CEC 2007 Annual Report

Copperbelt Energy Corporation Plc

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ANNUAL REPORT 2007


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Contents Corporate Information CEC Profile Financial summary Chairman’s Review Managing Director’s Review Director – Finance & Strategy’s Review Corporate Governance Directors Executive management team Corporate Social Responsibility Director’s Report


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Contact & Corporate Information Head Office Copperbelt Energy Corporation PLC 23rd Avenue P O Box 20819 Nkana East KITWE

Shareholder Contacts Julia C Z Chaila Company Secretary/Director – Legal Services Phone 260 212 244274 Fax 260 212 244212 Clara M Musama Investor Relations Manager Phone 260 212 244281 Fax 260 212 244139 Website www.copperbeltenergy.com Email [email protected]

Corporate Office Copperbelt Energy Corporation Plc 37B Cheetah Road Kabulonga LUSAKA Copperbelt Energy Corporation PLC P/Bag E835, Post Net 145 Kabulonga LUSAKA Phone 260 211 261647 Fax 260 211 261640


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BANKERS

Stanbic Bank Zambia

Corner Obote Avenue

P.O Box 21600

Kitwe

Citibank Zambia Limited

Citibank House

South End

Cha Cha Cha Road

P.O Box 30037

Lusaka

Citibank London CitiGroup Center Canada Square Canary Wharf E145LB London AUDITORS KPMG

1st Floor, First Wing

David Mwila House

P.O Box 21505

KITWE


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VISION 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

MISSION 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

CORPORATE VALUES

• Being honest in all our dealings • Supporting each other • Building good team relationships • Being open to new ideas • Developing a “Can Do” attitude


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CORPORATE PROFILE

In 1956, a 220kV power line was built from Katanga in Congo to Kitwe in Zambia in order to bring hydro–electric power to Zambia’s mining industry for the first time.

The mining companies formed a subsidiary company for the purpose of receiving hydro power from Congo and distributing it to mines on the Copperbelt. This Company was known as the Rhodesia-Congo Border Power Company. During the late 1950s, the Company played a role in consolidating the mines’ interests in the development of the Kariba Hydro-electric scheme and subsequently supplied and distributed power from Kariba South Bank Power Station to the mines on the Copperbelt.

This company was renamed the Copperbelt Power Company after Zambia’s independence in 1964, and became the Power Division of ZCCM, following the formation of ZCCM, in 1982.

In 1996, the Government of Zambia undertook the privatisation of ZCCM which entailed the sale of various ZCCM mining and power divisions to regional and international mining companies and investors. In 1997, a consortium, comprising Cinergy, National Grid and a local Zambian management team, was the successful bidder in the privatisation of the Power Division of ZCCM. On vesting, the Power Division of ZCCM was incorporated as CEC on 19 September 1997, in Zambia. In October 2006, National Grid and Cinergy sold their combined interest in CEC to Zambian Energy Corporation, a consortium of local and international power investors. CEC is a profitable company and accounts for approximately half of Zambia’s power sales. Its core business consists of: • Operating and maintaining a network comprising transmission, distribution

and generation assets and a control center on the Copperbelt; • Supplying secure and reliable power to the Copperbelt mining companies,

which includes the provision of generation back-up for mining company emergency power requirements;

• Supplying secure and reliable power to Copperbelt for other users, principally ZESCO; and

• Wheeling power within and through its inter-connector with the DRC into Southern African Power Pool (SAPP).

CEC purchases electricity from ZESCO under a long term Bulk Supply Agreement (BSA). CEC is currently in discussion with ZESCO to review some terms of the BSA.


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CEC’s core customer base comprises a number of mining and mining related companies which accounts for the majority of the Company’s off-take

CEC owns 835.7km of 220kV and 66kV transmission lines; 540km of optic fibre on power lines; 37 major substations and 80MW of gas turbine generation. To ensure high quality of supply, reliability enhancing features include a high degree of network redundancy, standby generation, a well-equipped control centre and multiple electricity sourcing points at Kafue Gorge, Kariba (ZESCO power stations) and one in the DRC through the inter-connector. CEC interconnects with ZESCO at the Luano and Kitwe 330/220kV substations.

The CEC business is driven by a professional team of employees with skills and capabilities to meet the changing needs of its customers and the business environment. CEC has a staff complement of 319 people. Harmonious work relations are encouraged and maintained. 51% of the workforce is represented by the union which is affiliated to the Mineworkers Union of Zambia (MUZ) CEC was successfully listed on the Lusaka Stock Exchange on 21 January 2008. This has resulted in a broader shareholder base.

OPERATING STATISTICS

Infrastructure

Statistics

Transmission line Gas Turbine Generation Substations Optic Fibre Network Average Mine customer demand ZESCO Copperbelt Load SNEL export to SAPP

835.7 KM 80MW 37 540 KM 521MW 270MW 210MW


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Financial Highlight

The turnover for the year was US$132 million (2006: US$127 million). The gross profit was US$38.7 million (2006: US$37.3 million). Below are some major financial trends and graphical presentation of the same trends: Key Statistics

2003 2004 2005 2006 2007

Sales ($,000) 114,874

120,348

122,164

127,280

131,746 Gross Profit ($,000) 32,777

35,109

36,367

37,383

38,746

Profit Before Interest and Taxes ($,000)

15,226 18,665 15,240 12,745 13,306

Acid Test Ratio (Times) 1.02

0.77

0.74

0.67

1.24

Return on Equity 13% 17% 12% 12% 16% EBITDA ($,000) 22,759

26,777

24,202

21,293

22,152

Total Assets ($,000) 148,566 142,361 136,505 131,453 156,481 Earning Per Share (Cents) 1.01

1.18

0.82

0.79

0.73

Return on Assets 6.8% 8.3% 6.0% 6.0% 4.6% Net Profit ($,000) 10,069 11,842 8,241

7,915, 7,251

Equity ($,000) 77,838 69,680 68,021 65,680 45,630 Current Assets ($,000) 26,998

23,582

19,746

17,395

40,887

Inventory ($,000) 820

1,224

1,028

1,136

1,307

Current Liabilities ($,000) 25,547

29,121

25,206

24,332

31,891


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Profit Before Interest and Tax

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2003 2004 2005 2006 2007

Years

US$̀

000

Sales Revenue

105,000

110,000

115,000

120,000

125,000

130,000

135,000

2003 2004 2005 2006 2007

Years

US$̀000

Debtor Days

-

10

20

30

40

50

60

70

2003 2004 2005 2006 2007

Year

No o

f Days


10

Acid Test Ratio

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

2003 2004 2005 2006 2007

Year

Tim

es

Return on Assets

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

2003 2004 2005 2006 2007

Year

Retu

rn o

n A

ssets

Earnings Per Share

-

0.20

0.40

0.60

0.80

1.00

1.20

1.40

2003 2004 2005 2006 2007

Year

EPS in C

ents


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Analysis of Shareholders (Table)

CEC Share Subscription Analysis by Value

37%

61%

2%

Individuals-K32.4Billion Institutions-K53.4Billion

Companies-K1.4Billion

% shareholding Zambian Power BV 26.0% Zambian Transmission BV 26.0% ZCCM-IH 20.0% Individual shareholders and successful applicants to public offer

15.8%

African Life Financial Services Zambia Limited – managed funds

7.2%

Copperbelt Energy Corporation Employees Share Ownership Plan

5.0%


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CEC Shareholding - Post Listing

Power - BV

26%

Trans - BV

26%

ZCCM - IH

20%

Public

16%

Africa Life

7%

CEC ESOP

5%


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Chairman’s Review

I take pleasure in introducing the Annual Report for the year ended 31st December 2007, at a time when, due to the listing of CEC’s shares on the Lusaka Stock Exchange (LuSE) on 21st January 2008, the number of shareholders in the company has increased from 8 to around 3,500. CEC’s shareholder base is now diverse and includes Zambian individuals, Zambian pension funds, CEC employees, the Zambian Government (through ZCCM Investments Holdings) as well as some international development banks and financial institutions. The Board recognises its responsibility to these shareholders to operate the business in line with international best practice for electrical utility companies, whilst adhering to the highest standards of Corporate Governance. We are facing a critical period in CEC’s development, with unprecedented levels of growth in both the energy sector and the Zambian mining sector that CEC serves, and I explain below how this environment has shaped current performance and how it is likely to shape future performance. Widening of CEC’s Shareholder Base On 27th October 2006, the 77% shares in CEC owned by National Grid of the UK and Cinergy Corporation of the USA were sold to Zambian Energy Corporation (‘Zam-En’), a Zambian investment group formed by a team of Zambian power investors, together with the backing of two international development banks, FMO and Development Bank of Southern Africa (DBSA). The new shareholders are focused on growth and development in the energy sector, both within Zambia and within the SADC region, a matter that I will focus on more later in this report. Zam-En’s vision has been to widen the share ownership of CEC through a listing on the LuSE and, to realise this vision, 250,000,000 shares in the Company comprising 25% of the total issued share capital was offered to the public (200,000,000 shares) and employees (50,000,000 shares) at a price of 440 Kwacha per share through an Initial Public Offer (‘IPO’) that opened on 16th November 2007 and closed on 14th December 2007. The employee offer was arranged through an Employee Share Scheme with defined scheme rules and funding arranged by the company. This endeavour was entirely consistent with the Zambian Government’s initiatives on Citizens’ Economic Empowerment that seek to facilitate greater ownership in business enterprises by Zambian citizens. The response from the public to the IPO was overwhelming, being 1.32 times subscribed. The offer to employees was equally successful being 1.18 times subscribed. Trading of CEC shares through LuSE commenced on 21st January, and at the time of writing, the share price had increased by more than 100%.


