BY

CHITI MATAKA SENIOR MANAGER - BUDGETS, ZESCO LTD

INVESTING IN ENERGY: THE ZESCO EXPERIENCE

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TABLE OF CONTENTS

1.Introduction

2.Current Status

3.Investment Portfolio

3.1 Generation Projects

3.2 Transmission Projects

3.3 Distribution Projects

4.Conclusion

INTRODUCTION

ELECTRICITY IS A KEY DRIVER OF ECONOMIC GROWTH AND IS A MAJOR INPUT IN ALL MAJOR

ECONOMIC SECTORS - AGRICULTURE, MINING, MANUFACTURING,TOURISM, ETC.

ZESCO’S ELECTRICITY GENERATING CAPACITY STANDS AT 1.6 GW (99% HYDRO)

NET EXPORTS - ROUGHLY 5 % OF TOTAL GENERATION (MOSTLY TO NAMIBIA, BOTSWANA AND THE

DEMOCRATIC REPUBLIC OF THE CONGO -D.R.C.)

CURRENT PEAK DEMAND FOR ELECTRICITY CANNOT BE MET BY AVAILABLE GENERATION DUE TO

THE LOW WATER INFLOWS INTO, AND THE LOW WATER LEVELS IN, THE TWO MAIN RESERVOIR

DAMS OF KARIBA AND ITEZHI-TEZHI, ARISNG FROM THE POOR RAINFALL PATTERNS IN THE

2014/2015 RAIN SEASON.

UP UNTIL THE RECENT ECONOMIC DOWNTURN OF 2015 EMANATING FROM THE FALL IN BASE

COMMODITY PRICES (INCLUDING COPPER), THAT WAS RELATED TO THE REDUCTION IN DEMAND

IN THE MAIN EXPORT MARKET OF CHINA, ZAMBIA HAD EXPERIENCED SUSTAINABLE ECONOMIC

GROWTH OVER THE LAST DECADE. THE DEMAND THAT PRINCIPALLY WAS DRIVEN BY CHINA HAD

ACTED AS A CATALYST TO LARGE STEP DEMAND GROWTH FOR KEY ECONOMIC SECTORS SUCH

AS MINING. THIS IN TURN HAD A POSITIVE IMPACT ON OTHER SECTORS SUCH AS CONSTRUCTION.

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FACTFILE

ELECTRICITY DEMAND Maximum Demand is now estimated at more than 1, 650 MW.

Access to electricity is estimated at 22% in the urban areas and at 3% the rural

areas.

4

0

500

1000

1500

2000

2500

3000

MW

Years

Demand Forecast for Zambia

Demand

18/06/13ZESCO

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FACTFILE

GENERATING STATIONS

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MAJOR POWER STATIONS GENERATION

CAPACITY BEFORE

PRP (MW)

GENERATION

CAPACITY AFTER

PRP (MW)

KAFUE GORGE 900 MW 990 MW

KARIBA NORTH BANK 600MW 720MW

VICTORIA FALLS 108 MW 108 MW

SMALL HYDROS CAPACITY BEFORE

UPRATING (MW)

CAPACITY AFTER

UPRATING (MW)

LUNZUA 0.75 MW 15.3 MW

LUSIWASI 12 MW 86 MW + 15MW

CHISHIMBA 6 MW 14.8MW

MUSONDA 5 MW 10MW

FACTFILE

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TRANSMISSION ASSETS

VOLTAGE DISTANCE (KM)

330 KV 2,241

220 KV 571

132 KV 202

88KV 794

66KV 1,037

HIGH VOLTAGE SUBSTATIONS 27

NATIONAL CONTROL CENTER 01

REGIONAL CONTROL CENTERS 03

DISTRIBUTION ASSETS

66KV 2,180

33KV 2,100

11KV 1,037

SUBSTATIONS 5,000

LOAD FORECAST

Year 2008 2010 2015 2020 2025

FORECAST

MAXIMUM

DEMAND (MW)

1,579 1,592 2,389 2,595 3,029

FORECAST

SHORTFALL

(MW)

547 753 1,179

INVESTMENTSTHE ZAMBIA POWER REHABILITATION PROJECT (PRP)

The overall objective was to support that of Government of enhancing

the ability of Zambia’s Electricity Supply Industry (ESI) to:

Provide electricity at least cost, and in an efficient and sustainable

manner;

Stimulate more and inclusive growth in the Zambian economy.

