CEC 2012 Annual Report

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CEC 2012 Annual Report

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CEC 2012 Annual Report

  1. 1. CopperbeltEnergyCorporationPLC&itssubsidiaries
  2. 2. MISSION CONTENTS VISION values We are committed to: Supply reliable energy and high quality services to meet our customers’ unique and changing needs efficiently and proactively through robust infrastructure, diverse power sources and professional teams. Increase value for our shareholders through responsible and transparent corporate conduct, innovation and investing prudently. To be the leading Zambian investor, developer and operator of energy infrastructure in Africa by providing innovative solutions and building strategic partnerships through committed professional teams CEC and its Subsidiaries Statement from the Executive Chairman Report from the Managing Director - Operations Report from the Managing Director - Corporate Development Report from the Chief Financial Officer Reports from the Subsidiaries Kabompo Hydro Power Project Report Corporate Responsibility Report Power Dynamos Football Club Consolidated Financial Statements for the year ended 31 December 2012 Directors & Management 2 4 6 10 12 14 20 22 24 28 84 Being honest in all our dealings Supporting each other Building good team relationships Being open to new ideas Developing a ‘can do’ attitude
  3. 3. Copperbelt Energy Corporation PLC & its subsidiaries 4 CEC & ITS SUBSIDIARIES The Copperbelt Energy Corporation PLC (CEC) is an independent power transmission and distribution company with interests in closely linked businesses in Zambia and the African region, including optic fibre based telecommunications. A member of the Southern African Power Pool and listed on the Lusaka Stock Exchange, CEC has a deep insight into the mining industry, enabling it to provide quality electricity and other power products and services to the majority of the mines in Zambia. Well positioned as a developer of energy infrastructure in Africa and respected in the region for its skills in designing and operating transmission systems, CEC envisions itself as an emerging independent power generating company, with some strategic generating projects in the pipeline. • Over 50 years of experience in supplying power to the mines • Circa 900 kilometres of 220kV and 66kV transmission lines • 520 kilometres of optic fibre on power lines • 38 High Voltage substations and dedicated control centre • 80MW embedded thermal generation • Power transmission for national utilities – Zambia and Democratic Republic of Congo (DRC) • Owns Zambian part of the Zambia – DRC Interconnector line • Accounts for over 50% of power consumed in Zambia
  4. 4. A joint venture between CEC and Realtime Technology Alliance Africa (RTAA), Realtime Zambia is an internet service provider, focused on the niche market of corporate customers. Its core business comprises provision of high speed internet services and private leased circuits using optic fibre technology. Realtime has been operational in Zambia for more than a decade, while RTAA its 50% parent, has operated in the sub-Saharan Africa region for more than 30 years. Realtime Zambia has successfully implemented ICT connectivity projects from design to operation using the national and metropolitan fibre loops. Realtime has become the largest optic fibre network provider in Zambia and is connected to submarine fibre cables that connect the rest of the world. Realtime Zambia’s Unique Value Proposition • Trust • Client relationship • Abilities • Accountability • Availability • Uniqueness Vision To be the leading independent ICT services provider in Zambia, through technological partnerships with our customers and partners, to meet the business needs of our customers. Mission Realtime will develop and maintain strategic business partnerships aimed at supplying best of the breed ICT solutions that ensure superior value to customers and shareholders through the use of enabling technologies and a motivated workforce. CEC Liquid Telecom owns and operates a national long haul broadband fibre based backbone from Chirundu to Kasumbalesa. Its business is the provision of competitive high quality product services through wholesaling of national and international fibre bandwidth capacity, terrestrial internet bandwidth and lease of dark fibre for both short and long haul, locally and internationally, and with access to submarine fibre cables. CEC Liquid Telecom’s market segment is in the wholesale segment. The infrastructure is neutral and operated in a non- exclusive manner in Zambia, Zimbabwe, Lesotho, Botswana and South Africa. CEC Liquid Telecom is a joint venture company of CEC and regional fibre infrastructure builder and operator, Liquid Telecommunications of Mauritius. It has become the preferred wholesale broadband connectivity telecommunications company both at national level and within the region. ANNUAL REPORT FOR THE YEAR ENDED 31ST DECEMBER 2012 5 CEC & ITS SUBSIDIARIES
  5. 5. Copperbelt Energy Corporation PLC & its subsidiaries 6 Statement from the Executive Chairman Welcome to the 2012 edition of the Copperbelt Energy Corporation PLC Group annual report. This is the second year we are reporting consolidated results for The Group; comprising CEC (‘the Company’), Realtime and CEC Liquid Telecom. Reading through the Report, you will get a sense and actually see evidence of the Company’s continued growth, maturity and its foray into exciting and challenging ventures. There are several important expansion programmes adding to and transforming the face of the CEC business, on the whole. An important point to stress is the fact that the CEC brand is very strong. It is a recognisable brand that has proved attractive both within and beyond Zambia’s borders. In 2012, the Company performed strongly, getting involved in a variety of power development projects, leveraged off that strong corporate brand. Safety, Health and Environment During 2012, the Company enjoyed a very good run in the safety, health and environmental stewardship arena. All members of staff, be they directly or remotely involved in matters of maintaining and upholding safety, health and environmental management and stewardship, deserve very high commendation for this. It is no small matter that given the high-risk business the Company carries on, no casualties due to operational injuries were recorded. Hence, the Company has gone two straight years without a system injury; resulting into an unprecedented achievement of 2.98 million man-hours without a lost time accident (LTA). 2012 performance clearly builds on the positives achieved in 2011 and spurred us on to improve in areas which were, hitherto, lacklustre if not poor. I am glad to report that we had a reduction in both dangerous occurrences and overall road traffic accidents, to half the number recorded in 2011, in respect of the latter. Our community safety sensitizations were above target. Giving credence to this good performance, the Company was deservedly awarded by the Zambia Association of Chambers of Commerce and Industry and the Zambia Environmental Management Agency for our contribution to sound environmental practice and contribution to corporate social responsibility in ensuring a sustainable environment. Financial Performance The Company’s financial performance was positive, posting a turnover of K1,358,747 million. We continue to deliver shareholder value so that our investors can earn a healthy return on their investment. In 2012, the CEC stock began and ended the year stronger than its 2011 performance, albeit trading lower than the comparable period for most of the year. However, the strength with which it closed the year ensured a good starting point for 2013. Consistent with our dividend policy, two dividends were paid out in April (K21,093 million) and October (K35,000 million), bringing the total paid out in the year to K56,093 million (2011: K59,572 million). Earnings per share increased by 14% to K109.62 from K96.42 in 2011. Projects I am delighted to report that the Kabompo Hydro Power Project, HANSONSINDOWE
  6. 6. ANNUAL REPORT FOR THE YEAR ENDED 31ST DECEMBER 2012 7 whose progress we have consistently reported on, is moving steadily forward with several important strides having been taken in 2012. Sinohydro Corporation Limited of China was selected as the preferred Engineering, Procurement and Construction (EPC) contractor, and we are working to come to financial close by mid-2013. Similarly, efforts to progress the Luapula River Hydro Schemes Project continued through the year. Notable organic expansion projects during the year included Mopani Copper Mines Plc’s Synclinorium Project, the NFC South East Ore Body project and a new leach plant operation by China Copper Mines in Chingola. Customers’ average maximum demand increased to 527.322MW from 481.189MW in 2011. The net effect of these and other new and/or expansion projects is that the Company needs to expand its network to be able to effectively meet our customers’ power needs. This is a positive challenge for which the Company has long been prepared and we relish the opportunity to increase our load and customer base, therefore, increasing our contribution to growing the country’s economy. As we seek to diversify the mix of our energy sources, the Company was during the period involved in exploring the viability of various renewable energy technologies. To this effect, the Company is in the process of setting up small to medium sized power plants, which will make use of the wood waste generated by the timber processing industry on the Copperbelt. One such project is a biomass gasification power plant of 1MWe located in Kitwe and which is in advanced stages of the Environmental Impact Assessment process. Subsidiaries Realtime Zambia posted a turnover of K33.1 billion in 2012, up from K26.9 billion in 2011. Considering that the business registered a turnover of K6.4 billion in 2008, this translates into growth, in turnover alone, of 433% over a period of 4 years in a fast growing and very competitive industry. Realtime Zambia is a highly dynamic internet services provider catering for a broad range of clients. We are proud of the success of this burgeoning outfit, which has gained a reputation of being the provider of choice for major international events hosted in Zambia and for corporate users. CEC Liquid Telecom is a wholesale broadband telecommunications company and a joint venture between CEC and regional fiber infrastructure builder and developer, Liquid Telecommunications. In the short period the company has been in operation, it has registered strong growth. It is expanding its footprint across Africa, with South Africa and the Democratic Republic of Congo already on the agenda. There are certainly exciting times ahead for the company and we positively anticipate its expansion and growth within and outside Zambia. Acquisitions The Company, through KANN Utility Company Limited, was selected preferred bidder for the purchase of the Abuja Electricity Distribution Company (AEDC) in Nigeria. At reporting time, a Sale and Purchase Agreement had been signed between KANN Utility, Nigeria’s Ministry of Finance and the Bureau of Public Enterprises to acquire 60% interest in AEDC for a consideration of US$164 million. KANN Utility Company Limited is a joint venture of the Company and XerXes Global Investments Limited of Nigeria, with each partner holding 50% in the company. CEC Plc will provide a management for KANN. In this regard, Neil Croucher, who has served as Managing Director Operations, will be moving to KANN as Managing Director. Board Operation We, unfortunately, lost a member of our board during the year. Standwell Mapara was a Non-Executive Director representing ZCCM-IH, who passed away on 19th July 2012. He had diligently served the board since November 2009 until his demise. ZCCM-IH during the period appointed Reynolds Bowa and Hampande Hachongo to replace William Musama and the late Standwell Mapara. The Permanent Secretary in the line Ministry of Mines, Energy and Water Development, George Zulu, took up his seat on the board representing the Special Shareholder (the Government of the Republic of Zambia). I wish to welcome the new directors and express gratitude for the valuable contributions they have already made to the board. Outlook and Conclusion There are great prospects looking forward into 2013 because of all the projects the Company is already undertaking. Prospects for continued growth remain buoyant on the expectations of high performing macroeconomic fundamentals, conducive investment climate and prudent fiscal management. It is our expectation that investors will find our stock an attractive option to put their money in and indications are that it will trade on the bullish side for the majority of this year, having risen at reporting time, 26% over its 2012 close. Special appreciation goes to all employees for the cordial and harmonious industrial relations climate throughout the year and their input in delivering this performance. Hanson Sindowe Executive Chairman STATEMENT FROM THE EXECUTIVE CHAIRMAN
