Zambia power firm CEC proposes electricity tariff migration plan

By Chris Mfula

LUSAKA, June 22 (Reuters) - Zambia's planned migration to cost-reflective electricity tariffs should be done on a case by case basis because production costs vary, the nation's largest supplier of power to mines said on Friday.

Africa's No.2 copper producer plans to introduce electricity tariffs that reflect the cost of production by the end of 2018, a move that could increase costs for economically vital mining companies currently paying a flat price.

In 2015 and 2016, Zambia experienced a sharp shortage of electricity of up to 600 megawatts due poor rainfall in a country that relies heavily on hydropower, putting pressure on government to apply tariffs reflecting costs to raise cash to invest in other energy sources to lift power supply.

Copperbelt Energy Corporation's Head of Business Expansion Projects Vincent Nyirenda said in an interview that different technologies had varying costs of producing electricity.

"CEC's position is that depending on the project that you are bringing, we have to look at it on a case by case basis," Nyirenda told Reuters at a mining and energy conference.

The engineering, procurement and financing of electricity projects should determine the tariffs for particular projects, he said.

The government last year implemented the first phase by raising the price of electricity to a flat tariff of 9.30 U.S. cents/kilowatt hour (kWh).

Zambia had launched an industry-wide cost of service study, which will determine subsequent tariff adjustments to be made, whose findings would be announced in September.

Nyirenda said the study was an important tool to indicate where the tariffs should be.

"For projects that are already operational and fully depreciated the cost of power from those is much lower," Nyirenda said.

First Quantum Minerals Head of Government Relations John Gladston said in an email that the existing tariffs are higher than they should be and were discouraging investment.

"The current Zesco tariffs fully disincentivise this as they are unconscionably high," Gladston said, referring to the tariff charged by the state-owned power firm.

Other foreign mining companies operating in Zambia to be affected by the planned tariff migration include Glencore (Amsterdam: GX8.AS - news) , Vedanta Resources (Other OTC: VDNRF - news) , Barrick Gold (Hanover: ABR.HA - news) and Jinchuan. (Editing by James Macharia and Louise Heavens)