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The IPO is the largest transaction to date on the LuSE, the first IPO initiated by a private company (previous IPOs have been as a result of the sale of shares by Government agencies), the largest employee share ownership programme, the first time use of a preferential offer targeted at Zambian institutional investors and the first IPO of a company involved in the electricity industry. Corporate Governance is viewed as a high priority by the CEC Board. CEC is already largely compliant with the LuSE Code of Corporate Governance, and procedures are currently being developed to ensure that CEC will be fully compliant with the LuSE code by mid-2008. The implementation of Board Governance over CEC’s operations is achieved through four sub-committees, each of which is under the chairmanship of a non-Executive Director; the Safety, Health & Environment (SHE) Committee, the Employee Remuneration & Development Committee, the Executive Committee and the Audit Committee. Review of the Year Ended 31st December 2007 The year 2007 was a landmark year for CEC and its employees, marking ten years since the formation of CEC and its acquisition of the assets of ZCCM Power Division. The occasion was marked through a number of celebratory events, including a golf day for CEC’s customers, the refurbishment of the CEC canteen and restaurant and an off-site workshop for all employees to outline the future strategy for the Company. The average maximum demand from CEC’s mining customers for the year was 521MW, an increase of 2.1% from 2006. Turnover increased by 3.5% to $131.7m and operating profit increased by 4.3% to $13.3m. In summary, there was a moderate increase in operating profit during the year, but a number of activities were undertaken that will accelerate the rate of growth for the next five years. Two of these activities are outlined below. During 2007, a new substation was constructed on the Zambian side of the border between Zambia and the Democratic Republic of Congo (‘DRC’). The substation is being supplied through 22 km of 220kV transmission line, and is capable of supplying a load of up to 80 MW through two 85 MVA transformers. The substation was constructed to supply the Frontier Mine in DRC that has been developed by First Quantum Minerals, and power is being wheeled through CEC’s network from SNEL in DRC. A further milestone achieved during 2007 was the signature of a contract with ABB of an EPC contract to construct around 40km of new transmission lines, extend the capacity of four existing substations and construct a new substation to supply new projects being developed by Konkola Copper Mines, including the Nchanga Smelter and the Konkola Expansion Project. This extension project is being pre-financed by KCM, but CEC will acquire the


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assets from KCM on commissioning, expected by third quarter of 2008, and refund the cost to KCM. Business Outlook The Copperbelt is going through a period of unprecedented growth, with most of CEC’s existing mining customers seeking to expand their operations and a number of new mining customers seeking to open new mining operations on the Copperbelt. The growth has been caused by a sustained period of high commodity prices on world markets, particularly the price of copper that has made a number of mining projects commercially viable when such projects were previously not viable. However, the growth in demand for electricity in Zambia caused by increased mining activity and healthy economic growth in other sectors of the economy has happened at a time of shortage of generation capacity. At an operational level, the shortage in generation is resulting in much increased load shedding of domestic loads, and an increased probability of instability between the interconnected power systems within Southern Africa. Although CEC obtains its bulk electricity supplies from ZESCO, the stability of the CEC system is enhanced through the availability of 80MW of gas turbines owned and operated by CEC, and an interconnector with SNEL in DRC that provide alternative sources of power in the event that ZESCO is unable to provide the full power required by CEC. This diversity of supply has enabled CEC to minimise load shedding of its customers to date. At the time of writing, the maximum demand in Zambia at the early evening peak is around 1600MW, of which CEC’s customers comprise around one third. However, the available generation in Zambia is currently far below this, resulting in widespread load shedding, particularly during the early evening peak. The shortage is partly due to a number of ZESCO’s generation units at Kafue Gorge and Kariba North Bank being unavailable due to refurbishment. However, even when the machines have been fully refurbished and re-commissioned, continued power shortages are expected to remain for the foreseeable future until planned investments in new large generating plant within Zambia have been commissioned. The last time a major power station was commissioned in Zambia was more than 30 years ago, and the timescales and costs for the construction of new power stations have increased markedly during recent years due to a shortage of suppliers of generation equipment and high commodity prices. Projects being planned by ZESCO to construct new generation capacity at Kariba North Bank and Itezhi-Tezhi need to be supplemented by further projects to meet the generation shortfall. Part of the solution to this problem lies within the Southern African Power Pool (SAPP) through which most of the countries in the SADC region, including DRC are interconnected and are able to buy and sell electricity from each other. In


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CEC’s case, it owns and operates the only interconnector between Zambia and DRC. For the last few years, CEC and ZESCO have been wheeling power on behalf of SNEL in the DRC to enable SNEL to deliver such power to Zimbabwe and South Africa. Looking forward, CEC is planning to refurbish and extend the capacity of this line to facilitate further power trading, and the possibility of Zambia importing power from SNEL whilst there is a shortage of power in Zambia. CEC’s and its shareholders are prepared to play their part in investing to make-up the shortfall in generation in Zambia. There are a number of green field hydro-electric sites that are capable of being developed in Zambia, and CEC is in the process of developing its financial and technical capacity, and building partnerships with appropriate organisations, so that it is able to participate in the development of such projects. We firmly believe that the private sector is best placed to finance, and develop these projects, and that there is sufficient expertise and resource within the private sector in Zambia to provide the necessary project leadership. However, for such projects to be completed in the earliest possible time period, it is essential that the authorities responsible for licensing these projects do so with a minimum of delay to prevent load shedding and, potentially, stalling of growth in the Zambian economy. It is well known that the cost of un-served energy to an economy, due to the unavailability of energy, is far greater that the cost of delivering that energy. This leads us into a discussion on tariffs. CEC purchases its power from ZESCO under a Bulk Supply Agreement that was agreed in 1997 as the process of privatising the former ZCCM as a number of separate mining units was implemented. The agreement provides for tariffs to be maintained in US Dollars. The agreement operated successfully for a number of years, but in recent times, it has become apparent that the tariffs are too low to enable the industry as a whole to remain economically viable. A number of factors have contributed to this effect including the structural appreciation of the Zambian Kwacha against the US Dollar, increased prices of raw materials consumed by the electricity industry (including copper), and the rising cost of generation, whether for imported power or for newly constructed generating plant. Typically, the cost of power from new generating plant will be considerably higher that than the current price of bulk electricity supplies in Zambia, which are derived from generating plant that was constructed many years ago and which has been almost fully depreciated. Accordingly, CEC is in the process of implementing tariff increases with its mining customers to fairly reflect the costs of delivering firm base load power that the mining industry requires to operate efficiently. This will enable CEC to increase the tariff paid to ZESCO under the Bulk Supply Agreement to adequately compensate ZESCO for the bulk supplies it delivers to the Copperbelt.


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Concluding Remarks The financial results for the year ended 31st December 2007 complete ten years of profitable and stable performance by the company. Demand from customers has grown steadily during the period, but CEC’s cost base has also increased due to increased capital investment and other unavoidable increases in operating costs. As we move forward into the next decade of the Company’s operations, it is encouraging that CEC’s main customers are going through a growth phase that bodes well for CEC’s future, as CEC grows along side its customers. However, the focus for further investment, in addition to transmission, must now be centred on the requirement to construct new generation capacity. As a closing remark, I would like to highlight certain key aspects of our Mission and Vision statements that will guide our approach going forward. Our Mission Statement emphasises our key responsibilities towards our customers, to provide reliable power and demonstrate professionalism in all of our dealings, whilst recognising our responsibilities to our shareholders by investing prudently and operating our business in a transparent manner. Our Vision Statement emphasises our willingness to invest in energy infrastructure on a regional basis, our willingness to be innovative in our solutions and our intention to develop partnerships with appropriate organisations in order to combine expertise and share the risk of developing projects. I would like to express my appreciation to my fellow directors for their assistance and advice. Our employees have demonstrated their commitment and dedication and I thank them for their continued support. I wish to extend my gratitude to our shareholders, customers and all our stakeholders for their support in 2007. Hanson Sindowe Executive Chairman


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Managing Director’s Review OPERATIONAL PERFORMANCE

During the year all purchases of electrical power were from ZESCO. Electricity supplies from this source accounted for 99.97% of the total requirements. The balance was supplied from the Company’s Gas Turbine Generating plants. Sales of electrical energy to CEC customers totaled 3,839GWh, an increase of 2.8% over the sales for the previous year. Operation of the CEC/SNEL 220kV interconnector line, in respect of international wheeling, was satisfactory with 1040.8 GWh of energy wheeled through this circuit. Most of this power was wheeled to ZESA in Zimbabwe and ESKOM in South Africa from the Congolese utility SNEL under their respective power arrangements. The total energy import into the network was 5,714 GWh of which 4,060 GWh was Company purchases while 1,654 GWh was wheeled for ZESCO. The operation of the Company’s high-voltage transmission and distribution system was maintained to a satisfactory standard. Maintenance and system re-enforcement remained a key activity during the year. All substation high voltage equipment and associated auxiliaries were maintained and managed in accordance with CEC’s Condition Based


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Maintenance program. The main objective was to continue to provide an improved quality and reliability of supply to our valued customers. There was, unfortunately, an increase in the number of theft/vandalism cases on CEC’s electrical installations. Stringent security measures that were put in place worked well and, as a result, the security of the power system was not compromised. CEC owns Gas Turbine Alternators that are used to provide emergency power. GTA availability improved in 2007 due to the reduction in the number of project activities.

Engineer inspecting a GTA engine

Control retrofits and engine overhauls carried out between 2004 and 2007 have significantly improved the average first start reliability of the GTAs reaching an all time high of 97.2% during the year.

Average GTA Plant Availability & Start Reliability (2001 -

2007)

70

80

90

100

Ave % Avail. 96 94.4 96 86.9 84.5 89.6 94.8

Ave % Rel. 86.7 91.5 93.4 90.4 97.2

2001 2002 2003 2004 2005 2006 2007


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The substation automation and telecommunication system (for voice and data) operated to expectation and met company obligations both during normal and emergency situations. During the year, Government and ZESCO proposed a review of the tariff for bulk electricity supplies to CEC under the Bulk Supply Agreement. This, in turn, has necessitated a review of the tariff which CEC applies to its mining customers. Tariff review negotiations were still continuing at the close of the year. It is expected that the parties will conclude their discussion in the first quarter of 2008. The current shortage of generation capacity within Zambia and the region is a major concern to CEC and its customers. This is especially the case given the massive growth which is currently taking place within the mining sector on the Copperbelt. In the short term, to alleviate the problem, CEC and its customers have adopted load management strategies in order to reduce load during peak times. This strategy has included the use of CEC own generating plant. In the medium to long term, CEC believes it can play a significant role in addressing the problem through being involved in new generation projects and the importation of power from the DRC. In this regard, CEC has held numerous discussions with Government and other stakeholders during the year. CEC continued to enjoy cordial relations with all of its customers. A customer service survey was carried out to request customers to rate CEC’s performance and generally good feedback was received. The feedback was verified by an independent firm to ensure its integrity. Customer average maximum demand rose significantly to 521MW in 2007 compared to 511MW in 2006. The increase was a result of higher production by CEC customers driven by the increase in copper prices.


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BUSINESS DEVELOPMENT CEC continued to pursue its vision of growth. This involved undertaking projects that were aimed at meeting the additional power requirements for its mining customers in view of their various development projects as well as participating in projects that will help alleviate the current and future power shortage. CEC successfully completed the project which involved providing power supply to Frontier Mine operated by First Quantum Minerals. The substation has 80MW capacity.

CEC Customer Av. Max. Demand

460

470

480

490

500

510

520

530

540

Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec

MW 2006

2007


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Frontier Mine Project – under construction Design and procurement processes were commenced for a number of new mining projects that are planned to be connected to the CEC network. The largest such project related to a proposed expansion of CEC’s Northern network to supply new mining operations and a smelter being constructed by Konkola Copper Mines. A $33m Engineer – Procure – Construct contract was awarded to ABB, and project works are expected to complete during 2008. The project was pre-financed by KCM, but CEC will acquire the assets on commissioning and refund KCM for the project cost against incremental sales of electricity. ZESCO and CEC fibre networks were interconnected during the year. This has availed broadband connectivity between Lusaka and Copperbelt which provides potential for growth for CEC. A total of 23 customers were connected on to the CEC optic fiber network. These connections generated a growth rate of 64% in the customer base from a total of 14 customers in December 2006. EMPLOYEE RELATIONS The average staffing level for the year was 319. Critical staff positions were filled whilst other positions remained vacant in a bid to ensure staffing levels reflect the dynamic needs of the company. Changes in the organization reporting structure were effected. These changes were aimed at enhancing operational efficiencies to help meet the changing business needs. The new reporting structure saw all functions that support the future and strategic developments of CEC reporting to the


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Executive Chairman while those that focus on the current core business feed into the Managing Director. CEC remains committed towards the goal of creating and sustaining good industrial relations and solicits employee involvement in the business planning process. As a result, an employee conference was held in July 2006 where all employees were invited to share their views in charting the strategic direction of CEC. This followed an employee survey undertaken by an independent consultant which sought to find out the employees’ views on the various activities within the company.