  7. 7. Copperbelt Energy Corporation PLC & its subsidiaries 8 REPORT FROM THE MANAGING DIRECTOR -OPERATIONS The past 12 months ending December 2012 have been both exciting and positively challenging. We met our customers’ expectations and continued to make improvements in respect of our system generally; ensuring we derive the most value out of our assets for our customers’ benefit. Safety, Health and Environment Stewardship (SHE) Safety remains a priority and cannot in any way be taken lightly considering the nature of the business. Hence, I am proud to report a record 2.98 million man-hours without a power system lost time accident, with the last accident having occurred in December 2010. Importantly, this demonstrates improved performance in this very critical area of concern and is testimony of the fruits of our relentless pursuit of an excellent SHE culture across the business. The commendable delivery of the toolbox safety talks, reported on last year, was again cardinal to proactively addressing task-specific safety concerns. Toolbox safety talks are required to be held by staff before any work is undertaken on the system. During such discussions, any risks or hazards associated with the task are required to be identified and remedial measures put in place before the commencement of the job. This has proved to be most effective in ensuring that accidents are avoided. The Company-driven community and public High Voltage SHE sensitization programmes delivered 27% above the year’s target as 188 public sensitization activities were held against a target of 148. Examples of these activities are radio call-in programs, school quizzes on High Voltage electricity safety issues and SHE visibility tours and inspections. Although a marked improvement was made with regard to road traffic incidents generally, we desire to further reduce these numbers and are confident we will achieve that. A total of 7 incidents were recorded during the period – half that registered in 2011.Unfortunately, road traffic related fatality in the fourth quarter involving a member of the public undid much of the good work achieved in the year. Three system breaches were also recorded during the year under review and all persons involved in the breaches were retrained and awareness workshops held for other authorised persons, to ensure effective dissemination of the learning points from the breaches. On the positive side, the satellite vehicle tracking system of the Company’s vehicles has greatly improved driver behaviour and reduced over-speeding. The Geotab system has continued to register operational benefits for the fleet; we recorded a reduction in average speeds from above 125 Km/hr to below 90 Km/ hr for 2011 and 2012, respectively. The Company has further demonstrated environmental compliance to the Zambia Environmental Management Agency (ZEMA) licensing conditions and continuous improvement practice. In December 2012, CEC proudly received the 2012 Zambia Association of Chambers of Commerce and Industry (ZACCI) and ZEMA award for significant contribution towards sound environmental practices in the industry and demonstrated corporate social responsibility in NEILF.CROUCHER
  8. 8. ANNUAL REPORT FOR THE YEAR ENDED 31ST DECEMBER 2012 9 environmental stewardship and protection, coupled with running an established Environmental Policy and Management System. Tariffs Strides have over the last couple of years or so been made to move Zambian power tariffs to cost-reflectivity. This means that the tariffs must reach a level that reflects the increasing costs of providing the power. This will also attract new investment into the power sector, which will in turn increase supply and ease the supply-demand gap. The tariff adjustment process that commenced in 2010 resulted into an adjustment of the Company’s tariffs to all of its mining customers, with the exception of Konkola Copper Mines PLC (KCM), of 28%, effective January 2011. In the case of KCM, an agreement was reached in 2012 for a five-year tariff adjustment plan covering the period 2011-2015. An equivalent adjustment to the KCM amounts outlined above was applied by the Company in terms of the payments made by it to ZESCO Ltd under the Bulk Supply Agreement although final agreement has not yet been reached with ZESCO on this plan. Following the implementation in May 2012 of Statutory Instrument No. 33 (SI 33), which requires that all domestic transactions be denominated and expressed in Zambian Kwacha, the Company commenced invoicing its customers in Zambian Kwacha. Unfortunately, due to the various interpretations arising there from, the mines had underpaid the Company as most of them preferred to pay on the basis of the Kwacha-US Dollar spot exchange rate (as opposed to the exchange rate prescribed in SI 33) and the Company had in turn underpaid ZESCO due to the important back to back nature of the two utilities’ businesses. By the end of 2012, the Company was actively engaging with both the mines and ZESCO to resolve the matter and I am confident that the matter will be resolved early in 2013. Power Trading Challenges and Opportunities Zambia, like other countries in the region, is lagging behind in power generation when compared to the growing demand for power. The Company believes new investments in this sector are a matter of extreme urgency. There are plans to increase capacity and bring new generation on stream by the Company, the national utility, ZESCO, and other independent power producers (IPPs) who have opted to participate. Due to the long lead times involved in developing new generation projects, particularly hydroelectric projects, it is expected that there will be a shortage in supply over the next few years and this will need to be carefully managed to ensure that there are no negative impacts on the economy. Also, new projects and those currently under development will need to proceed as planned if the supply-demand gap is to be managed. Power sales to customers The Company supplies power to the following mines: • Konkola Copper Mines PLC • Mopani Copper Mines PLC • NFC Africa Mining • CNMC Luanshya Copper Mines PLC • Chambishi Metals PLC • Lubambe Copper Mines (formerly Konnoco) • Chibuluma Mines During the year, the Company recorded a considerable increase in power sales to its customers. This illustrates the mounting demand for power in the mining sector, and the Company continually re-assesses its position to ably meet customers’ requirements. Combined consumption by our customers stood at 4,044 GWh in 2012 against 3,744 GWh in 2011 – translating into an overall year-on-year energy sales increase of 8%. The system load factor stood at 85%. Unfortunately, mainly due to the increase in demand nationally, numerous occasions of voltage instability were experienced throughout the year, which impacted customers’ operations. The Company continues to work closely with ZESCO in trying to resolve, or at least alleviate, this problem and a number of improvements have been implemented both on the Company and ZESCO systems. Further improvements in voltage management are expected in 2013. Another source of concern during 2012 was that an increasing number of faults on our customers’ networks were not cleared by their protection systems and this impacted, in some way, operations of the Company system. In some cases, through faults resulted in the development of faults on critical transformers, while in other cases complete failure of transformers was experienced. The Company has, therefore, requested the concerned customers to improve their protection schemes as a matter of urgency. In order to enhance system security, the Company commenced the procurement of three transformers – a 120MVA, 220/66kV transformer and two 20MVA, 66/11kV transformers – intended to address transformer failures that occurred at the 66/11kV level and to enhance system transformer capacity at the 220/66kV level. These transformers are expected to be delivered by June 2013 and commissioning should be done by August 2013. A key component of the service provided by the Company to its customers is the provision of emergency power in the event of system blackouts. During the year, all but one unit of our fleet of Gas Turbine Alternators (GTAs) were available. Availability failure of this unit was caused by persistent vibration and was exacerbated by non- availability of spares. At the close of the year, despite our continuous efforts and the use of external specialists, the problem was yet to be resolved but we are confident that the latest plans to resolve the problem will be successful early in 2013 Domestic wheeling There was a reduction in the level of energy volumes wheeled for ZESCO during the year. This was attributable to increased levels of load shedding on the Copperbelt as well as some system reconfigurations of the ZESCO network. About 1,543GWh was wheeled, compared to 1,578GWh registered in 2011. International Wheeling A total of 67GWh was wheeled in 2012 under a new opportunity to supply mining companies in the Democratic Republic of Congo (DRC) where there is currently a desperate shortage of power. In order to assist in meeting their needs, the Company managed to procure 50 MW of power from sources external to Zambia. It is expected that these arrangements will continue in 2013. Also, negotiations have been concluded with ENRC, the new owners of the Frontier Mine, for the wheeling of power to that mine. A total of 577GWh of energy was wheeled under international wheeling in 2012 against a total of 366 GWh for the same period in 2011. This represents an increase of 57%over the flows recorded REPORT FROM THE MANAGING DIRECTOR - OPERATIONS