The rehabilitation works involved two major components; namely:

Generation infrastructure; and

Transmission and distribution infrastructure..

The PRP was funded by bilateral and multilateral agencies led by the

World BANK; Government and ZESCO also participated.

The project cost more than USD320mn.

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INVESTMENTS

ZAMBIA POWER REHABILITATION PROJECT (PRP)

The scope included the rehabilitation and uprating of the three

major hydropower stations, i.e. Kafue Gorge Power Station

(KGPS); Kariba North Bank Power Station (KNBPS); and

Victoria Falls Power Station (VFPS).

Other works included the reinforcement and rehabilitation of

some transmission and distribution infrastructure

The major achievement of the PRP has been the uprating of

KGPS from 900 to 990 MW; the reinstatement of VFPS to its

full generating capacity of 108 MW; as well as the up-rating of

KNBPS from 600 to 720 M. The total generation capacity

yielded from the PRP at these brownfield sites is 210 MW.

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INVESTMENTS

The estimates of expenditure on the PRP are as below:

Victoria Falls Power Station – USD53.7mn

Kafue Gorge Power Station - USD 85.5mn

Kariba North Bank Power Station

– USD81.4mn

Therefore, the total cost – USD 220.6mn

The estimated cost for a 210MW greenfield power

station would be at least USD560mn.

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INVESTMENTS

New Generation Projects

Kariba North Bank Extension - 360MW

• Owner: ZESCO Limited/KNBEC

• COST: USD 420M

• Estimated Duration: 4 YEARS

• Operation: January 2014

• STATUS: Installation of hydro-mechanical

equipment completed

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INVESTMENTS

New Generation Projects

Itezhi-Tezhi Hydro-Power Project (120 MW)

• Owner: PPP (ZESCO/TATA)

• Cost: USD 250M

• Estimated duration: 3.5 years

• Operation: 2015/2016

• Status: 94% of construction works

completed. Financial Close achieved and First

Drawdown made in April 2015.

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INVESTMENTS

New Generation Projects

Kafue Gorge Lower Hydropower Project (750 MW)

• Owner: ZESCO

• Cost: USD 2bn

• Estimated duration: 51 months from October 2015 when

contract was signed.

• Operation: 2019

• Status: Engineering, Procurement and Construction

(EPC) Contractor selected, contract awarded and

signed.

• Government of the Republic of Zambia (GRZ) has allocated

US$186M as ZESCO’s equity contribution to the project.

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INVESTMENTS

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New Generation Projects – SMALL HYDROS

MUJILA FALLS 1.4MW-US$25M

75% OF PREPARATORY WORKS DONE. PROJECT COMPLETION

EXPECTED 2017.

LUSIWASI LOWER -86MW-US$164M

EPC CONTRACT AWARDED TO CNEEC

LUNZUA-15MW-US$52M

THE PROJECT WAS COMMISSIONED IN JUNE 2014.

LUSIWASI UPPER -15MW-US$47M

THE PROJECT AWAITS SITE INVESTIGATIONS, AWARD OF CONTRACT,

PROJECT FINANCING

REHABILITATION AND UPRATING OF CHISHIMBA FALLS: 6 -14.8MW – US$46M

PREPARATION BID DOCUMENTS IN PROGRESS, AWARD OF CONTRACT,

PROJECT FINANCING

REHABILITATION AND UPRATING OF MUSONDA FALLS: 5-10MW – US$32M

CONTRACT AWARDED, ADVANCE PAYMENT MADE TO EPC CONTRACTOR,

PROJECT FINANCING. WORKS TO CONCLUDE IN 2016

SHIWANG’ANDU 1 MW – USD4.15 MILLION

PLANT COMMISSIONED IN 2012. HOUSING SCHEME COMPLETED IN 2014

INVESTMENTS

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NEW GENERATION PROJECTS – POTENTIAL SITES

MPATA GORGE – 540 MW

DEVIL’S GORGE – 500 MW

BATOKA GORGE – 2, 400 MW (1, 200MW EACH BETWEEN

ZAMBIA AND ZIMBABWE)

