electricity shortage. It more than tripled tariffs for other customers in December, but reversed them the following month after a public outcry.

Zambia, already straining from a ballooning budget deficit, faces an annual bill of $660 million in fuel and power subsidies, according to the International Monetary Fund. At the same time, tumbling metal prices have hit profits at mining companies, prompting them to cut costs and fire workers.

The government is in talks with mine operators over the tariff, Zulu said. The recent charge is uniform across the industry, while previously operators had privately negotiated individual deals.

“Unfortunately, people want to stick to the old agreements, which were made when the country had excess power,” he said.

Mining companies have contracts with power suppliers and correct procedures must be followed to raise tariffs, Nathan Chishimba, president of the Zambia Chamber of Mines, said by phone Friday.

“The chamber’s position is that mining companies should be treated equitably in the face of any contractual issues that arise,” he said. “It’s a question of approaching things procedurally.”

Government Talks

Vedanta Resources Plc’s local unit said in January that its power tariffs rose by 25 percent, adding $3 million a month to costs and that it was in talks with the government. First Quantum Minerals Ltd., the country’s biggest producer, said in its annual report Wednesday that it’s disputing the increase and is also in discussions.

A spokesman for Zesco Ltd., the state-owned power supplier, wasn’t able to immediately comment when contacted by phone.

A case that mining companies brought against government in 2014 over a tariff increase that year hasn’t been concluded yet.

Zambia has capacity to produce about 2,300 megawatts of power, almost all of which comes from plants Zesco operates. The company in October signed a deal with Sinohydro Corp. to build the 750-megawatt Kafue Gorge Lower hydropower plant at a cost of $2 billion.

Before it's here, it's on the Bloomberg Terminal.