Transcript of Q&A Session at the 24th Annual General Meeting of Copperbelt Energy Corporation Plc

By Published On: May 10th, 2022Categories: Corporate announcement, Transcripts

The following transcript of proceedings of the 24th Annual General Meeting (AGM) held on 27 April 2022 is being delivered uncertified by Copperbelt Energy Corporation Plc (CEC).

The information in this transcript is for general information only. It should not be used as a substitute for specific and professional advice. Responsibility is disclaimed for any inaccuracies, errors or omissions. All expressions of opinion or advice are published on the basis that they are not to be regarded as expressing the official opinion of Copperbelt Energy Corporation Plc unless expressly stated. CEC accepts no responsibility for the accuracy of the opinions of information contained in this transcript.

London Mwafulilwa: Thank you for that presentation from the external auditors. I now invite questions from the shareholders on the reports received from the CEO, CFO and the auditors.

The Director of Programmes will assist with the question and answer process. Director of Programmes.

Gilbert Simakoloyi: Thank you very much, Chair. As we enter into the question and answer session, dear members, please note the following guidelines. In the interest of time and in order to accommodate wide participation, members, we advise that you limit your questions, or indeed comments, to a maximum of two per person. With respect to the questions, these should be clear and concise. Please note also that you are required to give your full name and your status as to whether you are a shareholder or not before you ask your question.

In terms of the modality, you will note that on your screen – notwithstanding the device that you are using – you will see an icon of a hand. All you need to do when you have a question or a comment to make, is to please put your cursor there and activate that particular icon and your hand will show on our screen, and we will be able to give you the opportunity to ask or indeed to make a comment in relation to this meeting. After your question or comment has been addressed, we will ask that you deactivate that icon so that your hand then drops from your screen to signify that you are no longer asking or commenting. We hope that is clear. Just for good measure, for purposes of good order for the meeting, we request that you address all your questions and comments to the Chairman.

We will also take note of the questions that you have dropped in the chat. Those will be given consideration and responded to as well. We will take a set of three people at each given time, who then will have the opportunity to ask a maximum of two questions. Once that is done, then we will refer to the Chairman to answer that set of questions. If that is clear we will now proceed into that particular process.

I see the first hand of Professor Prem Jain. I also see the second hand of Mwila Chansa. We have the third hand of Mukuka Mapemba. We have the first set of three that are going to ask questions or to make comments related to the deliberations of this meeting.

Let's go first with Professor Prem Jain. Kindly unmute your mic and you can ask your question.

Professor Prem Jain: Thank you very much. Good morning everyone. I would like to start by appreciating and congratulating the senior Management for the brilliant performance of CEC once again and steering the Company through difficult times. I have two questions, which I think are quite critical for the Company. First, is the new BSA. I do not know how much confidentiality is needed so far because it has not been signed yet, but is there any indication whether it is to the happiness, to the satisfaction of CEC? And the second question is about the KCM debt: how likely it looks that the Company will be able to recover the CEC debt. Thank you very much.

Mwila Chansa: Good morning everyone. I wanted to find out how long the new BSA will run. The previous one ran for about 20 years. Is Management in a position to tell us how long this new BSA will run, notwithstanding that the regulators have not yet concluded the issue? And then I also have a question pertaining to the supply of power to Konkola Copper Mines. I know at the height of the misunderstandings between ZESCO and CEC, ZESCO began supplying power to KCM directly. Now with the new BSA in place, how will we proceed going forward? Will ZESCO continue supplying and paying CEC for using the infrastructure or will CEC negotiate a new agreement with KCM? I thank you.

Mukuka Mapemba: Good morning and thank you, once again, to Management and the Board for the efforts made towards continuing to steer the Company towards greater heights. I would like to ask a question regarding what the CEO highlighted on modernising the power network and adopting new technology to optimise performance. Are you able to just shed more light on what that technology is and how exactly CEC is aiming to modernise its power network? Secondly, I'd also like to find out how CEC expects the impact of KCM's debt to be on dividend payments and its 10-year Capex plan, assuming that it isn't able to recover the debt in the short to medium term.

Thank you.

Gilbert Simakoloyi:Thank you. Over to you, Chair. Those are the three people that have asked.