  9. 9. Copperbelt Energy Corporation PLC & its subsidiaries 10 REPORT FROM THE MANAGING DIRECTOR - OPERATIONS in 2011. Organic Growth Projects The mining industry in Zambia continued to grow and expand, whether that be new operations coming on or existing operations being expanded and their life extended. Copper prices on the international market were generally high through 2012, closing the year at $7,962 a tonne on the London Metal Exchange. As mining activity grows, there is an imperative on the part of the Company to grow with the industry and our customers. Hence, the projects below were undertaken or progressed during the year: NFC South East Project Significant progress on this project, first reported on in 2011, has been made with the project earmarked for completion in 2013. The Company is constructing a new 220/11kV substation to serve the power needs of this customer, NFC Africa Mining Plc (NFCA), with respect to their new mining and metallurgical plants. The new underground mine being constructed by NFCA is located at the former Mukulumpe Farms along the Kitwe-Chingola Road. The project to provide the required power infrastructure is estimated to cost the Company around K97,200 million. We anticipate a load increase of 45MW from this new mining load. Mopani Synclinorium Project This project involves an expansion of the already existing CEC Nkana Substation with 3 additional 30MVA, 66/11kV transformers. The commissioning of the first phase is expected in June 2013 with the final stages being commissioned towards the end of 2013. When the project is fully up and running it will add an extra 25MW to the current power consumption of MCM, our second largest customer. The electricity network expansion related to this project is expected to cost K30,780 million. This project is significant for our customer and the Company because it will increase the mine’s production capacity and also significantly extend its life by at least 25 years. China Copper Mines China Copper Mines (CCM) is a new entrant constructing a leach plant that will treat the slug from the Fitula slug dump sites in Chingola. The plant will need around 5MW to run its processes. The total project cost to the Company is around K12,000 million. The project’s expected completion is the first quarter of 2013. Muliashi Mine The development of Muliashi by CLM commenced in 2010 and involved establishment of an open pit mine and associated copper ore processing infrastructure. The Company, on its side, had to construct power infrastructure required to supply power to the new mine. The project was to be implemented in two phases and I am glad to report that consistent with my report of 2011, commissioning of phase 2 of this project was achieved in January 2012, on schedule and within budget. Muliashi picked up load in 2012, and has resulted into CLM upping its uptake from an average of 16MW to 45MW. The Company’s investment in this project
  10. 10. ANNUAL REPORT FOR THE YEAR ENDED 31ST DECEMBER 2012 11 stood at K48,600 million. Lubambe Copper Mine Formerly known as Konnoco, Lubambe Copper Mine is a new operation in Chililabombwe, which came online in February 2012, ahead of schedule. Owned by Africa Rainbow Resources, Vale and ZCCM-IH, Lubambe’s load has grown to 15MW since commissioning a year ago. The load is further expected to grow to about 30MW as more components of the plant are commissioned. The K31,320 million capital project involved construction of a 60MVA, 66/11kV substation at the Konkola mine site, a single feed 66kV transmission line and associated upgrade works at the 220/66kV Michelo substation, which forms the main power supply hub for the Chililabombwe town and surrounding area. Konkola and Nchanga Expansion Project Prior to 2012, works related to the Konkola and Nchanga expansion project did not take the forecast additional power demand due to the long gestation periods associated with deep mining projects. By the second quarter, however, KCM considerably increased their power uptake as projects related to the Konkola and Nchanga expansion were commissioned. We expect KCM to keep ramping up power until 2015. This is due, in part, to a new concentrator at Nchanga Mine and other equipment that has been installed. Customer Relations We continued to positively engage with our customers, with a view to understanding challenges and collectively devising solutions to ensure the integrity, effectiveness and reliability of the power system is maintained. Interaction with customers keeps yielding positive outcomes. The outcome of a customer satisfaction survey carried out in the first quarter of 2012 confirmed our customers’ satisfaction with the quality of supply and service. Human resource capacity As has been reported previously, the Company has an ageing power system with some items of equipment, such as transformers, approaching the end of their life. About a third of the Company’s 173 transformers fall into this category. It is vital, therefore, that these ageing assets are properly managed to ensure that, on the one hand, the full economic value is obtained from the equipment whilst, on the other hand, the equipment does not fail in service with a resultant negative impact on the quality of supply and reliability to our customers. As a result, the Company has embarked upon an extensive training program for technical staff to ensure that the most modern techniques are applied in managing critical ageing equipment. Neil F. Croucher Managing Director - Operations REPORT FROM THE MANAGING DIRECTOR - OPERATIONS
  11. 11. Copperbelt Energy Corporation PLC & its subsidiaries 12 REPORT FROM THE MANAGING DIRECTOR -CORPORATE DEVELOPMENT The corporate development team is focused on identifying and developing projects, both in Zambia and in Sub- Saharan Africa, that will lead to income diversification and sustainable long term earnings growth for The Group. The power sector in Sub-Saharan Africa is steadily opening up to private sector investment, with developments in regulatory frameworks, capital markets and sustained economic growth contributing to an increased sense of urgency to develop projects in the power sector. Existing or anticipated power shortages were a common theme in the four countries that are highlighted in this report; namely Zambia, Nigeria, Namibia and the Democratic Republic of Congo (DRC). The Company’s strategy involves meeting the requirements of governments and customers in these countries for increased access to reliable grid power. In the last quarter of 2012, the Company’s Board made a strategic decision to form a new investment company to undertake power sector investments outside of Zambia. The company was registered as CEC Africa Investments Limited (‘CEC Africa’) in Mauritius on 7 February, 2013, and it is the vehicle through which investments in Nigeria and Namibia described in this report will be made. It is intended that CEC Africa will be the vehicle through which all international investments are made (i.e. outside of Zambia) and it will be structured so as to attract other equity investors interested to participate in the Sub-Saharan power sector, although the company has been formed in the initial stages as a 100% subsidiary of the Company. Hydro Developments in Zambia Significant development effort was directed towards bringing the 40MW Kabompo Gorge Hydro Project to financial close during the year. Sinohydro Corporation Limited was selected as preferred EPC contractor after a process of international competitive bidding, and early works under the contract are planned to commence during the first half of 2013. Standard Bank of South Africa has been appointed as advisor and lead arranger for the senior debt facility, and has prepared a Project Information Memorandum to be distributed to potential lenders in April 2013. The project was officially launched in the presence of the Permanent Secretary in the Ministry of Energy and the Permanent Secretary of North- Western Province in May 2012. A dedicated team of employees has been supporting the project on the ground for more than two years now, including experts focused on the social, environmental and community liaison aspects of the project that are critical to the overall success of the project. The Company has been undertaking an update of the feasibility studies for five projects along the length of the Luapula River that defines the border of the Luapula Province of Zambia and the Katanga Province of the DRC. Key developments during the year included the completion of a LiDAR laser NICHAELJ.TARNEY
  12. 12. ANNUAL REPORT FOR THE YEAR ENDED 31ST DECEMBER 2012 13 survey of the river and catchment area, which provides the necessary detailed topographical information to undertake detailed designs of the schemes, and the signature of a Memorandum of Understanding with the Congolese utility, SNEL, to complete the feasibility process on the Congolese aspects of the scheme. A CEC team completed a feasibility study for the construction of the transmission lines that will be required to evacuate the hydro power into the Luapula, Katanga and Copperbelt Provinces. An acceleration of the development of the schemes is envisaged to take place in 2013 to meet increasing customer demand. International Projects • Nigeria The most significant development of the year was the selection of KANN Utility Company Limited (KANN), a 50% joint venture with XerXes Global Investments Limited registered in Abuja, Nigeria as the preferred bidder to acquire the Abuja Electricity Distribution Company (AEDC) in Nigeria. KANN was confirmed as preferred bidder to acquire AEDC in November 2012 following a rigorous international bidding process that commenced with the submission of an Expression of Interest in March 2011, and submission of a bid on 31 July 2012. The Company will be the Operator of AEDC. AEDC has a franchise for distributing electricity in four states, comprising the Federal Capital Territory of Abuja, Niger State, Kogi State and Nasarawa State. Serving 133,014 sq.km with a population of 10.5 million people in 2.3 million households, the AEDC covers a relatively lightly populated area dominated by the Federal Capital. It has around 600,000 customers and an average electrification rate of 27%. More than 2,000 people are employed by AEDC. AEDC purchases power from Nigeria Bulk Electricity Trading PLC (the ‘Bulk Trader’) and is connected to various power generation plants by the Transmission Company of Nigeria. This investment is being made through CEC Africa, and a Sale and Purchase Agreement was signed in the Nigerian capital, Abuja, on 21 February 2013 between KANN, the Bureau of Public Enterprises and the Ministry of Finance of Nigeria. The consideration payable for the 60% interest in AEDC is US$164 million, out of which 25% (US$41 million) was paid on 21 March 2013 in accordance with the Sale and Purchase Agreement. The financing plan for the acquisition has been developed with Standard Bank of South Africa and it is intended to finance the acquisition with a combination of debt and equity. The transaction is expected to be finalised and shares transferred when the final payment is made (anticipated August 2013). During the interim period, preparations have been made to take over the management of AEDC. The Board of CEC commends the Federal Republic of Nigeria for the determination it has demonstrated in reforming the power sector in Nigeria, which will certainly significantly address the need for increased investment, higher efficiency and improved customer service to consumers in Nigeria. The principal advisors to the Company and KANN for this transaction are Standard Bank of South Africa (financial), Norton Rose of the United Kingdom (international legal), Detail Commercial Solicitors (Nigerian legal) and Aurecon (technical). • Namibia On 12 November 2012, a Development Agreement was signed through which it is intended that a 120MW Heavy Fuel Oil (HFO) power plant will be constructed in the mining town of Arandis in Namibia. The project will utilise HFO fuel imported into the port of Walvis Bay, but also includes a waste oil recycling facility that will process waste oil from ships docking at Walvis Bay and other locations in Southern Africa. It is intended that the project will supply power to Namibian power utility NamPower, under a long term power purchase agreement. • Power Trading During the year, power was sourced from within the Southern African Power Pool to supply to SNEL for onward consumption by mining companies in the DRC. The arrangements have continued into 2013, and as a result, the Company is considering options of working more closely with the Government of the DRC, SNEL and the mining customers in the Katanga Province to accelerate investment into projects that will improve the quality of power supplied in Katanga Province. CEC Renewables The utilization of renewable technologies to meet the needs of our customers will be a priority going forward, where the economics make sense. The Company plans to exploit solar resource going forward, given the abundant natural sunshine in most parts of Sub-Saharan Africa. The economics of solar are approaching grid parity (i.e. marginal cost of production of energy per kWh of electrical energy is no different to the marginal cost of energy from alternative sources) and it, therefore, makes sense to include solar energy within generation sources in most situations. The Company is intending to commence the development small scale solar generation in Zambia during 2013. The Company has also commenced the development of a 1MW bio-gasification project on the Copperbelt and is utilizing a bio-diesel refinery, commissioned in 2011, to provide fuel for some of its fleet vehicles. Telecommunications Development The two telecommunications joint ventures, CEC Liquid Telecommunication Limited and Realtime Zambia, continued to consolidate their respective positions in the Zambian telecommunications market for the provision of wholesale and retail optic fibre services respectively. CEC Liquid is planning to accelerate investment into urban fibre networks in 2013 to provide access to a greater number of customers, and is in the process of implementing a US$15 million investment plan. Michael J. Tarney Managing Director - Corporate Development REPORT FROM THE MANAGING DIRECTOR - CORPORATE DEVELOPMENT