Group session at Employee conference In order to realize its mission and vision, CEC ensures that its employees’ skills are continuously developed to meet the changing business environment. A number of employees were sent on training both locally and overseas. Total expenditure on training was US$0.4m. Social events such as the annual family day, safety awards and 10th anniversary commemoration were held.


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Media tour of CEC Luano substation Neil Croucher Managing Director

Director – Finance and Strategy’s Report Review of Financial Performance


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Revenue comprises income earned from the sale of power to CEC’s mining customers, together with revenue earned from domestic wheeling for ZESCO and international wheeling for SNEL. Turnover increased by 3.5% to US$131.7m, attributable to a 2.1% increase in demand from CEC’s mining customers, and an annual indexation of tariffs for all customers in line with the US PPI index (a measure of inflation). Over the five year period 2003 to 2007, turnover has grown by an average rate of 3% per annum. Turnover is linked to the scale of mining activity of CEC’s major mining customers. Gross Profit represents the net income earned from sales of power to the mines and domestic and international power wheeling after deducting amounts paid to ZESCO under the Bulk Supply Agreement, license fees paid to the Energy Regulation Board and fuel costs associated with the running of CEC’s own Gas Turbine Alternators. Gross profit for the year increased by 3.5% to US$38.7m. The gross profit expressed as a percentage of revenue remained constant at 29.4%. Other income includes capital charges to customers for connection to the CEC system, income from leasing the CEC optic fibre communications to third parties in accordance with CEC’s ‘Carrier of Carriers’ licence from the Communications Authority of Zambia, income from the provision of engineering services and income from rentals. Other income for the year increased by 4.1% to US$2.6m, due mainly to increases in capital charges and increased sales of capacity on CEC’s optic fibre network. Operating expenses increased by 3.3% to US$28.1m. Favourable variances against the previous year were recorded for staff costs (reduced by 3% to US$9.9m), insurance (reduced by 7% to US$1.5m) and costs of supporting Power Dynamos Football Club (reduced by 15% to US$0.4m). Cost increases were recorded for depreciation (increased by 3% to US$8.8m due to increased capital expenditure), audit costs (due to a statutory requirement for additional audits to be undertaken as a result of the CEC Listing on LuSE), non-executive directors’ fees (due to the local directors taking on more responsibilities following the termination of commercial and technical support agreements with the previous shareholders), stores and maintenance (increased to due to a requirement to replace equipment that had been vandalised) and other operating expenses (increased by 15% to $5.5m, mainly due to additional expenditure on the CEC listing process and legal advisory services). Net finance costs increased from US$1.0m to US$2.2m, mainly due to interest costs payable under a loan facility of US$10.0m with African Life Financial Services acquired to fund CEC’s future capital expenditure programmes. Net Profit for the year was US$7.3m, a reduction of US$0.6m to the previous year. Earnings per share were 0.73 Cents per year, compared to 0.79 Cents per share for the previous year.


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CEC Financing Facilities During the year, the financing strategy of the company changed such that a short term overdraft facilities were replaced with long term facilities from African Life Financial Services (US$10m repayable over 7 years) and Citibank and DEG? (US$35m repayable over 7 years). The latter facility was primarily arranged to provide funding for growth projects. US$20m of this facility had been drawn at 31st December 2007, with a further US$15m available for drawdown within 12 months. Further details of the loan facilities are included in Note 14 of the financial statements. Commentary on Balance Sheet Fixed assets increased from US$114.1m to US$115.6m. Capital expenditure was US$10.5m, and depreciation US$8.8m. The majority of the capital spend related to the refurbishment and replacement of transmission and generation assets, and the acquisition of new transmission assets to supply Mopani Copper Mines in Mufulira. Total assets increased from US$131.5m to US$156.5m mainly due to increased cash balances on partial drawdown of the US$35m senior loan facility with Citibank and DEG. Non-current liabilities increased from US$41.4m to US$79.0m due mainly to an increase in long term loan facilities, the recognition of an amount of US$4.7m due to Mopani Copper Mines in the event that future sales to operations at Mufulira reach expectations (see Note 17 to the financial statements), and a provision made for an additional tax payment in relation to disputed tax assessments (see Note 15 to the financial statements). Comment on Statement of Changes in Equity A prior year provision of US$7.0m was recognised to take account of disputed tax assessments (see Note 15 to the financial statements). Retained profit for the year was US$7.3m, dividends US$20.3m and retained earnings at 31st December 2007 were US$45.4m compared to US$58.4m the previous year (as re-stated for the prior year tax provision). Comment on Statement of Cashflows Net cash flows from operating activities increased to US$15.3m from US$14.5m the previous year. Dividends paid were US$20.3m compared to US$11.6m the previous year. Cash and cash equivalents at 31st December 2007 increased to US$17.5m from US$0.1m the previous year.


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CEC’s Growth Strategy The Board of CEC and its principal shareholders, Zambian Energy Corporation and ZCCM Investments Holdings are committed to growing the Company. This intent is being effected at a number of levels:

• Growth in human capital; • Growth in infrastructure; • Growth of CEC’s core business; • Developing strategic partnerships;

• Vertical integration; • Business diversification; • Shaping the environment in which we operate.

To comment on a few of these areas in more detail, for the majority of the last decade, CEC was owned by two large international electric utilities – namely National Grid of UK and Cinergy of USA (now part of Duke Energy). Whilst under the ownership of these two utilities, CEC’s operations were extensively benchmarked against other international utilities, leading to improvements, efficiencies and the transfer of skills to CEC staff, particularly in the area of transmission system operations. This growth in human capital is being maintained through training programmes such that CEC is in a position to expand its core business, using a Zambian workforce trained to operate to international best practice. CEC’s core business is in the transmission, distribution and supply of electricity to mining and mining related companies on the Copperbelt, in accordance with its licences from ERB and the Bulk Supply Agreement with ZESCO. As outlined in other parts of this report, CEC’s core business requires the construction of appropriate infrastructure to supply new mining operations in its franchise area, and CEC is currently undertaking projects to provide power to KCM’s new smelter at Nchanga and new mine at Konkola. This, and other projects under development, will increase CEC’s asset base on the Copperbelt, and by providing additional supplies to the mines, facilitate increased mining production. The energy sector and mining sectors are expanding rapidly, giving rise to a number of growth opportunities. However, a partnership approach is often the best route to developing new projects for the reasons outlined below. Partnerships are being developed with the following organisations:

• Mining Customers - particularly where new mining operations are being developed. CEC can develop the optimum technical solution for the supply of power to mining operations and, where appropriate, co-operate in the sourcing of power. CEC has developed a joint venture with a


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major mining group to jointly develop power opportunities in the region to supply to new planned mining operations;

• Utilities - within SAPP, utilities are working more closely together to develop power trading. The interconnector between Zambia and DRC is operated by CEC (on the Zambian side) and SNEL (on DRC side). CEC is currently finalising terms with SNEL for the construction of a second line between the two countries to facilitate greater power trading within SAPP, and to provide greater stability to the power system in Zambia;

• Public Sector - the optimum structure for many large projects is through a Public-Private partnership, to widen stakeholders’ participation in such projects and ensure that there is appropriate sharing of risks and rewards and a common alignment of goals. The Zambian Government already owns a significant share of CEC through ZCCM Investments Holdings (20%), and CEC considers the Public-Private partnership route as being the best model for the development of new large infrastructure projects;

• Other International Power Developers - Other power developers can contribute technical expertise and share in the financing, risks and rewards of new projects. CEC has submitted a joint bid to develop the greenfield hydro station, Kabompo Gorge in the North Western Province of Zambia with Tata Energy of India.

• Financial Institutions - large projects, particularly greenfield generation projects, require significant capital investment, with returns being earned over a 10 year horizon (or longer). Investing in such projects can dilute the returns on current cash generative projects. Careful project structuring is therefore required to balance short and long term rewards. CEC and its main parent company, Zambian Energy Corporation have long term financial arrangements with the following organisations, as lenders and/or shareholders:

o Development Banks – FMO (Netherlands), DBSA (South Africa),

DEG (Germany); o Commercial Banks – Citibank, Standard Bank, ABSA / Barclays; o Zambian Financial Institutions – African Life Financial Services

(lender and shareholder), other Zambian pension funds (shareholders).

A major constraint for the further development of the economies of Zambia and other countries in the SADC region is the shortfall in availability of power. The Board of CEC has agreed the principle of CEC investing in greenfield and brownfield generation projects to supplement CEC’s current generation capacity through Gas Turbine Alternators. Investments in distribution, transmission and interconnectors are also considered to be attractive for further investment.


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Opportunities for business diversification are also developed, where this makes sound business sense. CEC commissioned an optic fibre system for its own use in 2003, and has attracted commercial telecoms customers onto its network. Following the inter-connection during 2007 of CEC’s fibre system to a similar system commissioned by ZESCO, there is now capability to offer broadband links between all the major towns along the line of rail in Zambia. Investigations are also underway to evaluate the possibility of replacing the diesel currently consumed by CEC’s Gas Turbine Alternators with bio-fuel alternatives sourced in Zambia. The Company recognises its responsibility to shape the environment in which it operates, particularly where structural changes can be made to improve the prospects for economic development. The Executive Chairman, Hanson Sindowe has accepted appointment as Chairman of the Zambia Chamber of Commerce and Industry, through which he has a wide brief to contribute to debate and decision on various aspects of the business environment. CEC maintains a positive relationship with the Energy Regulation Board, and has provided input to the development of a Grid Code that will facilitate further transparency and open access in the operation of the electricity industry in Zambia. Michael J Tarney Director – Finance & Strategy

Corporate Governance The CEC Board of directors believes that strong corporate governance not only enhances sustainable control of an organization but is essential to preserving organizational reputation, investor confidence, access to capital when required, and sustainable employee motivation.


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The directors are committed to the corporate governance principles of openness, integrity and accountability. CEC has adopted the Lusaka Stock Exchange (LuSE) Corporate Governance Code for listed and quoted companies. The board has established committees to oversee various aspects of the company and operations. This are highlighted in detail in the Directors Report CEC Board of Directors Composition The Board membership comprises ten Directors, two of whom are Executive Directors and the other are Non Executive Directors. The Board has an Executive Chairman and a Non Executive Deputy Chairman in accordance with the Company’s Articles of Association and the LuSE code of conduct.

