POWER TRADE IN ZAMBIA, What’s happening?- Amb. Emmanuel Mwamba

POWER TRADE IN ZAMBIA, What’s happening?
By Amb. Emmanuel Mwamba
Why hasn’t ERB awarded power trading licenses in an open and transparent manner?  Why is ZESCO paying Ndola Energy Company millions of dollars even when production has ceased or halted?
SHOCK REVELATION
A World Bank Group delegation recently visited Zambia to promote energy security in the region

In their briefing to President Hakainde Hichilema, they informed him about the progress being with linking the Southern Africa Power Pool (SAPP) and East Africa Power Pool and the need to complete the decade old interconnector project between Zambia and Tanzania.

President Hichilema is quoted to have told them that there was no need to worry about the project between Zambia and Tanzania as the interconnector was being pursued and will be done by the private sector.

He stated that the private sector was mobilizing to accelerate the construction and completion of the project.
This shocked the delegation.
Later on in their review meeting, they wondered what was happening to the electricity sector in Zambia.
This is because the construction of the interconnector between Zambia and Tanzania has been pioneered and promoted by the European Union and the World Bank Group and cost it at EUR1Billion project (EUR 500million to each country).

TANZANIA SEGMENT
By December 2020 a lead partner Agence Francais de Development (AFD), International Development Association (IDA) under World Bank Group, and the European Union had mobilized EUR500 million for the project and extensive background work and feasibility studies had been done.

The project would construct a 620km of 400kv double circuit transmission line from Iringa in the southern highlands of Tanzania to the border in Nakonde-Mbala and Sumbawanga. It included industrial substation at Tunduma and the construction of a 4km transmission line to the Nakonde border.

The construction of the Tunduma substation, including the installation of a power distributor.
This will complete the segment to connect the SAPP and East Africa Power Pool and complete the regional corridor by connecting Zambia and Tanzania. Another project involved Ethiopia-Kenya and Tanzania interconnectors.

ZAMBIA’S SEGMENT
On the Zambian section, the cooperating partners were coordinating with ZESCO for the Zambia Transmission Interconnector (ZTK). This involved the construction of the 905km single circuit bidirectional 330kv transmission interconnector from Kabwe-Pensulo (Serenje) (298km), Pensulo-Mpika (200km), Mpika-Kasama 330kv (200km) and Kasama-Nakonde (212) km.

The plans also involved two new 330kv circuits and a 14km double circuit 400kv line.
So far Zambia has completed the Kabwe-Pensulo-Mpika-Kasama leg. The leg remains is the Kasama-Nakonde line with the substation and other facilities at Nakonde

The Electricity sector is a thriving industry and the newly established component of electricity trade or power trade was an exciting feature.
Have private and commercial interest taken over the sector?

POWER TRADING IN ZAMBIA
The current model for electricity trade involves long-term bilateral Power Purchase Agreements (PPAs) and Bulk Supplier Agreements (BSA) where entire output of the plant is sold to is the power utility ZESCO, granting 20–25-year contracts.

Further, regional trading driven by the Southern African Power Pool that has both a day. Intra-day and forward market where power utilities trade power. This market’s trade is dominated by regional power utilities governed by long-term bilateral agreements but recently Independent Power Producers and licensed traders are being allowed onto the platform which constitutes about a quarter of the trade.

Each country’s electricity market is managed and regulated individually and is not yet properly integrated and interconnection between national grids is limited.

But recently, Zambia recently adopted an Open Access regime for the electricity market. The open access market enables independent power producers (IPPs) and large power consumers to engage in electricity regional and domestic trading by having access to power transmission and distribution infrastructure currently owned by ZESCO irrespective of the ownership or operation.

This regime is anchored in the Electricity Act of 2019 and the recently promulgated Electricity Open Access Regulations of 2024. Eligibility and participation should obtain license from the Energy Regulation Board (ERB). The trading license is being issued for producers, consumers and traders and must also apply to transmission or distribution network distributor. Currently the system operator is ZESCO which isa notified by ERB when approvals are done for the access to the network to be granted.

The regulations provide a 3tier open access contracts of 3months to five years.
POWER TRADERS IN ZAMBIA
ZESCO is the primary off-taker and bulk retailer of electricity in Zambia. The sector has over the years seen the participation of private enterprises as Independent Power Producers (IPP) or suppliers. These are; Copperbelt Energy, Maamba Collieries Ltd, Lunsemfwa Hydro Power Company, and Ndola Energy.

Following the promulgation and implementation of the Electricity (Open Access) Regulations of 2024 has seen a flurry of power traders enter the market.
The regulations were touted that they were designed to foster competition, promote diversification and energy mix, encourage private investment and potentially reduce reliance on a single utility for electricity. The Regulations are aimed at allowing Independent Power Producers to generate and sell directly to consumers.