  13. 13. Copperbelt Energy Corporation PLC & its subsidiaries 14 REPORT FROM THE CHIEF FINANCIAL OFFICER This is the second year of publishing Group consolidated financial results. Significant issues worth noting as the financials are presented: • Currency of reporting This is the first year that CEC has published its financials in Zambian Kwacha, having previously maintained financial records in US Dollar. In June 2012, the Government of the Republic of Zambia issued legislation stipulating that all domestic transactions should be conducted in Zambian Kwacha. CEC’s operations are all domestic transactions and have since been converted into Zambian Kwacha. As this is the primary currency of transactions, the financials have thus been prepared in Zambian Kwacha. • Investment in CEC Liquid In 2011, (‘the Company’) held a 100% shareholding in CEC Liquid; consequently, the operations were consolidated as a 100% subsidiary. During 2012, Liquid Telecommunications of Mauritius fulfilled their obligations under the joint venture agreement with the Company and CEC Liquid is now a 50% Joint Venture company with the Company and Liquid Telecommunications each owning 50% shares. The consolidated results for 2012 have incorporated CEC Liquid as a 50% joint venture. This year, CEC Liquid was in operation for the full year. • 2011 electricity tariff increment In the 2011 financial reports, we had reported that one customer did not accept the tariff increment and the 2011 financials, therefore, excluded the effect of the tariff increment to this customer. We are pleased to report that the customer accepted the tariff increment, the 2012 financials, therefore, include the tariff increment. The Group had a good year with growth in operations, which translated into higher returns for all The Group companies. The Group turnover increased by 39%, mainly attributable to the tariff increment as well as the increase in electricity uptake by the mining customers. The Telecoms companies also posted significant growth in their turnovers. This increase extended to the gross profit, where The Group gross profit margin was maintained at 27%. The Telecoms companies also maintained their gross profit margins. There was, however, a 5% reduction in the profit before interest and tax due to the 42% increase in the Company’s operational costs. This high increase in costs is mainly attributed to the increase in Group personnel and staff related costs of 43%. This was due to the 15% salary increment awarded to Unionised workers in the Company. In addition, pension contributions and employee liabilities, which are directly linked to salary increments also increased substantially. The Group net profit for the year increased by 14%. Unlike 2011 where this was diluted by net losses in the Telecoms companies, the 2012 Group net profit was higher than the Company net profit. Realtime had a net profit for the year, unlike previous years where they had net losses. They expect this trend to continue and even hope to declare a dividend in 2013. CEC Liquid still had a net loss for the year; however, an improvement in performance is expected in 2013. The Group’s total assets have grown by 7%, mainly due to increased assets in CEC Liquid. The Group is still in a small net liability position of K389million (2011: K11,504 million), a substantial improvement compared to 2011. The Group has increased its return on equity – 13% (2011: 12%); return on assets – 7% (2011: 6%) and Earnings Per Share – K109.32 (2011: K96.42). This growth pattern is expected to continue in 2013. IRENE L.NG'ANDWE
  14. 14. Irene L. Ng’andwe Chief Financial Officer ANNUAL REPORT FOR THE YEAR ENDED 31ST DECEMBER 2012 15 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 250,000 200,000 150,000 100,000 50,000 0 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 600 550 500 450 400 350 300 250 120.00 100.00 80.00 60.00 40.00 20.00 0.00 2010 2010 2010 2010 2010 2010 2009 2009 2009 2009 2009 2009 2008 2008 2008 2008 2008 533 436 470 481 527 2008 CURRENT RATIO EBITDA REVENUE GROSS PROFIT LOAD SALES EARNINGS PER SHARE TIMES KMILLIONS KMILLIONSKMILLIONS LOAD(MW)EPSINNGWEE 2011 2011 2011 2011 2011 2011 2012 2012 2012 2012 2012 2012 1.35 1.05 0.84 0.99 1.00 37.99 60.16 61.02 100.22 109.16 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 201020092008 ACID TEST RATIO TIMES 2011 2012 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 201020092008 RETURN ON ASSETS RETURNONASSETS 2011 2012 5.7% 4.3% 4.6% 6.7% 6.9% 98,939664,685185,473 144,760778,091213,848 145,314802,507219,969 237,642960,434256,721 225,3731,332,021365,718 REPORT FROM THE CHIEF FINANCIAL OFFICER 1.28 0.97 0.77 0.93 0.95
  15. 15. REALTIME ZAMBIA Overview In 2009, CEC (‘the Company’) acquired a 50% shareholding in Realtime Technology Alliance Africa Limited (“RTAA”), trading as Realtime Zambia, in a joint venture agreement designed to build capacity in RTAA’s business and improve its levels of service provision by combining its expertise with the strength of the Company’s world class optic fibre and radio-based communication solutions to customers across Zambia. Prior to this, Realtime had since 2006 served as last-mile service provider for CEC’s optic fibre network, which links all the towns on the Copperbelt. Since then, Realtime Zambia has overcome its initial challenges and transformed from a mere SME to a reputable provider of internet solutions to the mining and corporate sectors. The transformation was necessitated by the RTAA management’s desire to offer the company’s expertise and solutions to a niche market of the corporate sector, becoming a more significant factor in the Zambian business environment. providers. Operators had greater access to better technologies such as fibre and 4G services, while customers exhibited higher demand levels for bandwidth and enhanced service delivery. Financial and Operational Performance Performance against our set strategic objectives for the year was excellent. We had determined to improve the company’s financial performance, increase market share and positioning, improve our service and product portfolio, build redundancy on networks and develop strategic alliances. Realtime Zambia posted a turnover of K33.1 billion in 2012 (2011: K26.9 billion), an increase of 23% against the obtaining industry average growth rate of about 10%. It is worth noting that a few years ago in 2008, turnover stood at K6.4 billion. This is a laudable achievement and, in terms of turnover growth, means the company has grown by 433% over the last four years. The K2.1 billion profit after tax realised for the period was a substantial increase over the K3.3 billion loss registered in 2011. This was mainly a result of improved gross margins arising from reducing internet supply prices, coupled with increased sales volumes. Out of an ambitious restructuring exercise has emerged a profitable entity with a different identity and corporate culture. Realtime Zambia has embraced its new position in the market and continues to effectively meet the challenges arising out of its increased levels of involvement in the business domain. In our continuous quest to improve service delivery, among the set targets for 2013, we aim to stabilise the network by building back-ups so as to uphold high quality service to all our publics. Business Environment The macroeconomic and business environment in Zambia was stable throughout 2012 despite the impacts of some policy changes such as the requirement to reflect all domestic transactions in local currency (Statutory Instrument No. 33), introduction of the minimum wage and preparations for the rebasing of the Zambian Kwacha, which was to take effect on 1st January, 2013. The telecommunications sector remained dynamic, as bandwidth supply prices continued to drop due to an increase in the number of international service providers as well as increased market rivalry among service Reports from the Subsidiaries Copperbelt Energy Corporation PLC & its subsidiaries 16
  16. 16. REPORTS FROM THE SUBSIDIARIES Realtime reduced its liabilities by about US$7 billion, liquidating various debts and settling outstanding obligations with which it opened the year. The company secured an asset loan facility of US$357,000 for network equipment. Our contribution to the Zambian exchequer in 2012 was K5 billion in taxes. From a sample of Zambia’s listed companies and data base of large corporates, Realtime Zambia provides service to 45% of these large corporates, and is ranked second in terms of market share on the basis of ISP income with 14% of total income earned, according to the Zambia Information and Communication Technology Authority (ZICTA) statistics for 2012. Since 2008, the company’s broadband capacity has doubled from year to year while its optic fibre leased circuits business markedly grew from almost nothing to become the country’s most extensive end-to-end fibre service provider. Realtime has fibre connections in excess of 3,200 kilometres, comprising national fibre and last mile links and carrying more than 140Mb/s of traffic. Average network availability was at 99% in 2012 (2011: 98%) despite being adversely affected, towards year- end, by frequency interference on the old wireless access network prior to its upgrade. In our efforts to upgrade the network and enhance service delivery, redundancy to fibre internet was implemented through the dual routes of CEC Liquid and PCCW. Implementation of the 4G WiMAX network towards the end of year helped stabilize the wireless access network in Lusaka, while the installation of new servers helped improve the performance of hosted services. More customers were provided with Service Level Agreements. Expanding Client Base Realtime currently serves the majority of Zambia’s mining companies as well as major mining contractors. Realtime also provides services to almost all bank financial institutions in Zambia. The company also has a foothold in a number of Zambia’s large manufacturing companies. As the company continues to grow, the number and type of customers is increasing and the company is as well widening the range of services and solutions provided to its existing clients. As part of the process of expanding the range of clientele, Realtime has already started providing 4G WiMAX service to users on its network. Presently, apart from Lusaka and Ndola, this service is available in Lumwana, for the benefit of home users. The facility, already rolled out in Lusaka, Ndola and Lumwana is expected to be fully commissioned by the end of Q2 2013. We are looking to provide competitive internet solutions to different clients according to the needs and requirements of the economic sector they operate in as well as socio-cultural needs. This includes provision of dedicated services as opposed to shared services where this is required. Since establishing its presence in Zambia, Realtime has successfully implemented several large-scale information and communication technology projects for corporates and non-governmental organisations alike; and the company’s broad range of customers across