MUMBOTUTA FALLS - 300 MW

MAMBILIMA FALLS SITE I – 202 MW

MAMBILIMA FALLS SITE II – 124 MW

KABWELUME FALLS - 62 MW

KUNDABWIKA FALLS – 101 MW

MUTINONDO - 40 MW

LUCHENENE – 30 MW

MKUSHI – 65 MW

INVESTMENTS

TRANSMISSION PROJECTS

PENSULO KASAMA AND PENSULO CHIPATA 330 KV

PROJECT

The objective is to improve power quality in Eastern, Muchinga,

Northern and Luapula provinces and to increase transmission

capacity to these areas

Scope: about 382 km of 330 kV lines (Pensulo - Kasama) and

285 km of 330 kV lines (Pensulo - Chipata) with associated

substations

Cost: USD335 million

Status: Both transmission lines have been completed and ahead

of schedule .

Funding: Industrial and Commercial Bank of China

Construction Period: 30 months from August 2012 18

INVESTMENTS

CONNECTION OF NORTH WESTERN PROVINCE TO the

NATIONAL GRID

The objective is to support increased access to electricity and

improved quality of service by displacing expensive diesel

generators

Scope: Construction of 850 km of 132 km transmission lines,

330/132 kV substation and 132/33 kV substations in

Mwinilunga, Kabompo, Mufumbwe, Zambezi, Lukulu and

Chavuma

Cost: appx. USD184 million

Funding: Secured from Nordea Bank (Sweden)

Status: Contract awarded to EL TEL, site mobilisation has

been done. Design works in progress.

Construction period 24 months. Commissioning September

201619

INVESTMENTS

TRANSMISSION PROJECTS

KARIBA NORTH BANK EXTENSION POWER EVACUATION

PROJECT

The objective is to increase transmission capacity from KNBPS

to the grid for the evacuation of power from KNBE project

Scope: 123 km of 330 kV lines and substation works

Cost: USD62 million

Status: The project was completed in December 2014.

Funding: EXIM Bank of China

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INVESTMENTS

KAFUE TOWN - MUZUMA - VICTORIA FALLS TRANSMISSION

LINE UPGRADE

The objective is to increase transmission capacity

southwards for export to, and from, SAPP and to provide

an evacuation path for new generation projects

Scope: Upgrade 348 km of 220 kV line to 330 kV

Cost: USD100 million

Status: Transformer manufacture is in progress and

contractor has mobilised to site and began site

clearance.

Funding: World Bank and European Investment Bank

Construction Period: 18 months21

INVESTMENTS

ITT - MUMBWA - LUSAKA WEST TRANSMISSION LINE

PROJECT

The objective is to provide power evacuation for the ITT

power station

Scope: 142 km of 220 kV line and 134 km of 330 kV line

and associated substation at Mumbwa

Cost: USD133 million

Funding: EIB, AfDB and AFD

Status: Construction works have been accelerated in

order to ensure that the transmission line is ready and

tests are carried out ahead of the commissioning of the

ITT plant. The line is expected to be ready this month -

November 2015. 22

INVESTMENTS

SUPPLY TO KALUMBILA MINE

The objective is to supply power to the proposed First

Quantum Minerals (FQM) Kalumbila mine

Scope: 500km of 330 kV double circuit line and 66 km of

330 kV single circuit line, and associated substation at

Kalumbila

Cost: USD300 million

Funding from Kalumbila Minerals Limited/ZESCO

Status: The project was 98% complete as at 30th

September 2015. Commissioning is pending system

studies verification.

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INVESTMENTSCONNECTION OF LUANGWA DISTRICT TO THE GRID

The objective is to support increased access to electricity and

improved quality of service by displacing expensive diesel

generators. There is also export potential to border areas of

Mozambique and Zimbabwe.

Scope: 187km of 132kV transmission, 2x10MVA 132/33kV

Substations at Rufunsa and Luangwa, 60km of 33kV lines in

Mpanshya, service connection to GRZ institutions and 100km of

33kV lines in Luangwa

Cost; USD63million

Funding: Export Import (EXIM) Bank of India

Status: Construction works are in progress.

