Identifier
Created
Classification
Origin
08LUSAKA319
2008-03-19 13:03:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Lusaka
Cable title:  

U.S. Businesses' Views on Zambia's Power Problems

Tags:  ECON EIND EINV ENRG PGOV ZA 
pdf how-to read a cable
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E.O. 12958: N/A
TAGS: ECON EIND EINV ENRG PGOV ZA
SUBJECT: U.S. Businesses' Views on Zambia's Power Problems

Refs: A) Lusaka 302; B) Lusaka 91

UNCLAS SECTION 01 OF 02 LUSAKA 000319

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FOR AF/S M.SHIELDS
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USDOC FOR 4510/ITA/IEP/ANESA/OA R.TELCHIN

E.O. 12958: N/A
TAGS: ECON EIND EINV ENRG PGOV ZA
SUBJECT: U.S. Businesses' Views on Zambia's Power Problems

Refs: A) Lusaka 302; B) Lusaka 91


1. (SBU) Summary. At a recent American business roundtable
gathering hosted by Ambassador Martinez, U.S. investors and local
representatives of U.S. companies shared opinions and voiced
frustrations over the electric power situation in the country.
Overall, and not surprisingly, businesses are angry and disappointed
with the parastatal ZESCO, and do not see any prospects for
improvements. Some are taking steps to increase captive power
generating capacity, while others are trying to use political
influence to receive special treatment from the government and from
ZESCO. End summary.


2. (SBU) At a March 5 gathering of a group of U.S. investors and
representatives and agents of U.S. companies, Ambassador Martinez
asked the assembled businesspersons how the electrical power
situation, particularly outages, have affected their operations.
One small investor who sells and services a wide range of IT,
electrical, and other equipment, reported a tremendous rise in
demand for uninterrupted power supply units and for generators. He
said that his generator orders cannot even get onto waiting lists of
South African suppliers for at least fourteen weeks, so he is
looking to source generators from China, other Asian countries,
Europe, and the United States. He suggested that companies might
want to consider switching to solar generation.


3. (SBU) The Managing Director of Citibank raised his broader
concern about the negative impact that the power cuts will have on
Zambian businesses, and their ability to stay afloat financially.
He also observed that, in addition to generating finance from higher
electricity rates, ZESCO could consider a number of other financing
options to fund new power projects.

Consensus on ZESCO's Poor Handling of Problems


4. (SBU) The roundtable attendees agreed that parastatal electricity
supplier ZESCO is not confronting the problem with the degree of

urgency it requires, nor is ZESCO effectively expressing the scale
of the problem. As a result, many Zambian consumers, including in
the private sector, have the sense that the problems are temporary
and will be sorted out soon, but the reality is much grimmer. Many
participants observed that industrial demand, led by new copper
mines and smelters, will increase rapidly in the next year or two,
and supply cannot keep pace. They expect serious shortages for the
next several years. Some who had attended a recent meeting with the
Managing Director of ZESCO reported that when business leaders asked
ZESCO how it was planning to respond to the crisis, the MD turned
the question back on them, asking "what are YOU going to do about
this?" Such a reaction does not inspire confidence, the
representatives stated.

Indeni's Troubles Worsen Prospects


5. (SBU) The group agreed that as more and more businesses buy and
run generators, demand for diesel fuel, which is already quite
expensive, will rise. In the past, the government-owned refinery
Indeni has had problems of its own, resulting in periodic fuel
shortages. The government has recently run into difficulties and
controversy over procurements of oil and financing of its oil
purchases (Ref A),and as far as the business community understands,
it has not finalized a long-term payment structure for oil
purchases, meaning that future shipments might be interrupted,
leading to shortages. Some of the representatives indicated that
they had approached the GRZ to request that it consider removing
duties and taxes on diesel fuel, in the interest of enabling more
cost-efficient use of generators.

Challenges to Copper Fabrication, Grain Milling


6. (SBU) The CEO of Luanshya-based metal fabricator, ZAMEFA, owned
by Phelps Dodge/General Cable, told the gathering that his company's
current power backup capacity on-site is 1.5 MW, but this is not
enough to maintain full-fledged operations for a sustained period.
Abrupt power stoppages are particularly problematic for continuous
casting operations at the factory, although production of wire is
not ruined by interruptions. ZAMEFA will expand captive power
generating capacity at its facility, bringing the total to 4.5 MW.
He also noted that when the power from ZESCO is working, it
fluctuates wildly, which places tremendous stress on, and sometimes
destroys, many types of equipment. As a result, ZAMEFA is also
buying more equipment to regulate the voltage and minimize stress on
metal fabrication equipment. The CEO raised one possible positive
outcome from the region-wide power shortages: he thinks his
operations are less adversely affected than those of his competitors
in South Africa, and as a result, ZAMEFA might gain a competitive

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advantage and sell more in South Africa.


7. (SBU) The Managing Director of National Milling Corporation (NMC,
owned by U.S. agribusiness company Seaboard Corporation) complained
that ZESCO's load shedding is erratic and does not distinguish
between industrial and residential users. Advance planning by ZESCO
that enabled industrial operations to stop on a given day would be
far more helpful for NMC. The MD said that the mill runs seven days
a week, 24 hours a day, but ZESCO does not appreciate the needs of
the company, Zambia's largest miller. He is now working with ZESCO
to try to coordinate NMC's scaled-back operations with planned power
cuts.


8. (SBU) Comment: Although Zambian residential electricity users
believe that businesses are getting "special treatment," the
business-industrial sector is also suffering from power cuts. The
situation is likely to worsen, as ZESCO appears unable and/or
unwilling to confront the problem.
MARTINEZ