the country bears testimony to its focus on service excellence. Our outstanding service and array of internet services and solutions have generated increased demand for product and service offerings. Pricing For many years, Zambia has had only one access to the international gateway, through the ZESCO network. In 2011, CEC Liquid Telecom, another CEC joint venture company, opened up a second fibre gateway. As a result of this development, the market has seen a marked reduction in internet provision costs. Consequently, the retail internet price has fallen by about 70% between 2010 and 2012. This reduction has enabled Realtime to pass on discounts to its clients and offer more pricing options, such as upgrading customers’ bandwidth, thereby improving their internet experience. The company also uses specific customer requests to explore ways in which to derive mutual benefits that can accrue from lower, yet competitive, pricing. Strategic Alliances The company continued to develop co-operation with its strategic partners in the areas of capacity and broadband services, back up broadband services and distributorship. It is in the company’s interest to continue to positively exploit the strong synergies and commercially beneficial opportunities that exist between Realtime and other entities, who include CEC Liquid Telecom and ZESCO Ltd. 2013 Opportunities and Outlook Realtime is among the members of the Internet Service Providers Association of Zambia (ISPAZ) who have been approached by government to offer service during this year’s United Nations World Tourism Organisation (UNWTO) General Congress, being co-hosted by Zambia and Zimbabwe. The company will build on the successes recorded last year when it was specifically contracted by the National Airports Corporation Limited (NACL) to provide high speed internet service during the 21st Airports Council International Africa Regional Conference, Assembly and Exhibition in Livingstone. We estimate that in 2013, the company’s revenue growth rate will peak at 23 per cent, to bring the turnover to ZMW41 million. Apart from targeting a turnover of ZMW41 million, management has set eyes on achieving profit after tax of ZMW5.2 million for the 2013 financial year. The company’s investment plan during 2013 will focus on improving quality of service in terms of availability to a target of 99.9%. With improved service delivery, the company is confident to grow its internet broadband volumes by 80% in accordance with the current trajectory. Samson Longwe REALTIME Managing Director ANNUAL REPORT FOR THE YEAR ENDED 31ST DECEMBER 2012 17
  17. 17. requirement in 2013. As at 31 December 2012, the company had a current ratio of 1.14. This is expected to significantly improve to over 2.00 in 2013 as amounts due to related parties are discharged and revenues increase. The company’s cash position continues to be strong due to the strict credit control policies in place with receivables. The company intends to obtain loan financing for further capital investments planned for 2013. Infrastructure Build and Operations The fiber cable and associated transmission equipment from Chirundu to Chililabombwe was installed and successfully commissioned. Local access fiber cables in Kabwe, Mazabuka, Choma, Livingstone and Solwezi were installed. The MPLS platform to facilitate modern services to financial institutions in particular was commissioned. Management and device monitoring systems were also installed. Network Performance • All network performance parameters are well within international norms and within ZICTA norms. • Average monthly availability of international services was also within the Service Level Agreements. Fibre Breaks A total of four fibre breaks with both national and international services consequences took place in Zambia in the period under review. A redundancy CEC LIQUID Overview CEC Liquid Telecommunication has continued to consolidate its position in the market in all areas of its franchise. The company that became operational only 17 months ago has increased both the revenue base and national footprint. The company, officially launched on 24 August 2012, has registered strong growth, posting revenues from under K1 billion during the pre JV period to K39.3 billion in 2012. A joint venture between CEC and regional fibre infrastructure builder and operator, Liquid Telecommunications of Mauritius, CEC Liquid Telecom has become the preferred wholesale broadband connectivity telecommunications company both at national level and within the region. The national backbone from Chirundu to Chililabombwe was completed on schedule. The fiber cable for local commercial access has been increased from 250 Km to 740 Km and accounts for about 40% of internet traffic into Zambia as at the end of 2012. Corresponding to the rapid increase in revenue, the customer base has also increased to include all mobile operators, top 7 financial institutions, top 5 internet service providers, NGOs, quasi-Governmental institutions, educational institutions and foreign missions. The company outlook continues to be bright with services being availed in non-traditional areas, away from the line of rail and into neighboring countries. New modern services through fibre to the premises (FTTp) are planned for roll out in 2013. This will further consolidate both the market and financial position of the company. The commissioning of fibre cable with access to East Africa and co-located submarine cables has posed both threats in terms of competition and opportunities. The solid foundation of the company with the support from both Shareholders will enable the company to withstand any potential threats, while initiatives are being taken to exploit the opportunities. Financial and Operational Performance During the period under review, the company posted gross revenue of K39.3 billion with a gross profit margin of 47.5%. Whilst employee, operating and administration expenses were covered by the gross profit, the very high depreciation expense (on account of the heavy investment in fixed assets) caused the company to incur a Loss Before Tax of K2.9 billion. Total Loss for the period was mitigated by capital allowances arising from the heavy investment in the opening years, and resulting in a Loss for 2012 of K1.4 billion. Total investment in plant and equipment now stands at K163.2 billion of which 94% is in optic fibre and network equipment. This investment has generated a significant annual depreciation charge. For the company to breakeven after depreciation, gross revenue should be in the order of K75.3 billion per annum. The company aims to exceed this minimum revenue REPORTS FROM THE SUBSIDIARIES Copperbelt Energy Corporation PLC & its subsidiaries 18
  18. 18. REPORTS FROM THE SUBSIDIARIES strategy has been formulated and is earmarked for implementation in the first quarter of 2013 and a Quality Assurance officer appointed to optimize the performance of the assets. FTTp Deployment The company made a strategic decision to rollout modern ICT services to high streets, malls, social and economic centers through modern technology of fiber to the premises. (FTTp).The following activities/processes in pursuance of the same took place: • CEC Liquid Telecom completed the process of acquiring customer demand data in order to compile market segment profile data. The focus was on the provision of high speed internet based services only • The profile data was required to plan and deploy a profitable FTTp solution/s • The best possible solution seems to be a hybrid of Active Ethernet and GPON solution; where the Corporate market segment, including mobile operators’ requirements, can be addressed via Active Ethernet (point-to- point, symmetrical fibre solution) and the Residential and SMME market segment can be addressed via GPON (point-to-multipoint, asymmetrical fibre solution) • The planning process will commence in January 2013 • Deployment will commence subsequent to the completion of planning phase Challenges Competition The competitive landscape continues to be monitored. • Both PCCW and ZESCO, working with Namibia Telecom, are now offering lower IP pricing which is a threat to our current price structure. Both existing and potential IP transit customers are using this to negotiate lower pricing from us • ZAMTEL, which is not currently using the full STM4 they recently contracted through Namibia Telecom, is offering other ISP’s IP Transit capacity at very attractive prices • ZESCO is completing the extension of their national capacity in phases and fibre connectivity will soon be made available in areas which have so far depended on wireless infrastructure. The opportunity for us lies in the provision of last mile links to the customer premises, a service which ZESCO is currently not providing There is a great deal of pressure to reduce pricing from existing last mile customers, but this is being considered on a case-by-case basis to avoid revenue erosion. Network Unacceptably lengthy Optical Fibre Cable breaks posed various challenges that have been addressed by: • adaptation of a procedural document to improve mobilization • Closing of the “old” Metropolitan ring with active nodes and thus having protection switching to customers • Introduction of more stringent Service Level Agreements with contractors having to perform excavation duties during fibre breaks • Assertive letters and indication of legal recourse should CEC Liquid Telecom have a recurrence of breaks caused by competitors or road contractors • Planning of redundant microwave links for core and certain customer links • Acquisition of additional tools and test equipment • Educating the people along the route to appreciate that the new fibre glass cable has no commercial value when stolen Business Expansion Product Development In addition to the existing dark fibre and last mile services, the product portfolio has been expanded to include services offered by Liquid Telecommunications. National connectivity is now available following the completion of the link between Lusaka and the Copperbelt. Organisations such as banks, mobile service operators and ISP’s have been engaged and are considering our offers. Services on this route were previously only provided by ZESCO and Zamtel. Pricing is based on competitive advantage basis leveraging on our ability to provide value added services e.g. MPLS service and FTTp in addition to national connectivity. Promotion The implementation of the ZAMREN link into SA is a major milestone for the region as a whole and Zambia in particular. CEC Liquid Telecom’s role in facilitating this connection has afforded it positive publicity and recognition of the value that its services have added to the tertiary education sector. The official company launch took place successfully on 24 August 2012 and was well attended by customers, prospects and industry stakeholders. Awareness of CEC Liquid Telecom was enhanced as a result of the launch and several potential customer meetings concluded. Outlook The company remains in a sound position at present with regards to operations, finance and human resources. The groundwork on generating additional sales is starting to bear fruit, with inroads being made in most sectors, including government. With the imminent acquisition and integration of Realtime into the business, the true synergistic approach to sales will become more apparent. ANNUAL REPORT FOR THE YEAR ENDED 31ST DECEMBER 2012 19