Board of Directors Hanson Sindowe Executive Chairman

Hanson is chairman of the CEC Board, an appointment he took up in October 2006 at the time of Zam-En acquiring the majority shareholding in CEC. He is co-founder and Managing Director of Zam-En. He has over 25 years experience in the mining industry. Hanson is responsible for developing CEC’s future business opportunities. He has a wide range of experience at senior management level, having previously been General Manager of ZCCM Power Division and Managing Director of Zambia Railways. Hanson serves on a number of Boards as a director and these include Batoka Energy Holding, Green Trade Limited, Stanbic Bank and Zam-En. He was recently elected Chairman of the Zambia Chamber of Commerce and Industry. Hanson holds an Electrical Engineering degree from the University of Zambia.


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Joseph Mwansa Chikolwa Deputy Chairman Non-executive Director

Joseph was appointed to the Board of CEC in October 2006 to represent ZCCM-IH and was made Deputy Chairman of the CEC Board in 2007. He is the Chairman of the Executive Committee. Joseph is the Chairman of the Ndola Lime Board and also serves on the Kansanshi Mine Plc Board, Lusaka Trust Hospital Board, and the Konkola Copper Mine Board. He is the Chief Executive Officer of ZCCM-IH. Prior to this he was General Manager and Chief Executive Officer of the Lusaka Stock Exchange. Joseph has a wide range of experience in banking spanning 17 years mostly in corporate finance and is a past president of the Zambia Institute of Bankers. Joseph has a degree in Economics from the University of Zambia, a Masters Degree in Finance from the University of Wales, a Financial Studies Diploma from the Institute of Financial Services of the UK (formerly known as the Chartered Institute of Bankers) and is a Fellow of the Zambia Institute of Bankers as well as Fellow of the Institute of Financial Services. John Kakungu Kaite Non-executive Director


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John joined the CEC Board as a Non-executive Director in January 2003 and is the Chairman of the Audit committee, an appointment he took up in 2006. John currently serves as the Legal Manager with ZCCM-IH, a position he has held since the privatisation of ZCCM in 2000. In this role, he is the general counsel to ZCCM-IH. John has 18 years experience in corporate law, law of contracts, conveyancing, litigation, and employment law John holds a Bachelor of Laws degree from the University of Zambia and a Postgraduate Certificate for legal practitioners obtained from the Law Practice Institute. He is also on the Boards of Mopani Copper Mine, Ndola Lime and ZCCM-IH Trust Fund. Jean Madzongwe Non-executive Director

Jean was appointed as Director on the CEC Board in October 2006 and is a member of the Audit Committee, Jean is an Energy Sector Specialist in the International Finance Unit of the Development Bank of Southern Africa (DBSA). She has over 20 years experience in the SADC energy sector providing professional knowledge and technical advice on energy sector projects and programmes. She has worked as a consultant for a private company providing


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technical advisory services; as an energy adviser for an international donor organisation; and as a project engineer for an electric power utility also in the Southern African region. Jean is also a director on the South Africa National Energy Association Board Jean graduated from Fairleigh Dickinson University, USA with a Bachelor of Science degree in Industrial Engineering and has an MBA from Henley Management College, UK. Charles Lubasi Milupi Non-executive Director Charles joined the CEC Board in January 1998 and was the Chairman of the SHE Committee during the year under review. Charles is an Independent Member of Parliament, representing Luena, Western Province. He began his career at the Power Division of ZCCM in 1978 and went on to hold several senior positions in the Company. He returned when CEC was privatised and took up the position of Technical Director in 1997, his last position in the Company was that of Chief Operating Officer. Charles is the Chairman of the Parliamentary Audit Committee and serves on a number of Boards as a director. He is Chairman of the Techpro and BPT Engineering Boards. Charles graduated with Bachelor of Science (Honours) in Electrical and Electronic Engineering from University College, Cardiff, and has participated in a Senior Executive Programme at Columbia Business School of Executive Education. Charles is a member of the Engineering Institute of Zambia, the Institution of Electrical Engineers (UK) and is a registered engineer with the Engineering Registration Board of Zambia. (In accordance with the Company’s Articles of Association, Charles retired from the Board in February 2008) Abel Mkandawire


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Non-executive Director

Abel was appointed to the Board of CEC as a Non-executive director in October 2006. Abel has worked for Behrens Limited, where he is Chairman, since 1980. Prior to joining Behrens Limited, he worked for ZESCO from 1972 and held different roles with the company including General Manager. Abel is a member of a number of Boards of Directors across a range of industries. Abel is a Fellow of the Institution of Electrical Engineers (UK). Emmanuel Bwalya Mutati Non-executive Director

Emmanuel joined the Board of CEC as an independent Non-executive director with effect from October 2006 and he chairs the Remuneration and Employee Development Committee. Emmanuel is the Chief Executive Officer of Mopani Copper Mines Plc. He joined Mopani Copper Mines Plc in 2000 as Acting General Manager of the Nkana Division. Prior to joining Mopani Copper Mines Plc Emmanuel worked at a number of mines owned by ZCCM, which he joined in 1981. He graduated from the University of Zambia with a Bachelor of Mineral Sciences (Mining and Engineering) degree. He is a Fellow of the Engineering Institute of Zambia, a member of the Society of Mining, Metallurgy


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and Exploration – American Institute of Mining, Metallurgy and Petroleum and is a registered engineer with the Engineering Registration Board of Zambia. (In accordance with the Company’s Articles of Association, Emmanuel retired from the Board in February 2008) Peter Mumba Non-executive Director

Peter was appointed to the Board of CEC in November 2007 and represents the Zambian Government in accordance with the Articles of Association of the Company that provide for Government representation on the CEC Board through a special share. He is the Permanent Secretary in the Ministry of Energy and Water Development an appointment he took up in October 2007 having been transferred from the Ministry of Home Affairs where he served in the same capacity for five years. Prior to joining the Government, Peter held a number of senior positions in the Zambia Postal Services specialising in human resources management. Peter also serves on the Boards of ZESCO, Indeni, Tazama and the Zambezi River Authority. He is a graduate of the University of Zambia and received his Master of Science in Human Resources Development from the University of Manchester. Michael John Tarney Executive Director – Finance and Strategy


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Michael was appointed to the Board of CEC as an Executive Director in October 2006 and he is currently the Director – Finance and Strategy. Michael is also a founder member of Zam-En, prior to which he was Financial Controller for International Operations at National Grid (responsible for operations in Europe, Africa and North America). He was seconded from National Grid as Chief Financial Officer of CEC from 1999 until 2001, and was appointed to the Board of CEC. During this period, he managed the formation of the CEC Pension Trust Scheme, and developed the Chambishi extension project. Subsequently Michael played a key role in the development and management of power and infrastructure projects in a number of different countries. Before joining National Grid he worked for PricewaterhouseCoopers as an audit manager, Deloitte & Touche as a management consultant and Marconi Plc as financial controller for the international business. Michael has two degrees in Engineering from Cambridge University and is a Chartered Accountant. Helen Tarnoy Non-executive Director


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Helen is co-founder and Commercial Director of Aldwych International Limited, a recently established power company focusing on the developing economies of Africa and South Asia. She has over 20 years’ professional experience and has been responsible for seven successfully closed power projects, including six in sub-Saharan Africa. She spent 15 years working in the emerging markets of Central and Eastern Europe before embarking on project development in Africa. She took the Songo-Songo gas power project in Tanzania to financial close in 2001 before moving to Cameroon where she was appointed Chief Executive Officer of the privatised national utility, Sonel, from 2002 to 2004. Helen, a graduate of Oxford University, was appointed to the Board of CEC in October 2006 and is a member of the Executive Committee and Audit Committee. Neil Croucher Managing Director


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Neil was appointed as Chief Executive Officer (now Managing Director) of CEC in January 2005 and was appointed to the Board of CEC in November 2007. Prior to joining CEC, Neil was General Manager for the Cape Town Electricity Company. He has wide knowledge and over 25 years of experience in the electricity sector of South Africa and the region. Neil holds a degree in Electrical Engineering, is a Fellow of the South Africa Institute of Electrical Engineers and was, until he joined CEC, an executive member of the Association of Municipal Electricity Undertakings in South Africa. Julia Chaila Company Secretary/Director – Legal Services

Julia Chaila is responsible for the management of CEC’s legal and company secretarial matters. Julia has wide experience in the legal profession and has held several senior positions in both the private and public sector. Julia earned her Bachelor of Laws degree from the University of Zambia. She is an advocate of the High Court and Supreme Court for Zambia and a Chartered Arbitrator under the Chartered Institute of Arbitrators of the UK.

Executive Management Team

The management of the business is structured into key functions – operations, maintenance, commercial and business development, organisational resource, legal, compliance and quality, investor relations and finance. The profiles of the Executive Management of CEC are set out below.

Neil Croucher Managing Director Neil is in charge of the day to day business operations of CEC. His CV is included in the Directors section on Page..

Julia Chaila Chief Legal Counsel / Company Secretary


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Julia Chaila is responsible for the management of CEC’s legal and company secretarial matters. Her CV is included in the Directors section on Page Aaron Botha Technical Director

Aaron heads the Technical Directorate and is responsible for the management of all technical aspects of CEC operations, particularly Protection and Metering, Telecommunications and System IT, System Performance, Asset Management, Emergency Power Generation and Account Management. Aaron, a Chartered Engineer, holds a Bachelor of Engineering degree from the University of Zambia and BTEC Diploma in Industrial Measurements and Control from the Bolton Institute of Technology. Patson Jila Project Director

Patson is Projects Director responsible for managing and implementing CEC’s short-term and long-term capital projects. Patson is a qualified electrical engineer and a member of the Engineering Institute of Zambia.

Roland Lwiindi Commercial and Business Development Director


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Roland, as Commercial and Business Development Director, is charged with the responsibility of identifying and implementing the Company’s businessdevelopment programme. Roland is a qualified engineer, having obtained a Bachelor of Engineering (Electrical) degree as well as a Post-graduate Diploma in Power Systems from Norway.

Humphrey Mulela Operations Director

Humphrey is responsible for the operations, construction and maintenance activities on CEC’s high voltage transmission and distribution assets. Humphrey previously held a number of senior positions in both ZCCM and CEC. Humphrey has a Bachelor of Engineering degree from the University of Zambia.

Jacob Njovu Organisational Resources Manager


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Jacob is responsible for all human resource functions and for both security and transport sections of the Company. Jacob holds a Bachelor of Arts degree obtained at the University of Zambia and a degree in Occupational Psychology from the University of Sheffield (UK).