London Mwafulilwa: Thank you. Professor Prem Jain. On behalf of the Board, Management and the entire CEC family, we thank you for having appreciated and congratulated the team for the performance in the previous year. I will proceed to talk of the new BSA as asked by Professor Jain and Mwila Chansa. Unfortunately, this is a work in progress and until the regulators do revert to us, we are unable to provide any further details, but rest assured that the two managements of ZESCO and CEC, including their Boards, did work together to a mutual understanding and, therefore, we request that the shareholders hold back for now as these terms are subject to ratification by the regulators. Thereafter, we'll proceed to advise the shareholders of the contents of the agreement.

KCM debt, how likely to recover? I will ask the Management team to come in on that. With regards to KCM power supply under the new BSA, I've already addressed the issue of the new BSA but for now, ZESCO continues to supply power to KCM.

The impact of the KCM debt on dividends: obviously you saw that the previous year's dividends were hampered by the non-collection of the KCM debt, but Management will respond to that, including the modernisation of the technology in the infrastructure. CEO.

Thank you, Chair. Commenting on the KCM debt: this is a very important matter to CEC. The Company is owed money and the right thing is that KCM gets to pay this money fully to CEC, so we are proceeding on that basis. As I said, there are two actions at the moment – we have taken the matter to arbitration and that arbitration process is underway. When there's an opportunity to do any negotiations outside that arbitration, it is obviously the usual business practice that you remain open to finding a settlement if possible outside those processes.

So as a business, we remain very open to having any conversations that can bring this matter to a close. So, if KCM requires that we have a conversation on that, we are very open, and we will seek avenues to try and find that solution. Let me just ask my CFO if he wants to add anything on the KCM debt before we move on.

Mutale Mukuka: Thank you, Chair. Thank you, MD. I guess to answer that question you need to look at our cash flows as well as how much we are able to return to the shareholders as dividends during the period that the KCM default started. Now, in 2020, what you saw is that KCM started defaulting going into 2021. It started actually in 2019, 2020 and 2021. Now, in those years what you also see in the presentation that we shared earlier was that from a dividend perspective, we tried to see how we can protect first of all the cash from a CEC perspective, and secondly how we can continue to deploy cash in prioritised areas of our Capex to allow us to continue to provide service to our customers.

The conclusion is that we believe that the cash, if it comes through, will definitely boost our ability to make more investments. Will it impact our ability to distribute dividends to our shareholders? Minimally, yes, but we believe also that in the years when we were not paid we had the ability to return the funds to our shareholders through dividends.

So, in summary, we think that if the money came through, our ability to invest more will be there.

That's what we will be looking for and our ability to return more money to our shareholders will be ample. Thank you, Chair.

Owen Silavwe: A comment on the assets for power network modernisation. There are obviously various facets to this programme. In a nutshell, what I would say is that if you look at utilities like CEC, they generally tend to have been around for so many years. CEC itself originally came into being in the early 1950s, so we'd expect a lot of equipment over the years has been ageing.

However, as a Company, we operate very prudently, so we basically keep abreast with changes in technology. The key objective of that programme first of all is to modernise, so we need to bring in new equipment. It's going to be more efficient. It's going to be easier to control, and what you will then see is that because of things like renewables – renewables tend to be very variable over a day, and because of that what you basically need is to have components in your network that enable you to control the network better.

So, as we modernise the network, we also adopt control equipment that allows us the ability to control the network better. But as part of that programme, we also need to make sure that from a human capital perspective, we capacitate our human capital to ensure that they are able to run the network of the future. So, as I said, it's a multi-faceted programme looking at various aspects of modernisation so there's efficiency in it. There's the need to bring in new equipment and retire ageing equipment, there is the need to enable more flexible control of the network, there's a need to reduce the number of faults that occur on the network, but there's also the need to move to a modern network of the future in terms of the way it operates. Which means you can take various sources and be able to control power coming from these sources. Those are the main objectives that we try to achieve. Thank you, Chair.

London Mwafulilwa: Thank you. We may proceed to the next set of questions.

Alex Kafweta: My name is Alex. I'm a shareholder. I wanted to find out on the energy transition agenda: the CEO has alluded to the fact that the Company is concentrating on increasing their generation through solar, a project which is commendable, just near CBU, there. But what's the plan on further expansion of hydro? There's a project in North-Western (Province), which was embarked on. I haven't heard it being mentioned as to whether it's halted or there are plans on expanding it, and if so, when is it going to be commissioned? I believe that to be a great source of power for the Company and, hence, grow our power base.