  19. 19. REPORTS FROM THE SUBSIDIARIES The planning for the roll out of FTTp is closer to completion. A delay has been introduced while the necessary inputs for the planning of the rollout was gathered. The plan for an integrated approach to rolling out LTE wireless data access medium is being revised, with the request for frequency in more efficient bands being lobbied with the regulator. Further negotiations will be held with ZICTA to determine the way forward on price regulation, as well as the position with regard to non-Zambian companies selling international services in Zambia. The first fully redundant routing out of Zambia will be in place in Q1 2013, and will make CEC Liquid Telecom the absolute choice provider of international bandwidth. The company will continue with its drive to provide operational excellence by monitoring the effectiveness and efficiency of its embedded processes. The timeous acquisition of skills and retention of those skills by motivating our employees with the best work environment will continue. CEC Liquid Telecom is already being seen to be one of the employers of choice to our current and prospective employees. Relationships with our key accounts will continue to be strengthened by regular meetings and providing updates especially on the developments aimed at improving our service delivery. Because the Zambian market is now maturing, customers are now more than ever starting to consider quality in the acquisition of services, and not only being price driven. That being said, prices will continue to fall in the shorter to medium term. The CEC Liquid market approach of quality at an affordable price will remain our key differentiator. Garth D Schooling CEC LIQUID Managing Director Copperbelt Energy Corporation PLC & its subsidiaries 20
  20. 20. ANNUAL REPORT FOR THE YEAR ENDED 31ST DECEMBER 2012 21
  21. 21. KABOMPO HYDRO POWER PROJECT REPORT Copperbelt Energy Corporation PLC & its subsidiaries 22 Project Overview and Background Awarded to a CEC-led consortium by the Zambian Government in 2008, the Kabompo Hydro Power Project located in Mwinilunga District of North- Western Province, marks the Company’s first foray into hydroelectric power generation. The award was given on the basis that a feasibility study would be undertaken after which a BOO (build- own-operate) concession to develop the project would be negotiated with the Government of the Republic of Zambia. The proposed project scheme is an underground power station of 40MW generation capacity and an annual energy output of 166 GWh. The dam will be of roller compacted concrete, approximately 50 metres high and 4 kilometres of underground tunneling. A transmission line of 35 kilometres at 132kV will be constructed to join the national grid at Kalumbila mine. The benefits associated with this project include alleviation of potential national power shortage and increased security of future power supplies. The project will also have a stabilising effect on the national grid due to its location as currently, all power sources are located in the country’s south. The plant will also be an emergency power supply source, especially for mines, and the 33kV builder’s power line offers potential for electrification parts of North-Western Province. Creation of jobs especially during construction is a natural benefit of such a project with the additional positives of providing socio-economic empowerment and capacity building for the local populations. Project Status So far, various key milestones with respect to the project have been attained, including completion of the feasibility study and granting of conditional approval of the Environmental Impact Statement (EIS) by the Zambia Environmental Management Agency (ZEMA). These and other development activities have progressed well, culminating in the initialing of the Engineering, Procurement and Construction (EPC) contract at the end of 2012 with Sinohydro Corporation Limited of China, who emerged as the preferred contractor following the tender adjudication process. Work is in progress to resolve outstanding matters before the EPC Contract is executed. Other notable developments in 2012 include the incorporation of CEC- Kabompo Hydro Power Limited, the special purpose vehicle through which the project will be developed; and commencement of negotiations with the Government, through the Office for Promoting Private Power Investments (OPPPI) on the Implementation Agreement in August 2012. A final draft
  22. 22. ANNUAL REPORT FOR THE YEAR ENDED 31ST DECEMBER 2012 23 of the Concession Agreement has since been drafted. A project of this nature requires various environmental and social approvals. In this regard, the following reports and plans have been submitted to ZEMA for review: • Final EIS report for the 132kV transmission line project – project review process by ZEMA commenced • Final Resettlement Action Plan (RAP) was submitted after taking into account the regulator’s comments on the draft RAP • Draft EIS report for the Kabompo Gorge Township Complex and RAP housing scheme • Draft EIS report for the 33kV builder’s power line project. It is worth mentioning that tender adjudication is in progress for the 33kV power line construction project and 33/11kV substation construction project • A draft EIS report for the 34 kilometres Main Access road rehabilitation project Financing Standard Bank of South Africa was chosen as Financial Advisor for the project in January 2012. Project financing arrangements are being actively pursued with a view to reaching financial close by the end of quarter 3 in 2013. Total project cost including transmission line and financing costs is estimated at ZMW38 million. Land Acquisition and Resettlement Activities Applications have been lodged from the two area councils to the Commissioner of Lands to convert customary tenure to leasehold tenure. Village Resettlement Committees (VRCs) have been set up through the chiefs to coordinate resettlement activities with respect to the 29 identified and confirmed households that will be affected by the construction of the reservoir. Approval of the suburban resettlement plan has been secured from all interested parties, who include VRCs, chiefs, local and central government leadership. A detailed plan of the RAP Township has been completed and a water supply system integrated in the Kabompo Gorge Township Development. Advance Infrastructure and Site Preparations Plans for the proposed township complex within the proposed project land area was approved by Provincial Planning Authority while drawings, bills of quantities, and pre-tender budget cost estimates for the Kabompo Gorge Township Development have been prepared by the Consultant, and are currently undergoing internal review. Construction of the temporary campsite comprising pre-fab residential and office accommodation, first aid clinic, ablution blocks and a meeting/dining hall is two-thirds complete. Outlook and Conclusion Construction start has taken longer than expected due to protracted processes for project financing and tender/ negotiations for the EPC contract. However, part of the EPC activities are expected to commence under an Early Works Agreement. These include supplementary quarry exploration of quarry and preparation of the Basic Design under the first phase. Other works, covered in the second phase, will be construction of the Contractor’s Office and Main Camp and construction of temporary site access roads. The main construction works under the EPC contract will commence after financial close. KABOMPO HYDRO POWER PROJECT
  23. 23. Copperbelt Energy Corporation PLC & its subsidiaries 24 CORPORATE RESPONSIBILITY REPORT Integrating and responding to the social and developmental needs of communities remain part of CEC’s business strategy, hence, in 2012 the Company responded to many such needs in efforts that have positively impacted communities, alleviating hardships in some instances and enabling economic endeavour in others. With the Zambian economy generally on the upside, the need for infrastructure to support and enable the increasing levels of both formal and informal commercial activity becomes even more imperative. Responding to this need, the Company built a bridge as part of the road that will link the two townships of Nkana East and Ndeke, a project it considers to be of strategic value. The significance of this road cannot be overstated and one of the benefits out of it is provision of an alternative route in and out of the central business district of Kitwe, thereby reducing time spent in traffic due to congestion on the one existing route, thus increasing productivity. Construction of the 2.4 x 2.4 x 10m x 3 barrel prefabricated box culvert bridge, complete with reinforced concrete bedding wing walls and headwalls, commenced in September 2012 and was completed in January 2013 at a cost K2,451 million. A related but different project undertaken during the year involved construction of some badly damaged roads in the CPC Village, with associated drainage infrastructure. The road works, costing K550 million were led by the in- house Projects Team, which has done a commendable job. CEC continued with the project of putting up public bus shelters at park seats at strategic points around Kitwe. The number of shelters put up so far totals eight. In addition, the Company erected a mourners’ shelter and installed public seats at Kitwe Central Hospital, which had been without any such facilities. During the year, CEC’s support to sport and young people in general continued. Over 100 footballs were given out to needy schools and communities in Luapula Province, North-Western Province and Kalulushi District. The significance of these particular balls is the fact that CEC took a conscious decision to procure locally made balls from Alive & Kicking, a social enterprise that among other noble undertakings uses proceeds from the locally made balls to raise awareness and help conserve wildlife. With respect to Power Dynamos Football Club, the Company gave grant support of K5,045 million. This was substantially higher than in 2011 on account of the Club’s participation in the Confederation of African Football Champions League tournament. The welfare of animals and their proper treatment is a concern for most people and particularly for the Kitwe SPCA (“Society for the Prevention of Cruelty to Animals”) to whom CEC provided dog kennels and a cat shelter. The animal shelters were made at a cost of K81 million purely from internal resources and labour. It is hoped that through such efforts, CEC will contribute to protecting animals from cruelty, neglect and ill treatment.
  24. 24. ANNUAL REPORT FOR THE YEAR ENDED 31ST DECEMBER 2012 25 CEC was an active participant in and sponsor of the 2012 tree planting exercise on the Copperbelt. The Company donated 5000 seedlings, taken from the Ichimpe nursery (also known as the CEC-Kitwe District Forestry Nursery Project), that were distributed to the Wusakike community during the exercise. Ichimpe Forest Nursery is an exotic tree nursery sponsored by CEC, where about 50,000 were planted in 2011. Construction of two substations at the University of Zambia, which are part of the high voltage laboratory to enhance practical learning, progressed during the year. The laboratory falls within CEC’s support to UNZA’s School of Electric and Electronic Engineering intended to build capacity and improve infrastructure. Total spend on the UNZA project in 2012 stood at K179 million. CEC was recognized by the Zambia Association of Chambers of Commerce and Industry and the Zambia Environmental Management Agency for its excellent performance and contribution towards sound environmental practices in industry and for being an industry leader in demonstrating corporate social responsibility during 2012. CORPORATE RESPONSIBILITY REPORT
  25. 25. Copperbelt Energy Corporation PLC & its subsidiaries 26 power dynamos FOOTBALL CLUB