Vincent Nyirenda Compliance and Quality Manager

As Compliance and Quality Manager, Vincent has the responsibility of ensuring that auditable business management processes are established, documented and continually improved. Vincent is further responsible for the Safety, Environmental, Quality Assurance, Internal Audit, Risk Management and Business Continuity functions of CEC. Vincent holds a Bachelor of Science degree in Mechanical Engineering obtained at University of Zambia and a Post Graduate Diploma in Management Studies obtained from the Management College of South Africa. Henry Kapesa


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Procurement & Supply Manager

Henry is in charge of the procurement and supply function in CEC. His key role is to develop and implement appropriate strategies to ensure that the company obtains maximum value for money in the procurement of goods and services. Henry has to his credit the Chartered Institute of Purchasing & Supply Graduate Diploma. He has also attended short courses covering Project management and strategic procurement Chance Mugala Finance Manager

Chance in his role as Finance Manger, is responsible for financial reporting and budgeting, management of financial systems and treasury. He graduated from the Copperbelt University with a Bachelor of Accountancy degree and is an associate of the Association of Chartered Certified Accountants


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Corporate Social Responsibility Corporate Social Responsibility (CSR) for CEC means the way in which it integrates economic, environmental and social objectives while at the same time addressing stakeholder expectations and sustaining shareholder value. CEC ensures that all matters of CSR are considered and supported throughout the organisation and are consistent with CEC’s stakeholder interests. Comprehensive policies and practices have been developed to enable CEC make business decisions and conduct its operations ethically, meet legal obligations and show consideration for the community and environment. The various activities undertaken as part of the CSR activities are discussed below.

Social Investment CEC aims to make a difference to the lives of people in the communities within which it operates. Therefore it steps outside of the business sphere to participate more broadly in the community. CEC looks for sustainable projects where progress can be measured, with accountability and results. CEC supports a diverse initiatives in the areas of health, education, sports, youth activities and culture In 2007 CEC continued with its support to the two children’s wards that it has adopted at a local hospital, the Kitwe Central hospital. Various types of hospital equipment were purchased for use in these wards. Educational materials were also purchased for donation to two community schools in Kitwe. The Company


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continued to sponsor to all sports clubs registered under CEC. The total expenditure on community support for the year was US$40,000. Employees are also encouraged to support community causes and through an employee community service group called Mutende, they have identified and supported a number of orphanages through donation of foodstuffs. In December 2007, the Mutende group made donations to three orphanages in the form of foodstuff and toiletries. Further, full sponsorship worth US$ 393 000 was provided to the Power Dynamos Football club

Safety Management

CEC is committed to managing health and safety risks effectively in all areas of its operations and ensures that its products and services do not harm employees, suppliers or the community. A safety management system based on pricinples of an international standard for occupational safety and health, OSHAS18001 has been implemented. This includes safety and , health audit programme, undertaken by both internal and external professionals, to ensure compliance with best practices and to maintain high standards in all business operations. In 2007 the key focus area was enforcing high safety standards on projects awarded to contractors. Mandatory safety training was provided for all contractor staff as well as new recruits. An external audit was conducted by APIX Consulting Ltd of the UK. The main objective of the audit was to assess the appropriateness of the CEC safety, health and environmental management practices and systems. The key findings were that health and safety is promoted and that in recent years considerable improvements have been achieved in these areas.


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Good house-keeping award ceremony

Environmental Management

CEC is committed to implementing good environmental practices, continuously improving its environmental performance and managing its activities in a manner consistent with the Company’s environmental obligations. An environmental management system based on ISO14001 principles is in place. There has only been one serious incident recorded in the last ten years. In 2007, all the environmental permits and licenses relevant to the Company’s business operations were issued by the Environmental Council of Zambia following acceptable pre-license verification inspections. CEC achieved 100% compliance with statutory emission limits for the emergency power plant. Further mandatory regulatory approvals and decision letters for the Mwambashi and Konkola expansion projects were secured from the Environmental Council of Zambia.

Health Promoting good health of employees remains a key priority for CEC. In line with this, CEC has ensured that it has in place medical facilities for employees and their registered dependants. A wellness center has been established and is managed by a Welfare Officer who is charged with the responsibility of coordinating the health programmes for CEC employees


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CEC has a well developed HIV/AIDS policy that was launched in 2002. Key activities initiated at CEC include HIV/AIDS awareness and prevention programmes to provide information to staff and their families about the various aspects of HIV and AIDS and encouraging behavioural change through workplace and community peer education. As a result of this CEC has seen an increase in the uptake of VCT. CEC remains committed to providing the anti-retroviral drugs to its employees that require them in order to improve their well being. During 2007 CEC had a health week facilitated by medical personnel from the Kitwe District Health Management Team and employees were screened for various ailments CEC,under the Global Development Alliance (GDA-Mining) partnership works with Comprehensive HIV/AIDS Management Programme (CHAMP), to implement workplace as well as community HIV/AIDS programmes. CHAMP provides technical support to CEC. CEC continued with its roll back malaria programme and teamed up with other institutions during the district rollback back malaria campaign which involved the spraying of homes in most parts of Kitwe.

10th Anniversary CEC celebrated 10 years of operations in November 2007. To commemorate this occasion, a number of activities were undertaken. A golf day was organized for CEC’s stakeholders in August 2007. A decision was also made to re-open the employee canteen situated in the plant area and the refurbishment of the same commenced during 2007.

DIRECTORS REPORT

The Directors have pleasure in submitting to the shareholders their report and the Financial Statements for the year ended 31 December 2007.

Activities The Company principal business is the generation, transmission, distribution and sale of electricity. There was no change in the activities of the Company during the year.

Financial Results The turnover for the year was US$131.7million (2006: US$127.3 million). The gross profit was US$38.7 million (2006: US$37.3 million). Below are some major financial trends.


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Key Statistics

2003 2004 2005 2006 2007 Sales ($,000) 114,874 120,348

122,164

127,280

131,746

Gross Profit ($,000) 32,777 35,109

36,367

37,383

38,746

Profit Before Interest and Taxes ($,000)

15,226 18,665 15,240 12,745 13,306

Acid Test Ratio (Times)

1.02

0.77

0.74

0.67

1.24

Return on Equity 13% 17% 12% 12% 16% EBITDA ($,000) 22,759 26,777

24,202

21,293

22,152

Total Assets ($,000) 148,566 142,361 136,505 131,453 156,481 Earning Per Share (Cents)

1.01

1.18

0.82

0.79

0.73

Return on Assets 6.8% 8.3% 6.0% 6.0% 4.6% Net Profit ($,000) 10,069 11,842 8,241 7,915, 7,251 Equity ($,000) 77,838 69,680 68,021 65,680 45,630 Current Assets ($,000) 26,998 23,582

19,746

17,395

40,887

Inventory ($,000)

820

1,224

1,028

1,136

1,307

Current Liabilities ($,000) 25,547 29,121

25,206

24,332

31,891

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Capital Expenditure CEC’s capital expenditure programme has been developed in line with the Company’s strategy of minimizing business risks, enhancing customer satisfaction and ensuring future business activities. In this regard, the major categories of expenditure include emergency generation equipment, transmission and distribution equipment, protection and metering equipment, safety health and environmental equipment, IT, vehicles, and communication and control equipment. Through its continuous capital expenditure programme CEC achieves continued refurbishment of the Gas Turbine Alternators 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 renewal and refurbishment of its network, CEC undertakes projects for its customers to enable new mining activites to be supplied through the CEC network. In the year 2007 these projects mainly related to the expansion of operations at Konkola Copper Mines Plc, Mopani Copper Mines Plc and Frontier Mine. The total capital expenditure for the year 2007 was US $10 .5 million.

Insurance

The Company has insured its operational assets against all significant business risks. The Company also maintains insurance for its Directors in respect of their duties as Directors of the Company. Besides the foregoing, the company has cover for employer’s liability, public and product liability, group personal accident, motor vehicle insurance and group life assurance. These policies are renewable and run from 1 May to 30 April of the following year.

■__________________________________________________________________________

Dividends and Transfer to Reserves

The policy of the Company in respect of the payment of dividends is a matter to be determined by the Board in accordance with the following principles:

The Company’s actual and 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;

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(ii) the making of such transfers 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, shall be distributed by the Company to the shareholders by way of dividend.

Interim dividends of US$12.50 million, US $3.60 million and US $4.20 million were paid, on 07 March 2007, 06 May 2007, and 14 September 2007 respectively.

Retained profit taken to reserves at 31 December 2007 was US $7.2 million. ■__________________________________________________________________________

Operations During the year all purchases of electrical power were from ZESCO Limited. Electricity supplies from this source accounted for 99.97% of the total requirements. The balance was supplied from the Company’s Gas Turbine Generating plants. Sales of electrical energy to CEC customers totaled 3,839GWh, an increase of approximately 2.8% over the sales for the previous year. Operation of the CEC/SNEL 220kV interconnector line, in respect of international wheeling, was satisfactory with 1040.8 GWh of energy wheeled through this circuit. Most of this power was wheeled to ZESA in Zimbabwe and ESKOM in RSA from the Congolese utility SNEL under their respective power arrangements The total energy import into the network was 5,714 GWh of which 4,060 GWh was Company purchases while 1,654 GWh was wheeled for ZESCO. The operations of the Company’s high-voltage transmission and distribution system was maintained to a satisfactory standard. The national generation capacity was adequate for the CEC system demand during the period under review.

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There was however an increase in the number of theft/vandalism cases on CEC’s electrical installations. The Company has put in place remedial measures. ■__________________________________________________________________________

Directors

At the end of the year the composition of the Board was as follows:

Hanson Sindowe - Chairman

Joseph Chikolwa - Deputy Chairman

Peter Mumba

Michael Tarney

John Kaite

Abel Mkandawire

Jean Madzongwe

Helen Tarnoy

Charles L Milupi

Emmanuel Mutati

Neil Croucher - Managing Director

With the exception of Stanbic Bank Limited who are bankers for the Company and with whom CEC had entered into arrangements for a revolving overdraft facility of US $9 million and Madison Insurance Limited who provide insurance services in which companies Hanson Sindowe and Abel Mkandawire are Directors respectively, the Company did not enter into contracts with any company where a Director had material interests.

■__________________________________________________________________________

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Share Capital

The authorised share capital of the Company is US $100,001. On 10th October 2007 the Shareholders by special resolution approved the amendment of Article 2.1 of the Articles of Association of the Company by a change in the ordinary shares in the capital of the Company from 10,000,000 ordinary shares of a par value of US $0.01 each to 1,000,000,000 ordinary shares of a par value of US $0.0001 each. There was no change in the one Special Share of US$1.00 held in the Company by the Government of the Republic of Zambia. Following the share split referred to above, the shareholding of CEC as at 31

December 2007, was as follows: Zambian Power BV 385,000,000 Zambian Transmission BV 385,000,000 ZCCM Investments Holdings Plc 200,000,000 Private Individuals 30,000,000 Government of the Republic 1 Special Share of Zambia (Golden Share) On 16th November an offer opened for the sale of 25% of the shares in the Company by Zambian Transmission BV and Zambia Power BV through an offer to the public and a preferential offer to employees. The offer closed on 14th December 2007 and shares were allotted during January 2008. This followed the approval of the listing of the CEC shares on the Lusaka Stock Exchange by the Securities and Exchange Commission and Lusaka Stock Exchange. Trading of shares commenced on 21st January 2008.