Gilbert Simakoloyi: Thank you very much. We move on to Ashery. I see your hand is up, and then we'll move to Muyunda Munyinda. Ashery, kindly unmute your mic.

Ashery Chisaka: Good afternoon Chair. I've got a question. What is CEC's current position regarding the Luapula Hydro Project, which was reported sometime back that it was in the feasibility study phase. I thank you.

Muyunda Munyinda: Thank you very much. My name is Muyunda Munyinda and I'm a shareholder. I'm just picking on top of Alex's question. Aside from the modernisation initiatives that the CEO mentioned, I only see two Capex projects. One is a scaling up of the solar project to 34MW, and then the other one is the one he said was going to launch at some point in the year, I guess. So my question is with so much free cash flow that is sitting around are the two projects sufficient for the expansion needs that we are looking to grow revenue, or perhaps it's an opportunity to just give back a bit more to the shareholders? Thank you.

Gilbert Simakoloyi: Thank you very much, Muyunda Munyinda. Over to you, Chair.

London Mwafulilwa: Yes. As we respond to these questions, I think in the chat, there was a question of FQM scaling up on solar and what impact it will have on CEC. I will let the CEO answer those questions as they are all on the same subject matter.

Owen Silavwe: Thank you, Chair. In terms of the energy transition agenda, what you basically see is the energy transition agenda is obviously driven by the need to try and preserve humanity and indeed the globe, so governments and businesses alike have come together to try and implement objectives that have been set in this regard. We are familiar with the Zambian government having set up the Ministry of Green Economy.

From a Company perspective, or indeed from a business perspective, this is part of the sustainable way of creating value going into the future. As CEC, we obviously are very aligned to the need for us to adopt sustainability as we grow the business, and so there are various ways that companies are adopting the energy transition agenda. What you see around the world is a number of polluting generation technologies are obviously being phased out and green technologies are being adopted.

As a business, we are also adopting green technologies through the Company’s modernisation programme. We are phasing out a lot of equipment that, for example, generates a lot of losses, and equipment that could in any way harm the earth. So that programme is very important, and as I said, solar technology is just one of the ways we are doing that.

We are also looking at other technologies, for example, wind. I haven't talked about some of the pipeline projects that the Company is looking at because some of them are obviously still far off in terms of the process that we follow to try and establish viability of some of those projects, and there's no value in us talking about the full pipeline that the Company is looking at. So technologies like wind, hydro…those are things that we obviously try and look at as a business. But as we do that, we obviously need to make sure that we're only looking at projects that are viable, but also align well with the core business of the Company because it is important that in as far as capital allocation is concerned, as we do that we are careful that we are allocating capital to things that would deliver the best value to our investors. That is something that as a Company we will obviously continue to be very prudent about, because otherwise we may end up destroying instead of creating value.

Regarding the Luapula hydro potential: yes, that is something that as a Company we've looked at in the past. However, as you may be aware, that project or the Luapula River Basin itself, the Government in the past made a decision that because this is a boundary or a border between Zambia and the DRC, there was need for them to set up a river authority and come up with the rules in terms of how those projects are going to be developed.

We believe that is something that the new Government will be taking up, but as I said we've got a lot of engagements with both the Government and other authorities. That is something that we will be taking up. We still maintain our interests in the Luapula River Basin, and if some of those opportunities begin to materialise, that's something that we will bring to the investors and will provide more information on. Suffice, for this purpose, to say we still maintain some level of interest in the Luapula River Basin, but we need to make sure that if we're doing anything in that area, that the rules are very, very clear and we are being very selective in terms of projects that will deliver value for our investors.

I think there was a question that touched on Kabompo, though Kabompo itself was not specifically mentioned. I want to, again, agree that this is a project that we still maintain interest in. However, the structure under which we want to do Kabompo has changed over the years. Part of the reason is some of the costs associated with Kabompo, but also just the general structure of our electricity market in Zambia as well some of the issues around off-take and creditworthiness, that have been impacting the electricity market. However, we expect that some of those issues will obviously be resolved as Zambia just generally addresses some of the macro issues that the country has been facing, and as that gets addressed then we should be able to come back to our investors and advise whether the Company will be going ahead in Kabompo or a different decision will have to be made.

On the solar project that FQM may be undertaking: we're obviously not involved as CEC. However, a general comment on that is you will see that generally all corporates at the moment are trying to move to this net zero target, and we can o