  26. 26. ANNUAL REPORT FOR THE YEAR ENDED 31ST DECEMBER 2012 27 Power Dynamos Football Club (“Power Dynamos” or “Power”) is a successful elite football side that has been in the top-flight of Zambian football since the inception of the Super Division. Fully sponsored by CEC (‘the Company’), Power Dynamos ranks as one of the all-time best Zambian clubs in terms consistency, silverware and performance generally. Power Dynamos also has the best club stadium in the country, Arthur Davies Stadium, owing to the Company’s continued investment in the facilities and infrastructure. 2012 was an exciting and challenging season. Having come from a season (2011) that saw the club end a decade- long silverware drought and bag a double, expectations to repeat and even better that performance were very high from both fans and sponsor alike. However, while the start was positive albeit slow, Power Dynamos failed to defend both trophies scooped the previous year – MTN/FAZ Super Division League Championship and Barclays Cup – ending the year in second position behind eventual league winners, Zanaco Football Club (“Zanaco F.C.” or “Zanaco”) and Barclays Cup runners-up. The team was also unable to advance past the first round of the Confederations of African Football (CAF) Champions League competition. On the field performance • Charity Shield For the second year running, Power Dynamos won the Samuel ‘Zoom’ Ndhlovu Charity shield at the start of the season, winning it three times in its current form. Proceeds of this match go towards charitable causes decided by the Republican President. • CAF Champions League Winning the super league is an automatic qualification to play continental football and vie for the top club honours on the continent the following season. As 2011 Zambian champions, Power Dynamos drew Japan Actual for preliminary round opponents. Power Dynamos qualified to the first round of the competition via an 8-1 aggregate win over Japan Actual and was pitted against Congolese giants, TP Mazembe. While we were not ignorant about or dismissive of the prowess and ability of TP Mazembe, we were equally confident the lads would prove their worth and give their more decorated and experienced adversary a good run and even a few surprises. Mazembe proved to be an insurmountable hurdle for Power. The latter bowed out after an embarrassing score line on the outing to Lubumbashi. Admittedly, this affected the players’ morale who took some time to adjust and focus their attention on the local league. • MTN/FAZ Super Division Championship Power took the season opener, the Charity Shield, but after the Champions league exit, a string of lacklustre performances followed, leading the team to relinquish first position slot to fall somewhere in the middle pack of the top 10. The lads stabilised as the league progressed but played second fiddle to Zanaco F.C. for most of the season before leap-frogging them towards the close of year. That lead was sustained until the last day of the season when seemingly against all odds, Zanaco pipped us to the league title on the final match day of the season, despite going into their season closing match a point behind Power. Thus, Power was unable to successfully defend the championship trophy. • Barclays Cup Into its fifth year last season, the Barclays Cup closes the Zambia football season. Power Dynamos has won it twice in 2009 and 2011. Having missed out on retaining the league cup and considering that we had overcome the league winners at semi-final stage of this competition, there was certainty that Power would retain the Cup in view of the hunger to have some silverware to show for the season’s performance as well as the competition we were pitted against. As the game of football goes, sometimes you need luck on your side in order to be victorious and luck on that day was with NAPSA Stars (“NAPSA”) who twice came from behind to level scores, forcing a stalemate at the end of regulation time. The ensuing penalty shoot-out saw NAPSA being crowned Barclays Cup champions, leaving Power to relinquish the title of champion for both trophies it was defending in a space of one week. Squad strength The club, through the year, maintained a good number of gifted and skilled players, blending experience with youth, and a very capable and determined technical bench to groom and support the players. We had a total of 28 players on our register in 2012, out of which 4 were new acquisitions that were playing their first season at Arthur Davies. To ensure continuity, we have maintained a nursery to help groom young prospects with potential to break through into the first team. The sale of Joseph Sitali, Floyd Phiri, Alex Ng’onga and Rodgers Kamwandi and release of Josphat Nkhoma, Goodson Kaching, Ruphia Chikweni and loaned out Cheyesu Sakafunya, Christopher Munthali, Jackson Kamwanga, Trust Mkandawire enabled us to bring Lubambo Musonda, Joel Kanyeba, Leighton Kasolota, Bornwell Silengo, Kebby Hachipuka on loan and Anthony Nasha Kaaya, Julius Situmbeko and Martin Phiri on permanent transfer. The effect of these transfers in and out is a team that gives the coaching team depth and more options. The average age of the team was also reduced to 23.88 years from 24.36 years the previous season. A total of 9 players were sold and transferred to local and foreign clubs during the year; in their stead, 8 players were brought to Arthur Davies. We would especially like to thank Joseph Sitali for his dedication and valuable contribution to the side, which he captained for 3 seasons until his departure at the close of the season. We wish him well at his new club. Player recognition and accolades Power Dynamos prides itself for possessing quality players able to play at the international stage for club and country. In 2012, three players – Joseph Sitali, Joshua Titima and Mukuka Mulenga – received national team call-ups and played in the senior team in friendlies and the AFCON matches. Teenage midfield genius, Mukuka Mulenga, who has been touted in the media as Zambian football’s current revelation, was crowned MTN Football Player of the Year and went on to make his impressive African Cup of Nations (AFCON) debut in South Africa with the Chipolopolo, while Emmanuel Chimpinde scooped the Most Disciplined Player of the year accolade. POWER DYNAMOS FOOTBALL CLUB
  27. 27. Copperbelt Energy Corporation PLC & its subsidiaries 28 pitch, we welcome ideas from our supporters on different aspects of how we can better improve the team and relationships around it. Outlook Our strategy is to maintain the team’s playing success by adding depth to the squad and increasing our options. We are also committed to growing Power Dynamos into a reputable brand, and convert more fans into customers. We can only achieve that by maintaining success on the field of play before other things can follow. This obviously calls for continued investment into the team and keeping the morale of the squad up. To this end, the Executive with the support of the team sponsor has worked out an incentive plan applicable to the players, technical bench and executive committee tied to performance in 2013. On the field, our key targets for the 2013 season are: 1. To top the super division league and reclaim the championship 2. To go past The Group stage of the CAF Champions League Financial performance Power Dynamos is fully sponsored by the Company, from who the club receives an annual grant to fund its operations. In 2012, a total of K5,045 million was disbursed from CEC compared to K2,614 million in the year 2011. The rise of 93% was on account of participation in the CAF champions league and acquisition of players. In addition to the sponsorship grant, the club earned K663 million from match day gate-takings and K132 million from the club house and other sundry income generating activities, including the sale of replica shirts. 930 units of both home and away replicas were sold. Relationship with fans Our club enjoys a good relationship with fans and supporters, with two strong supporters’ bases on the Copperbelt and Lusaka. We wish to thank all our fans for all the support and encouragement rendered to the team in 2012. In our quest to win more fans and keep a healthy and mutually beneficial relationship with the 12th man on the Power Dynamos still remains one of the top teams in Zambia and we are geared to deliver the best results in the 2013 season and ultimately maintain our status of being one of the top teams in Zambia. Other than the disappointment of an early CAF Champions League exit, we performed well in other competitions in 2012, giving us a good place from where to kick off the next season. Owen Silavwe Club Chairman POWER DYNAMOS FOOTBALL CLUB
  28. 28. ANNUAL REPORT FOR THE YEAR ENDED 31ST DECEMBER 2012 29 POWER DYNAMOS FOOTBALL CLUB
  29. 29. Copperbelt Energy Corporation PLC & its subsidiaries 30 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 CONTENTS Directors’ Report CEC’s Compliance Status to LuSE Code of Corporate Governance Rules Statement of Directors’ responsibilities Report of the independent auditors Consolidated statement of comprehensive income Consolidated statement of changes in equity Company statement of comprehensive income Company statement of changes in equity Consolidated statement of financial position Company statement of financial position Consolidated statement of cash flows Company statement of cash flows Notes to the financial statements 30 41 42 43 44 45 46 47 48 49 50 51 52
  30. 30. ANNUAL REPORT FOR THE YEAR ENDED 31ST DECEMBER 2012 31
  31. 31. Copperbelt Energy Corporation PLC & its subsidiaries 32 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 DIRECTORS’ REPORT The Directors have pleasure in submitting their report on The Group’s activities and its consolidated financial statements for the year ended 31 December 2012. This is the second year that consolidated financial statements for The Group are being presented. This year, in response to statutory regulations on the operating currency for domestic transactions, the statements are presented in Zambian Kwacha unlike 2011 when they were presented in US dollar. 1. The Group Copperbelt Energy Corporation Plc, (“the Company”) has shareholding in two companies, Realtime Technology Alliance Africa (RTAA) – Zambia Limited and CEC Liquid Zambia Limited, this shareholding now constituting “The Group”. The Company’s shareholding in RTAA continues to be 50% based on a joint venture agreement entered into with RTAA (Proprietary) Limited on 11 February 2009. In March 2011, a joint venture agreement was entered into with Liquid Telecommunications Holdings Limited of Mauritius with the intention of forming a joint venture company in Zambia, CEC Liquid, which was duly incorporated on 12 May 2011 and commenced operations in the latter part of the year. At the end of 2011, this was still a 100% subsidiary of the Company as Liquid Telecommunications had not yet completed the prerequisite requirements. During the year, the shareholding was resolved and the shareholding by the Company and by Liquid Telecommunications was 50% each. 2. Share Capital The authorised and issued and fully paid share capital of The Group is: 2012 Number of shares 2011 Number of shares 2012 Value 2011 Value Authorised Issued Authorised Issued KM KM The Company 1,000,000,000 1,000,000,000 1,000,000,000 1,000,000,000 140 140 RTAA 5,000,000 4,000,000 5,000,000 4,000,000 4 4 CEC Liquid 10,000,000 10,000,000 10,000,000 5,000,001 10 5 The authorised share capital of the Company is K140,000,000 (US$100,001) divided into 1,000,000,000 Ordinary shares of a par value of 14 ngwee (US$0.0001) each and 1 Special Share of K1,400 (US$1.00) held in the Company by the Government of the Republic of Zambia. As at 31 December 2012, the shareholding in the Company was as follows: Zambian Energy Corporation (Ireland) Limited 520,000,000 ZCCM Investments Holdings Plc 200,000,000 Private Individuals/Institutions 280,000,000 Government of the Republic of Zambia (Golden Share) 1 Special Share 3. Significant Shareholding in the Company As at 31 December 2012 substantial shareholding (5 per cent or more) in the Company’s share capital were as follows: Zambian Energy Corporation (Ireland) Limited: 52% ZCCM Investments Holdings Plc: 20% 4. Activity on the Lusaka Stock Exchange The Company continues to be listed on the Lusaka Stock Exchange where the shares were actively traded during the year under review. The price of the shares opened the year on a higher note, trading at K660 - 6% higher than in January 2011. The 2012 price then fell below the 2011 price as the year progressed. It picked up in November and closed the year at K658, 3% above the December 2011 price. The total number of shares traded in was 25.7 million, which amounts to 10% of the volume of the listed stock.