■__________________________________________________________________________

Average Number and Remuneration of Employees

The total remuneration of employees during the year amounted to US $ 9.9 million (2006 US $10.3 million) and the average total number of employees was as follows:

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Month No January 322 February 320 March 322 April 320 May 319 June 322 July 322 August 323 September 325 October 329 November 328 December 329 ___ Average 319

=== ■__________________________________________________________________________

Power Sports Limited The process of liquidating Power Sports Limited commenced on 2nd November 2007 and is expected to complete during 2008. CEC has continued to sponsor Power Dynamos Football Club through a process of direct funding.

Industrial Relations A sound industrial relations climate continued to prevail in the Company during the year under review and no work stoppages were experienced.

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Cordial relations continued to be maintained with the Mineworkers’ Union of Zambia (MUZ). ■__________________________________________________________________________

Developments

In order to accommodate the increasing demand for additional power by existing and new customers, several major projects were progressed during the year, including a project to enhance CEC’s Northern Area network to supply new mining operations being developed by Konkola Copper Mines plc. Substantial progress was also made on pre- investment technical, contractual and regulatory processes in respect of other new development projects. In addition the Company initiated the process of forming consortia for the possible development of two hydro power schemes at Kafue Gorge Lower and Kabompo Gorge. ■__________________________________________________________________________

Gifts and Donations The Company continued to undertake a number of social activities with the key area of focus being education, health and sport. The total expenditure on community support for the year was US$40k. This was channeled towards donations to Kitwe Central Hospital and comprised various pieces of hospital equipment for use in the CEC adopted wards. Educational materials were also purchased for donation to community schools. The Company continued to provide support to all sports clubs registered under CEC. Sponsorship of $393k was provided to Power Dynamos Football Club.

The employee community service group Mutende made donations to three orphanages in the form of foodstuff and toiletries during the month of December 2007.

Safety and Health Matters The key safety and health focus areas for CEC during the year were the enforcing of high safety and health standards on projects awarded to contactors engaged by the Company and the audit conducted by external consultants to assess the appropriateness of the CEC safety health and environmental management systems. A risk-based internal risk audit was undertaken focusing on firearm handling.

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During the period there was an improvement in the number of near-misses reported compared with the year 2006.

Environmental Matters The Company was granted all environmental permits and licenses relevant to the Company’s business operations by the Environmental Council of Zambia following acceptable pre-license verification inspections. The Company achieved 100% compliance with statutory emission limits for the emergency power plants. Full compliance was also achieved for the submission of statutory reports covering air emissions, waste management, and hazardous waste management. All parties affected by the Frontier power supply project and the Konkola expansion power supply project were fully compensated. The environmental performance for 2007 was satisfactory. ■__________________________________________________________________________

Statement on Corporate Governance The Company continues to commit itself to the corporate governance principles of openness, integrity and accountability. The Company adopted the Lusaka Stock Exchange (LuSE) Code of Corporate Governance for listed and quoted companies. During the year under review the Board membership comprised eleven Directors, three of whom were Executive Directors and the other were Non Executive Directors. The Board has an Executive Chairman and a Non Executive Deputy Chairman in accordance with the Company’s Articles of Association and the LuSE Code of Corporate Governance. The Board meets at least four times a year and concerns itself with key matters. The Directors possess a considerable depth of knowledge and experience collectively gained from both the public and private sector and also from the respective shareholding groups. ■__________________________________________________________________________

Board Committees The board has established committees to oversee various aspects of the Company’s business and operations. The board has delegated its authority on

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certain defined areas to these committees. The committees are comprised of executive directors, non executive directors and senior management. The meetings of the respective committees are chaired by a non executive director. Reports of committee meetings are submitted at each Board meeting. ■__________________________________________________________________________

Executive Committee

The Board of Directors has an Executive Committee whose role is to oversee the major operations of the business including key customer issues, stakeholder management, financial performance, capital projects and management issues. The committee comprises five members and is chaired by the Deputy Chairman of the Board. ■__________________________________________________________________________

Audit Committee The Audit Committee provides valuable oversight on the effectiveness of the Company’s financial reporting, internal control policies, risk management systems, compliance management systems, and the internal audit function.

The Committee comprises three Non-Executive Directors and three members of Senior Management, including the Managing Director.

The Audit Committee reviewed and endorsed the CEC Financial Statements for approval by the Board and recommendation to the Shareholders. The Committee also examined the Company’s compliance against the Lusaka Stock Exchange Code of Corporate Governance and the effectiveness of the whistle-blowing process.

The Committee reviewed and ratified nine audit reports and approved the six-year internal audit strategic plan for the period November 2007 to 2013. ■__________________________________________________________________________

Remuneration and Employee Development Committee The committee oversees employee remuneration and MUZ wage negotiations, key organizational changes, pension scheme arrangements and employee development policies. The committee was responsible for the development and implementation of the employee share option plan. During the year the committee also approved the Company’s revised succession, manpower and training plans. The committee also saw to the initiation of the first ever

56

Employee Conference which was held in July 2007. The conference was a great success and well appreciated by staff. The committee is comprised of four members and is chaired by Non Executive Director. ■_________________________________________________________________________

Business Development Committee There is an adhoc committee for business development whose purpose is to review business development projects to ensure they are in line with general business development and customer policies. ■__________________________________________________________________________

Safety, Health and Environment Committee

The Committee’s role is to review the safety, health and environmental performance of CEC, ensure development of and compliance with best practice and all applicable legislation, and to review the quality of reporting of safety, health and environmental issues.

The Committee comprises two Non-Executive Directors and four members of Senior Management, including the Managing Director.

During the year under review the SHE Committee examined and endorsed the CEC 2006 SHE performance report. The Committee further reviewed and approved the 2007 corporate SHE performance targets and the terms of reference for the external SHE audit consultancy that was carried out by an external auditor appointed by National Grid, under the Technical and Business Services Agreement entered into between CEC and National Grid. The Committee examined all significant SHE incidents during the period under review. ■_________________________________________________________________________

57

Auditors

At the last Annual General Meeting of the Shareholders of the Company, Messrs KPMG were reappointed as auditors of the Company.

Messrs KPMG will retire as auditors at the conclusion of the forth coming Annual General Meeting. In accordance with good practice, Messrs KPMG who have been auditors for the Company for over three years, will not be reconsidered for a further term.

By order of the Board

Julia C Z Chaila Company Secretary

Date: 28th March 2008 Kitwe, Zambia

58

Statement of Directors’ Responsibilities Section 164 (6) of the Companies Act Cap 388 of the Laws of Zambia requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the profit or loss for that period. The Company’s directors are responsible for the preparation and fair presentation of the financial statements, comprising the balance sheet at 31 December 2007, and the income statement, the statement of changes in equity and cash flow statement for the year then ended, and the notes to the financial statements, which include a summary of significant accounting policies and other explanatory notes, in accordance with International Financial Reporting Standards and the Companies Act Cap 388 of the Laws of Zambia. The directors’ responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of these financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. The directors have made an assessment of the company’s ability to continue as a going concern and have no reason to believe the business will not be a going concern in the year ahead. Approval of the financial statements The financial statements of the company, as indicated above, were approved by the directors on 20th February 2008 and are signed on behalf by

H Sindowe J Chikolwa M Tarney Director Director Director Basis of Preparation of Accounts The Directors confirm that the financial statements have been prepared on a going concern basis.

59

Independent Auditor’s Report to the members of Copperbelt Energy Corporation Plc

We have audited the financial statements of Copperbelt Energy Corporation Plc which comprise the balance sheet as at 31 December 2007, the income statement, the statement of changes in equity and cash flow statement for the period then ended, and the notes to the financial statements which includes a summary of significant accounting policies and other explanatory notes as set out on pages 65 to 101. Directors’ Responsibility for the Financial Statements The Company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and the Companies Act 1994 of Zambia. This responsibility includes: designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion

60

In our opinion, the financial statements present fairly, in all material respects, the financial position of Copperbelt Energy Corporation Plc at 31 December 2007, and the results of its financial performance and cash flows for the period then ended in accordance with International Financial Reporting Standards and in the manner required by the Companies Act of 1994.

Report on other legal and regulatory requirements

In accordance with section 173 (3) of the Companies Act 1994 of Zambia, we report that, in our opinion, the required accounting records and registers have been properly kept in accordance with the Act.

KPMG

Chartered Accountants of Zambia Kitwe

Larry N. Phiri Partner 2008

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Statement of Income for the year ended 31 December, 2007

Notes 1.1

2007

1.2

2006

US $’000 US $’000 Revenue 131,746 127,280 Cost of sales (93,000) (89,897) Gross profit 38,746 37,383 Other operating income 4 2,645 2,541 Operating expenses 5 (28,085) (27,179) Results from operating activities 13,306 12,745 Finance income 319 264 Finance expense (2,225) (991) Net finance cost 7 (1,906) (727) Profit before tax 11,400 12,018 Income tax expense 8 (4,149) (4,103) Profit for the year 7,251 7,915

Earnings per Share

Basic and diluted earning per share(cents)

21

0.73

0.79

The notes on pages 65 to 101 form part of these financial statements..

.

62

Balance Sheet As at 31 December 2007

Notes 2007 2006

US $’000 US $’000

Assets

Property, plant and equipment 9 115,591 114,055 Investment 3 3 Total non-current assets 115,594 114,058 Current Assets Inventories 10 1,307 1,136 Trade and other receivables 11 16,372 14,633 Cash and cash equivalents 12 23,208 1,626 Total current assets 40,887 17,395

Total assets 156,481 131,453

Equity Issued capital 13 100 100 Share premium 148 148 Retained earnings 45,382 65,432 Total equity 45,630 65,680 Interest-bearing loan 14 32,597 5,300 Long Term Creditor 17 4,690 - Provisions 15 7,000 500 Deferred Employee Benefits 16 2,093 2,338 Deferred tax liability 8 32,586 33,303 Total non current liabilities 78,966 41,441

Current Liabilities Current portion of interest-bearing loan 14 2,703 1,300 Trade and other payables 17 20,868 19,391 Bank overdraft 12 5,736 1,562 Tax payable 2,584 2,079 Total current Liabilities 31,891 24,332

Total Liabilities 108,995 65,773 Total equity and liabilities 156,481 131,453

These financial statements on pages 16 to 43 were approved by the Board of Directors on 20th February 2008 and were signed on its behalf by:

H Sindowe J Chikolwa M Tarney Director Director Director


63

Statement of changes in equity for the year ended 31 December, 2007

Share Capital

US$ ‘000

Share

Premium US$ ‘000

Retained Earnings

US$ ‘000

Total US$’000

Balance as at 1 January 2006 100 148 67,773 68,021

Prior year adjustment -

Correction of an error (note 15) - - (7,000) (7,000)

Balance as at 1 January 2006 Restated

100

148

60,773

61,021

Retained profit for the year - - 7,915 7,915 Dividends - - (10,256) (10,256) Balance as at 31 December 2006

100

148

58,431

58,679

Balance as at 1 January 2007 100 148 58,431 58,679 Retained profit for the year - - 7,251 7,251 Dividends - - (20,300) (20,300)

Balance at 31 December 2007 100 148 45,382

45,630

Retained Earnings are the carried forward recognised income, net of expenses, of the Company plus current year’s profit attributable to shareholders. The prior year adjustment is in respect of a prior period error in the computation of the company’s’ tax losses in the period since 1 April 2002 (refer to note 15).