Construction period: Commissioning is expected in June 2016

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INVESTMENTS

TRANSMISSION PROJECTS

LUSAKA 132KV RING REINFORCEMENT PROJECT –

PHASE I

The objective is to increase the transmission capacity of

the Leopards Hill – Coventry 132kV transmission line

Scope: Reconductoring 28km of 132kV transmission

lines, Installation of 2x45MVA 132/11kV transformers at

Coventry substation

Cost: USD6.3million

Funding: ZESCO Limited

Status: All works are completed and commissioned.

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INVESTMENTS

LUSAKA 132KV RING REINFORCEMENT PROJECT –

PHASE II

The objective is to increase the transmission capacity of

the Lusaka Transmission and Distribution Network

Scope: Upgrade of capacity of 132kV transmission lines,

increase capacity of existing substations, create new

substations at 132/33kV, 33/11kV levels, construction

new 33kV and 11kV lines

Cost: USD210million

Funding: World Bank, European Investment Bank and

ZESCO Limited

Status: Negotiations for financing by WB, EIB in process.

Construction period: Completion expected by 201826

INVESTMENTS`ZIZABONA (Zimbabwe, Zambia, Botswana, Namibia)

The objective is to increase regional trade in power by

increasing transmission capacity amongst this group of countries

that also fall within the ambit of the Southern Africa Power Pool,

SAPP.

The project is being promoted by Zimbabwe, Zambia, Botswana

and Namibia and will cost USD230mn

Funding: Discussions ongoing with potential financiers –

Development BSA, AFDB, KfW

Status: technical and market studies completed, project

governance documents prepared

IUMOU, IGMOU signed; Joint Development Agreement to be

signed by Botswana Power Company (BPC). This will lead to the

signing of the Shareholders Agree

Construction period: Commissioning is expected by January

2018 27

INVESTMENTSDISTRIBUTION PROJECTS

ZESCO is carrying out various projects to reinforce and

rehabilitate the distribution infrastructure.

The Distribution, Expansion and Reinforcement Project

(DERP) - USD 106 million - the project is 99% complete.

Increased Access to Electricity Services (IAES) – It is

sponsored by the World Bank, the Japan International Co-

operation Agency (JICA) and other financiers. Thirteen (13)

out of the fifteen (15) project lots had been completed by

30th September 2015.

Euro Bond funded distribution projects (USD69M) – The

projects are progressing, although some fell behind

schedule on account of.delays related to procurement

procedures.28

PLANNED CAPITAL INVESTMENT 2015

+ Results from the current load forecast reveal future

demand/supply imbalances with forecast demand

surpassing forecast supply.

This imbalance will drive long term generation,

transmission and distribution investment plans.

ZESCO planned to expand its capital base in the 2015

Financial Year (FY) Budget by a total of ZMK5, 287bn

as per approved budget, and the equivalent of circa

USD5bn over the full cycle of its 2013-2018 business

plan.

This does not include ZESCO’s participation in the

2,400MW Batoka Hydro-Electric Power Scheme to be

jointly developed with Zimbabwe, whose total cost could

be upwards of USD7.2bn (@USD3mn/MW).

PLANNED CAPITAL INVESTMENT (BREAKDOWN)

STRATEGIC

BUSINESS UNIT

2015

CAPITAL EXPENDITURE (ZMK)

GENERATION 981, 041, 551

TRANSMISSION 2, 578, 742, 003

DISTRIBUTION 1, 500, 819, 593

CORPORATE 220, 040, 160

TOTAL 5, 280, 643, 307

CONCLUSION

ZESCO has been able to show that, either of its own

accord, or in partnership with other equity partners, it is

able to execute projects, although belatedly in some

instances. The delays have been mainly attributable to

delays in attaining Financial Close.

Financial Close, in the past, has been affected by the

nervousness of Lenders/Financiers to lend when the

repayment capacity of ZESCO was questioned.

The decision by GRZ to allow tariffs to migrate to cost

reflective levels will encourage wider participation at all

points of the business value chain of the ESI.

In addition, the bankability of projects is expected to

improve, obviating the need for GRZ support through

government guarantees.31

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THANK YOU