The purpose of the regulations is anchored in the Electricity Act of 2019 and the goals is to attract investment, increase efficiency, and improve the reliability and stability of electricity supply/
But the start seems a false start!
The Energy Regulation Board has issued power trading license and ZESCO has signed Power Supply Agreements with: Kanona Power Company, GreenCo, EnPower (Enterprise Power Zambia Ltd), Africa Energy Trading Corporation and Petrodex Trading LLC.

1. Enterprise Power DCR (ENDRC) is a trading company with a focus to supply power to the Democratic Republic of Congo (DRC). EPDRC has an import and distribution license from the DRC’s Ministry of Energy and its subsidiary in Zambia has a standard Electricity Trading License NO SL/EE/TRN/2024/002 issued on 2nd April 2024 by the Energy Regulation Board. EPDRC also has a Power Supply Agreement (PSA) with ZESCO, in 2023, EPDRC and a major DRC mining company signed a power purchase agreement for 50 MW, and, together with Société Nationale electricity (SNEL) a tripartite agreement for the wheeling of electricity on the SNEL grid. EPDRC has been supplying power to DRC mining companies since August 2023. The company is also pursuing the Kalumbila-Kolwezi 330kV Interconnection Project (KKIP) where it is developing and involves the design, financing, construction and operation of a high-voltage line linking the Republic of Zambia and the Democratic Republic of Congo.

Nikolai Germann is the Director and Board Member and Emmanuel Chilombo Kalenga is the Managing Director.
2. KANONA POWER COMPANY- a newly established power trading company with future ambition to invest in generation, transmission and distribution. It is currently importing power from Electricidade de Mozambique (EDM) and using ZESCO and a signed Power Purchas e Agreements. Kanona is also negotiating to import power from Tanzania Electric Supply Company (TANESCO). Kanona was incorporated in January 2023. The import deal with Mozambique and selling the power to ZESCO has raised controversy as ZESCO doesn’t need a middle entity to import power from any of the regional utilities! The Board Chairperson is Padmore Jesse Muleya and director Monica Musonda.

3. Africa Energy Trading Group Corporation- has been delivering bulk supply of electricity to copper mines in Zambia and the DRC. It has registered office in Kabulonga. The company is led by Dr. Mundia Kabinga and Muzala Shinka.
4. GreenCo Power  Services- power trader and intermediary, Ana Hadjuka is the founder and CEO and has a management team comprising Chikoma Kazunga AS HEAD OF BUSINESS and Johannes Baake as group CFO.

5. Petrodex LLC has extensive expertise in the energy, oil and Gas, chemicals and mineral products. Petrodex has a signed a Power Supply Agreement with ZESCO to supply 120 megawatts power to the DRC.Out of this only 30 megawatts is available for Petrodex and the rest is future trade. The firm is run by Jorge Markovich as Managing Director
6. Ndola Energy Company- The plant has halted production of power as Indeni Oil Refinery its primary source of heavy fuels lay closed since 2019. At the height of the power cut crisis in June 2024, Ndola Energy restarted its 105-mw thermal power plant. The Zambian government guaranteed to secure the heavy fuels required for thermal plant. Government implemented a special cost pass-through tariff mechanism approved by ERB. This model eliminated need for government subsidies by having a specified consumer (ZESCO) cover the fuel expenses. Complications have since arisen over the supply of heavy for the production of electricity and is now costing ZESCO million because of contractual obligations.

CONCLUSION
In the manner the Open Access Policy is being implemented, has robbed ZESCO crucial traditional revenue and resources in export earnings, high cost of purchase of power from power traders (middlemen.). This is likely to plunge ZESCO in a death spiral where the utility will be unable to maintain the infrastructure and service quality.

Further the use of aging national grid by so many players at cheap wheeling charges and fees without capital and extensive reinvestment to the infrastructure may threaten national supply of electricity.
By forcing ZESCO to open access of its transmission, distribution and retail infrastructure to private traders without making technical detailed assessment and accompanying capital investment to the infrastructure threatens the grid. This is because transmission lines, transformers, substation remain unchanged under open access but pressure and wheeling traffic of electricity has increased many folds overnight. This threatens grid stability and safety.

Further, this has been done in the most opaque and non-=transparent way that the process has hampered fair, open access and pricing for all consumers.
The immediate declining revenues for ZESCO which is currently grappling with debt and requires to undertake massive projects such as regional interconnectors, threatens energy security for the country.
It was expected that the private sector would inject capital in the energy sector by embarking on generation, transmission and distribution but have entered the market on speculation and reliance on ZESCO for both its infrastructure or to underwrite the investments debts independent players through purchase or supply agreements

The financial burden placed on ZESCO has been witnessed when the utility company sought emergency tariff to meet the cost of power imports, yet power traders added a higher cost structure to this burden borne by long-suffering consumers and ZESCO.
Instead of the Open Access Policy attract investments especially in the renewable space, we have seen the sub-sector attract speculative and opportunistic players in the industry. As traders riding on the infrastructure of ZESCO and bleeding ZESCO to death.