  32. 32. ANNUAL REPORT FOR THE YEAR ENDED 31ST DECEMBER 2012 33 DIRECTORS’ REPORT (cont...) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 4. Activity on the Lusaka Stock Exchange (cont...) The Company operates an Employee Share Option Plan (ESOP) that is open to all eligible employees. At the year end, the total number of shares held under the ESOP was 29.6 million compared to 26 million at the end of 2011. This shows a 14% increase in holding. 5. Principal activities The principal activities of The Group are the generation, transmission, distribution and sale of electricity and telecommunications service provision. The Company’s core business remains the transmission, distribution, generation and sale of electricity primarily on the Copperbelt, whilst its subsidiaries focus on telecommunications. Realtime Technology Alliance Africa(RTAA) – Zambia Limited’s principal activity is as an internet service provider (ISP), whilst CEC Liquid’s principal activities are the provision of wholesale capacity and internet bandwidth to Zambia Information and Communications Technology Authority (ZICTA) licensed private and public operations. 6. Financial Results This is the second year of preparation of consolidated financial results, highlights of the financial performance of The Group over the two years are tabulated below, the consolidated results have incorporated 50% of RTAA and 50% (2011: 100%) of CEC Liquid. Key Statistics Consolidated The Company RTAA CEC Liquid 2012 2011 2012 2011 2012 2011 2012 2011 (Six Months) Revenue (KM) 1,358,747 977,189 1,332,021 960,435 33,088 26,892 39,309 3,436 Gross profit (KM) 383,548 263,550 365,718 256,721 16,373 9,963 18,659 1,918 Profit/(Loss) before interest and taxes (KM) 158,571 167,526 157,776 171,167 2,667 (2,940) (2,947) (2,190) Net profit/(loss) (KM) 109,322 96,416 109,159 100,223 2,116 (3,268) (2,947) (2,190) Equity (KM) 935,658 835,357 889,363 836,297 140 (1,897) 149,248 (2,904) Total Assets (KM) 1,605,668 1,499,520 1,584,927 1,482,277 12,693 11,560 166,123 20,815 Current Assets (KM) 350,393 340,736 328,993 349,073 5,945 4,407 15,502 7,489 Inventory (KM) 19,973 20,330 16,689 20,127 478 404 1,871 0 Current Liabilities (KM) 350,782 352,240 328,231 354,356 5,500 11,444 13,351 3,636 Acid test ratio (times) 0.94 0.91 0.95 0.93 0.99 0.35 1.02 2.06 Return on equity (%) 13% 12% 13% 13% - - - - Return on assets (%) 7% 6% 7% 7% 17% (28%) (2%) (11%) EBITDA (KM) 230,952 235,224 225,373 237,642 4,764 (889) 4,540 (1,980) Earnings per share (Kwacha) 109.32 96.42 109.16 100.22 - 2.61 -- -
  33. 33. Copperbelt Energy Corporation PLC & its subsidiaries 34 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 DIRECTORS’ REPORT (cont...) 7. Operations The Company During the period under review, all purchases of electrical energy for the Company were from ZESCO Limited (‘ZESCO’) under the Bulk Supply Agreement. Electricity supplies from this source accounted for 99.91% of the total requirements. The balance was supplied from the Company’s Gas Turbine generating plants. Security of supply was satisfactory, albeit with occasions of low voltages on the power system, consequent of the supply- demand gap which the country is facing as national demand continues to grow and planned generation projects still remain in development phase. CEC continued to work closely with ZESCO to address the challenge of voltage fluctuations. A number of improvements were implemented both on the CEC and ZESCO systems, with further improvements in voltage management expected in 2013. Sales of electrical energy to CEC customers totaled 4,044 GWh compared with 3,744 GWh the previous year. The customers’ average Maximum Demand increased to 527.322MW from 481.189MW while the system load factor remained at 85%. RTAA Realtime Technology Alliance Africa Limited (T/A Realtime Zambia) is registered as an internet service provider (ISP) and focuses on a niche market of corporate customers. The company’s core business comprises provision of high speed internet service and private leased circuits using optic fibre technology. During the year 2012, the performance of Realtime Zambia was above average with a significant increase in Turnover of 16.3% as compared to 2011. Cost of Sales reduced by 6% as compared to 2011 as the company took advantage of cheaper bandwidth within The Group. The company was able to make a profit for the first time since CEC made its initial investment 3 years ago and it is expected to payout its first dividend in 2013. CEC Liquid CEC Liquid Telecommunication Limited is a leading independent data and IP provider, supplying wholesale fiber optic capacities to telecommunications operations in Zambia. The company has built, owns and operates one of the largest national and metro fiber optic networks in Zambia and is continuing to expand this nationwide network incorporating a number of metro networks in major cities and towns. CEC Liquid Telecommunication Limited has continued to consolidate its position in the market in all areas of its franchise. The company has increased both the revenue base and its national footprint. The company has registered strong growth, posting increased revenues from K3 billion in the five months operations in 2011 to K39.3 billion in 2012. 8. Safety and Health Matters The Group has formal safety and health policies that have been approved by the Board to ensure a safe working environment. Health and safety standards are regularly reviewed and updated to ensure that improvements conform to best practices. The Company continues to avoid work related illness and injuries through various initiatives and to this end continued in the year 2012 to actively support both work place and community malaria/HIV programmes. A good Safety, Health and Environmental (SHE) performance against the set key performance indicators was recorded during the year under review with the achievement of a bonus payout for three out of the four quarters in 2012. The good 2012 SHE performance was mostly driven by:- • The achievement of an unprecedented 2.98 million man-hours without a power system related lost time accident (LTA). The last system LTA was recorded in December 2010 when a member of staff sustained body burns during work activities at Maposa Substation. • The reduction in reportable incidents / dangerous occurrences from 5 in 2011 to 4 in 2012. • The reduction in overall road traffic accidents (RTAs) from 14 in 2011 to 7 in 2012 for both CEC and third party caused RTAs. • The above target performance in Community and Public High Voltage Sensitisation Programmes – 188 (public sensitizations actual in 2012) against a target of 148 for the year. The Company, however, in quarter 2 recorded an RTA involving a third party, which resulted in a fatality. The Company will continue to endeavour that all high risk incidents, such as fatal RTAs, are avoided or minimized. To demonstrate
  34. 34. ANNUAL REPORT FOR THE YEAR ENDED 31ST DECEMBER 2012 35 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 DIRECTORS’ REPORT (cont...) 8. Safety and Health Matters (cont...) commitment in this regard, the Company has installed a vehicle satellite monitoring system on all its fleet including pool vehicles to effectively monitor CEC drivers’ driving speeds, identified as being the major cause of most RTAs. A reduction in the fleet average speed from above 125km/hr to below 90km/hr has been recorded for the years 2011 and 2012 respectively. 9. Environmental Matters The Company has a formal environmental policy in place that has been approved by the Board, which prescribes the procedures and practices to be followed by the Company in environmental matters. The Company is licenced by the Zambia Environmental Management Agency (ZEMA), which monitors and regulates its performance. There were no legal actions or fines imposed on the Company by the regulatory agency. During the year under review, the Company recorded zero serious environmental incidents. The Environmental Impact Statement report (EIS) relating to the Kabompo Gorge Hydro Power Generation Project was finalised and submitted to ZEMA for review. The project was approved and a Decision Letter issued. As part of its corporate social responsibilities, the Company approved sponsorship of a Tree Nursery Development project in the Ichimpe Area to be developed in collaboration with the Forestry Department. 10. Capital expenditure The Group’s capital expenditure programme has been developed in line with The Group’s strategy of minimizing business risks, enhancing customer satisfaction and ensuring the sustainability of business activities. In this regard, the major categories of expenditure include emergency generation equipment, transmission and distribution equipment, protection and metering equipment, SHE equipment, IT, vehicles and communication and control equipment. The Company Through its continuous capital expenditure programme, the Company achieves continued refurbishment of the Gas Turbine Alternators (GTAs) to improve reliability of standby power plant, replacement of system assets that have reached the end of their useful lives and meeting required high standards for SHE compliance. In addition to its planned capital expenditure for the maintenance, renewal and refurbishment of its network and associated facilities, the Company undertook further projects related to; (i) Installation of substation equipment at Lubambe mine (K26,456 million); (ii) Installation of substation equipment at Muliashi mine (K48,595 million); (iii) Procurement of two 66KV transformers (K7,288 million); and (iv) Feasibility studies and preparatory works on the Kabompo Hydro project site (K18,475 million). The total capital expenditure for the year was K134,931 million. Joint Ventures RTAA’s capital expenditure for the year was K1,704 million (2011: K3,998 million). The reduction in capital expenditure is due to the fact that all fiber expenditure is now incurred by CEC Liquid. CEC Liquid’s expenditure for the year was K143,198 million (2011: K13,593 million). The major increase was further investment in network equipment of K136,819 million. The total group capital expenditure was K206,984 million after netting off the amounts that are attributable to the other joint ventures. 11. Insurance The Group has insured its operational assets against all significant business risks. The Group also maintains insurance for its Directors in respect of their duties as Directors of The Group. Besides the foregoing, The Group has cover for employer’s liability, public and product liability, group personal accident, motor vehicle insurance and group life assurance.
  35. 35. Copperbelt Energy Corporation PLC & its subsidiaries 36 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 12. Dividends and transfer to reserves The policy of The Group in respect of the payment of dividends is a matter to be determined by the individual company Boards in accordance with the principles outlined below: The Company The Company declares dividends based on its actual accumulated profits arising from the business of the Company in respect of each year after: - (i) provision of working capital as determined by the Board; (ii) transfer to reserves as in the opinion of the Board ought reasonably to be made; (iii) service of all debts and full compliance with any financing agreements to which the Company is party at the relevant time of payment; and (iv) taking into account the interests of the shareholders in minimizing taxation liabilities. The Company has a policy of declaring dividends twice a year; in March and August. Dividends of K21,093 million and K35,000 million were paid on 06th April and 21st September, 2012 respectively. Retained profit taken to reserves at 31 December 2012 was K109,322 million. Subsidiaries Neither RTAA nor CEC Liquid declared dividends in the year. RTAA had accumulated losses of K14,325 million at the end of 2012 whilst CEC Liquid also had accumulated losses of K3,565 million. 13. Developments Significant progress was made with respect to the Kabompo Gorge Hydro Project. A company, CEC-Kabompo Hydro Power Ltd, was incorporated in February 2012. This is the special purpose vehicle through which the project will be developed. CEC commenced negotiations with the Government of Zambia, through the Office for Promoting Private Power Investments (OPPPI) regarding the Implementation Agreement. Commencement of negotiations with the preferred Engineering, Procurement and Construction (EPC) contractor, Sinohydro Corporation Limited of China, capped the year with respect to the key activities on this project. Developments on the 120MW heavy fuel oil (HFO) Arandis Power Project located in the mining town of Arandis in Namibia progressed well during the year. Power Purchase Agreement negotiations with the Namibian power utility, NamPower, are in place. A Development Agreement was entered into in the last quarter of the year between CEC and Nishati Investments, CEC’s partner in the Arandis project. An investment at a more advanced stage is the acquisition of a 60% interest in Nigeria’s Abuja Electricity Distribution Company (“AEDC”), one of the units being privatised under Nigeria’s power sector privatisation drive. CEC acquired the stake in AEDC as part of KANN Utility Company Limited, a consortium in which CEC is a 50% joint partner. Meanwhile, mining activity continued to grow during the year, both from new operations and the expansion of existing ones. With this growth, it is imperative for CEC to simultaneously develop infrastructure to appropriately and effectively support the power needs of its customers. Projects undertaken in 2012 include construction of a new 220/11kV substation to serve NFC Africa Mining Plc (NFCA) South East Project, a new underground mine along the Kitwe-Chingola Road. Projected increase in power sales as a result of this project, which is earmarked for completion in 2013, is in the region of 45MW. Expansion works to the already existing CEC Nkana Substation with additional 3x30MVA 66/11kV transformers continued through the year. The additional infrastructure and power system upgrade will cater for Mopani Copper Mine’s (MCM) Synclinorium project. At full completion, the project will add an extra 25MW to the current power consumption of MCM, CEC’s second largest customer. Other projects included provision of power to new entrant China Copper Mines, completion of CNMC-CLM’s Muliashi project and the Lubambe Copper Mines (formerly KONNOCO), both of which were commissioned in the first quarter of 2012. As the Company seeks to realise its vision of becoming a leading investor, developer and operator of energy infrastructure in Africa, a new company was formed at the year end. The company, which is registered as CEC Africa Investments Limited (CEC Africa) in Mauritius, is the vehicle through which CEC intends to undertake international investments in the power sector in sub-Saharan Africa to achieve the vision. DIRECTORS’ REPORT (cont...)

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