The share premium relates to the excess amounts received on the issue of share capital net of pre-incorporation costs.


64

Statement of cash flows for the year ended 31 December 2007 Note 2007 2006 US $’000 US $’000

Cash flow from operating activities

Profit before taxation Adjustments for:

11,400 12,018

Depreciation 8,845 8,548 Interest expense

2,226

991 Interest income (319) (79) (Profit)/loss on disposal (110) 8

22,042

21,486

Change in trade and other receivables (1,740) 250 Change in inventories

(170)

(109) Change in payables

1,477

(556) Change in provisions

(746)

(185)

20,863

20,886 Interest paid (1,219) (923)

Income tax paid (4,368) (5,466)

Net cash flows from operating activities 15,276 14,497

Cash flows from investing activities

Acquisition of property, plant and equipment (6,484) (5,906)

Disposal proceeds 116

51

Interest received 152

79

Net cash flows used in investing activities (6,216)

(5,776)

Cash flow from financing activities

Repayment of borrowings (1,300) (800) Receipts from borrowings 30,000 - Dividends paid (20,300) (11,556)

Net cash used in financing activities 8,400

(12,356)

Net increase/ (decrease) in cash and cash equivalents

17,460 (3,635)

Cash and cash equivalents at 1 January 64 3,836

65

Exchange gain (52) (137)

Cash and cash equivalents at 31 December

2007

12

17,472

64

The notes on pages 65 to 101 form part of these financial statements.

66

Notes to the financial statements for the year ended 31 December 2007

1. Reporting Entity

Copperbelt Energy Corporation Plc is a company domicile in Zambia. Its principal activity is the transmission and distribution of electricity predominantly to the mining companies.

2. Basis of Preparation

(a) Statement of Compliance

The financial statements of Copperbelt Energy Corporation Plc have been prepared in accordance with International Financial Reporting Standards and comply with the requirements of the Companies Act, 1994 of Zambia.

(b) New standards and interpretations not yet adopted

A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2007, and have not been applied in preparing these financial statements:

� IFRIC 11 IFRS 2 – Company and Treasury Share Transactions requires a

share-based payment arrangement in which an entity receives goods or services as consideration for its own equity instruments to be accounted for as an equity-settled share-based payment transaction, regardless of how the equity instruments are obtained. IFRIC 11 will become mandatory for the Company’s 2008 financial statements, with retrospective application required. It is not expected to have any impact on the financial statements.

� IFRIC 12 Service Concession Arrangements provides guidance on certain

recognition and measurement issues that arise in accounting for public-to-private service concession arrangements. IFRIC 12 is mandatory for the Company’s 2008 financial statements. The Company has not yet determined the potential effect of the interpretation.

� IFRIC 13 Customer Loyalty Programmes addresses the accounting by

entities that operate, or otherwise participate in, customer loyalty programmes for their customers. It relates to customer loyalty programmes under which the customer can redeem credits for awards such as free or discounted goods or services. IFRIC 13, which becomes mandatory for the Company’s 2009 financial statements, is not expected to have any impact on the financial statements.

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2. Basis of preparation (continued) � IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding

Requirements and their Interaction clarifies when refunds or reductions in future contributions in relation to defined benefit assets should be regarded as available and provides guidance on the impact of minimum funding requirements (MFR) on such assets. It also addresses when a MFR might give rise to a liability. IFRIC 14 will become mandatory for the Company’s 2008 financial statements, with retrospective application required. The Company has not yet determined the potential effect of the interpretation.

(c) New standards and interpretations adopted early

Accounting standards relevant to Copperbelt Energy Corporation Plc that have been adopted early during the year are:

� Revised IAS 23 Borrowing Costs removes the option to expense borrowing

costs and requires that an entity capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The revised IAS 23 will become mandatory for the Company’s 2009 financial statements and will constitute a change in accounting policy for the Company. In accordance with the transitional provisions the Company will apply the revised IAS 23 to qualifying assets for which capitalisation of borrowing costs commences on or after the effective date.

� IFRS 8 Operating Segments introduces the “management approach” to segment reporting. IFRS 8, which becomes mandatory for the Company’s 2009 financial statements, will require the disclosure of segment information based on the internal reports regularly reviewed by the Company’s Finance Director. It is not expected to have any impact on the financial statements.

(d) Basis of preparation of financial statements

The financial statements have been prepared on the historical cost basis of

accounting modified by the revaluation of property, and financial instruments which are stated at fair value.

(e) Functional and Presentation Currency

The financial statements are presented in United States dollar, rounded to the nearest thousand. This choice of reporting currency is because all sales and most of the purchases are undertaken in US$. The Registrar of Companies has allowed the Company to maintain its financial statements in US$. They are prepared on the historical cost basis except that the following assets and

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2. Basis of preparation (continued) liabilities are stated at their fair value: financial instruments held for trading and financial instruments classified as available for trading.

(f) Use of Estimates and Judgements

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are as follows:

(i) Income taxes

The tax charged to the income statement is subject to agreement with the Zambia Revenue Authority. When the final tax outcome upon agreement of assessments differs from the amounts initially recorded, such differences are adjusted in subsequent periods. Where the actual assessment differs from management’s estimates, the Company would need to increase or decrease the tax charge to income statement by the resulting difference.

In addition deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable profits are available to utilise those temporary differences and losses, and tax losses continue to be available having regard to the nature and timing of their origination and compliance with the Zambia Revenue Authority rules associated with their recoupment. Assumptions are also made about the application of income tax legislation. These assumptions are subject to risk and uncertainty and there is a possibility that changes in circumstances will alter expectations which may impact the amount of deferred tax assets and deferred tax liabilities recorded on the balance sheet and the amount of tax losses and timing differences not yet recognised. In these circumstances the carrying amount of deferred tax assets and liabilities may change, resulting in an impact on the earning of the company.

(ii) Provisions and accruals

Management has also recognised various accruals as at reporting date.

These accruals are based on estimates made from the terms of the

69


2. Basis of preparation (continued) respective contracts and estimation of services provided up to the

reporting date. (iii) Deferred employee benefits

The expected costs of providing post-retirement benefits under defined benefits arrangements relating to employees service during the period are charged to the statement of income. Any actuarial assumptions are recognised immediately in the statement of income. In all cases, the pension costs are assessed in accordance with the advice of independent qualified actuaries but require the exercise of significant judgements in relation to assumptions for future salary and pension increases, long term price inflation and investment returns. While management believes the assumptions used are appropriate, a change in the assumptions would impact the earnings of the company. (refer to note 16)

(iv) Property, plant and equipment

The company’s property, plant and equipment are depreciated on a straight line basis over their useful economic lives. Management reviews the appropriateness of useful economic lives of assets at least annually; any changes to useful economic lives could affect prospective depreciation rates and asset carrying values.

(v) Current asset provision

In the course of normal trading activities management uses its judgement in establishing the net realisable values of various elements of working capital – principally inventory and accounts receivables. Provisions are established for obsolete or slow moving stocks and bad or doubtful debts. Actual expenses in future periods may be different from the provisions established and any such differences would affect future earnings.

(f) Use of estimates and judgements (continued)

(vi) Legal proceedings

The outcome of the Appeals case between CEC and ZRA relating to disputed tax assessments for the tax years from 1998/99 to 2003/2004 cannot be predicted with certainty. Thus, an adverse decision in a lawsuit could result in additional costs that are not covered either wholly or partially and that could significantly impact the business and results of operations of the company. Litigation and other judicial proceedings as a rule raise difficult and complex legal issues and are subject to many uncertainties and complexities

70

Notes to the financial statements for the year ended 31 December 2007 2. Basis of preparation (continued)

including, but not limited to the facts and circumstances of each particular case. Upon resolution of the pending legal matter, the company may be forced to incur charges in excess of the presently established provision. It is possible that the financial position, results of operations or cash flows of the company could be materially affected by an unfavourable outcome of litigation. Litigation and administrative proceedings are evaluated on a case-by-case basis considering the available information, including that from legal counsel, to assess potential outcomes. Where it is considered probable that a future obligation will result in an outflow of resources, a provision is recorded in the amount of the present value of the expected cash outflows if these are deemed to be reliably measured.

3. Significant Accounting Policies

The following is a summary of the more important accounting policies used by the company which are consistent with those applied in the prior year.

(a) Foreign currencies

Transactions denominated in other currencies are recorded in US$ at the exchange rates ruling at the date of the transactions. Assets and liabilities denominated in other currencies at the year end are translated at the rates of exchange prevailing at the year end. Gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in other currencies are recognised in the income statement.

(b) Employee Benefits

(i) Pension Obligations

There is a defined contribution pension scheme, the assets of which are held in a separate trustee-administered fund. The pension scheme is funded by contributions from employees and the Company. The Company’s contributions to the pension scheme are charged to the profit and loss account in the period to which the contributions relate.

The Company contributes 10.7% and the employees 5% of the employee’s basic salary towards the scheme.

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3. Significant Accounting Policies (continued)

(b) Employee Benefits (continued)

(ii) Actuarial Gains and Losses

An actuarial gain or loss comprises of past service adjustments and the effects of changes in actuarial assumptions. Actuarial gains and losses are recognised in the income statement in the period in which they occur.

(iii) Retirement Benefits

The company employees are entitled to retirement benefits which are accounted for as a defined Benefit scheme (see note 16).

(iv) Short-term benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

(c) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on a weighted average basis and includes transport and handling costs. Net realisable value is the amount at which the inventories could be realised in the normal course of business after allowing for the costs of realisation.

(d) Taxation

The tax charge is determined in accordance with the provisions of the Income Tax Act, 1966 (as amended) and is based on the adjusted profit for the year. Tax on the profit or loss for the year comprises current taxation and the change in the deferred tax asset/liability.

Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements.

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3. Significant Accounting Policies (continued) The principal temporary differences arise from depreciation of property, plant and equipment.

Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

(e) Property, Plant and Equipment (i) Recognition and measurements

Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Expenditure on repairs or maintenance of plant and equipment made to restore or maintain future economic benefits expected from the asset is recognised as an expense when incurred.

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the cost of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.

Interest costs on borrowings to finance the construction of fixed assets are capitalised during the period of construction of the assets. All other borrowing costs are expensed.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognized net within “other income” in profit or loss. When revalued assets are sold, the amounts included in the revaluation surplus reserve are transferred to retained earnings.

(ii) Subsequent costs

The company recognizes in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an

73


3. Significant Accounting Policies (continued) item when the cost is incurred if it is probable that the future economic benefits embodied with the item will flow to the company and the cost of the item can be measured reliably. All other costs are recognized in the statement of income as an expense as incurred.

(iii) Depreciation

The depreciable amount of an asset is allocated on a systematic basis over its useful life. The depreciation rates applicable are as follows:

Properties 2% Transmission and Distribution Network 1.5% - 8.33% Motor vehicles 20% Office Equipment, furniture and fittings 20%

The residue value and the useful life of an asset are reviewed at least at each financial year-end and, if expectations differ from previous estimates then the variance is treated as a change in accounting estimate and is treated as a normal transaction relating to that particular financial year.

(f) Impairment

(i) Financial assets

A financial asset is assessed at each reporting date to determine

whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

An impairment loss in respect of a financial asset measured at cost is calculated as the difference between its carrying amount, and the recoverable amount. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in the statement on income.

An impairment loss is reversed if the reversal can be related

objectively to an event occurring after the impairment loss was recognised. For financial assets measured at cost, the reversal is recognised in the statement of income.

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(ii) Non-financial assets

The carrying amounts of the Company’s non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.

The recoverable amount of an asset is the greater of its value in use

and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”).

An impairment loss is recognised if the carrying amount of an asset or

its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss.

(g) Investments

Investments are stated at cost.

The investment in Power Sports Limited is stated at cost. Power Sports Limited is the sponsor of Power Dynamos Football Club, one of the most successful Zambian football teams.

(h) Environmental Costs

The Company is subject to various environmental regulations and environmental costs are charged to the statement of income as they are incurred.

(i) Revenue Recognition

Revenue from the supply of electricity is recognised in the statement of income when the electricity has been transferred to the buyer. It represents the invoiced value for the supply net of value added tax.

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(i) Revenue by business segment 2007 2006 US$’000 US$’000

Electricity transmission 121,775 117,590 Wheeling - domestic 8,263 7,912

10.1 Wheeling – international 1,157 995

10.2 Rural electrification 551 783

131,746 127,280 Interest income and other income are recognized as it accrues

(j) Finance income and expenses

Finance income comprises interest income on funds invested and changes in the fair value of financial assets at fair value through the statement of income. Interest income is recognized as it accrues in statement of income, using the effective interest method.

Finance expenses are stated at fair value in the statement of income and comprise interest expense on borrowings, changes in the fair value of financial assets and impairment losses recognized on financial assets. All borrowing costs are recognized in the statement of income using the effective interest method.

Foreign currency gains and losses are reported on a net basis.

(k) Provisions

Provisions are recognised when the Company has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made.

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3. Significant Accounting Policies (continued) (l) Interest Bearing Loans

Interest – bearing borrowings are recognized initially at cost, excluding attributable transaction costs. Subsequent to initial recognition, interest – bearing borrowings are stated at amortised cost with any difference between cost and redemption being recognized in the statement of income over the period of the borrowings on an effective interest rate basis. Borrowing Costs that are directly attributable to acquisition, construction or production of a qualifying Non Current Asset are capitalised as part of the cost of that Non Current Asset.

(m) Dividends

Dividends are recognized as a liability in the period in which they are approved by the shareholders.

(n) Financial instruments

(i) Non-derivative financial instruments

Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalent and trade and other payables.

Non-derivative financial instruments are recognized initially at fair value plus, for instruments not at fair value through the statement of income, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below.

Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of Copperbelt Energy Corporation Plc’s cash management are included as a component of cash and cash equivalent for the purposes of the statement of cash flows.

Accounting for finance income and expenses is discussed in note

(j).

77

Notes to the financial statements for the year ended 31 December 2007 3. Significant Accounting Policies (continued)

(ii) Financial assets at fair value through the statement of income

An instrument is classified at fair value through the statement of income if it is held for trading or is designated as such upon initial recognition. Financial instruments are designated at fair value through the statement of income if the company manages such investments and makes purchase and sale decisions based on their fair value in accordance with the company’s documented risk management or investment strategy. Upon initial recognition attributable transaction costs are recognized in the statement of income when incurred. Financial instruments at fair value through the statement of income are measured at fair value, and changes therein are recognized in the statement of income.

Accounting for interest income and expenses and net finance expenses is discussed in note (j).

(iii) Other

Other non-derivative financial instruments are measured at amortised cost using the effective interest method, less any impairment losses.

(iv) Ordinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognized as a deduction from equity, net of any tax effects.

(o) Earnings per share

The Company presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees.

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(p) Determination of fair value

A number of the company’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and / or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

(i) Trade and other receivables

The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date.

(ii) Non-derivative financial liabilities

Fair value, which is determined for disclosure purposes, is calculated on the present value of future principal and interest cash flows, discounted at the market rate on interest at the reporting date.

(q) Financial risk management

The company has exposure to the following risks from its use of financial instruments:

Credit risk Liquidity risk Market risk

This note presents information about the company’s exposure to each of the above risks, the company’s objectives, policies and processes for measuring and managing risk, and company’s management of capital. Further quantitative disclosures are included throughout these financial statements.

The Board of Directors has overall responsibility for the establishment and oversight of the company’s risk management framework. The company’s management is responsible for developing and monitoring the company’s risk management policies. Management reports regularly to the Board of directors on its activities.

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3. Significant Accounting Policies continued

Financial risk management (continued)

The company’s risk management policies are established to identify and analyse the risks faced by the company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the company’s activities. The company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Audit Committee oversees how management monitors compliance with the company’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the company. The Audit Committee is assisted in its oversight role by the Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

Credit risk

Credit risk is the risk of financial loss to the company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the company’s receivables from customers.

Trade and other receivables

The company’s exposure to credit risk is influenced mainly by individual characteristics of each customer. The demographics of the company’s customer base, including the default risk of the industry and country, in which customers operate, has less of an influence on credit risk. Approximately 36 percent of the company’s revenue is attributable to sales transactions with a single customer.

The Company enters into Power Supply Agreements with new customers, each customer is analysed individually for creditworthiness before credit terms and conditions are offered. The Company’s review includes trade references from other suppliers, when available, and in some cases bank references. Credit limits are established for each customer, which represents the maximum open amount without requiring approval from the senior management; these limits are reviewed annually. Customers that fail to meet the company’s benchmark creditworthiness may transact with the Company only on a cash basis.

All the Company’s customers have been transacting with the Company for over four years, and losses have occurred infrequently. In monitoring customer credit risk, customer’s supplies are within the predetermined credit limits, and further supplies are restricted if amounts remain outstanding for more than 60 days

80



(q) Financial risk management (continued)

regardless of the amount. Trade and other receivables relate mainly to the Company’s mining customers and other legal entity customers that account for 99% and 1% respectively. Customers that are graded as “high risk” are those for whom outstanding amounts exceed 60 days, and such customers are placed on a restricted customer list, and future electricity supplies are restricted.

The Company does not require collateral in respect of trade and other receivables.

The Company establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. The main component of this allowance relates to individually significant exposures, and a collective loss component is established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to Company’s reputation.

The Company uses activity-based costing to cost its products and services, which assist it in monitoring cash flow requirements and optimizing its cash return on investments. Typically the Company ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 60 days, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. In addition, during the year, the Company has a US$15.5 million bank overdraft facility with Stanbic Bank ($9m) and Citibank ($6.5m). These facilities were secured through a debenture creating a floating charge over receivables due from Konkola Copper Mines Plc, Chambeshi Metals Plc and Mopani Copper Mines. This security is shared on a pari passu basis between Stanbic Bank and Citibank.

81


3. Significant Accounting Policies (continued) (q) Financial risk management (continued) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company’s income or the value of its financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

Currency risk

The Company is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the functional currency of the company, namely the US Dollar. The currencies in which these transactions are primarily denominated are the Zambian Kwacha and South African Rand.

In respect of other monetary assets and liabilities denominated in foreign currencies, the Company ensures that the risk is kept to an acceptable level by matching assets and liabilities in the balance sheet. Net exposure is kept to an acceptable level by denominating recognized trade receivables in United States Dollars.

Interest rate risk

The company is exposed to interest rate risk to the extent of the balance of the bank accounts and loans.

Capital management

The Board’s policy is to maintain a strong capital base so as to maintain creditor and market confidence and to sustain future development of the business. The Board of Directors monitors the key financial performance indicators of the company. The Board reviews the statutory accounts by comparing the actual results against budget and prior year. The company’s target is to achieve growth in respect of sales, gross profit and profit before tax.

There were no changes in the company’s approach to capital management during the year.

82



(r) Lease of land

Leases of land are classified as operating leases on the basis that although land has an infinite economic life and the right to use the land passes on acquisition, ownership has a fixed lease term of 99 years, or the unexpired portion thereof. Upfront payments made to obtain the right to use the land are capitalised as a lease prepayment and recognised on a straight line basis over the unexpired portion of the lease term as an operating lease expense.

(s) Segment reporting

A segment is a distinguishable component of the company that is engaged either in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. Segment revenue is based on the geographical location of customers.


83

Notes to the financial statements for the year ended 31 December 2007 4. Other operating income

2007

2006

US$’000 US$’000 Capital charge Telecoms income Engineering services Sundry income

1,778 133 475 258

1,536

58 626 320

2,645 2,541

5. Operating expenses

2007

2006

US$’000 US$’000 Depreciation 8,845 8,548 Staff costs ( note 6) 9,943 10,260

Non – executive directors

fees and benefits

226 102

Auditors’ remuneration -

audit services

80 35

- tax services 7 9 Insurance Costs 1,494 1,612 Stores and Maintenance 1,559 1,337 Football expenses 393 463 Other operating expenses 5,538 4,813

28,085 27,179

6. Personnel expenses

2007 2006 US$’000 US$’000 Salaries and wages 6,706 6,383

Retirement benefits 288 1,081

Pension contributions and similar costs 1,244 692 Other staff costs (Overtime, Shift differential, housing and bonuses)

1,705

2,104

9,943 10,260 The average number of employees during the year was 319 (2006:325)


84


7. Finance income and expenses 2007 2006 US$’000 US$’000 Interest on overdue debtors 252 185

Bank interest 67 79

Total finance income 319 264 Interest on bank loans (2,090) (811) Interest on overdue creditors (135) (180)

Total finance expense (2,225) (991) Net finance cost (1,906) (727)

8. Income tax expense

2007 2006 US$’000 US$’000 (i) Major components of the tax charge

Current tax at the rate of 35% (4,849) (5,056)

Tax on Interest at the rate of 15% (24) (28) Deferred tax charge 717 981

Actual tax charge (4,149) (4,103) (ii) Reconciliation of the theoretical tax

The tax on the company’s profit differs from the theoretical tax amount that would arise using the basic tax rate as follows:

Profit before tax 11,400 12,018

Tax at the applicable tax rate of 35%

3,990 4,206

Tax effect of expenses that are not deductible in determining taxable profit 423 (106) Losses brought forward utilized in the year - (Profit)/loss on disposal of property, plant and equipment

(36) 3

Tax effect of reduced tax rate (228) - Actual tax charge

4,149

4,103


85

(iii) Amount of deferred tax liability recognised

in the balance sheet in respect of temporarydifferences and unused tax losses

Accelerated depreciation for tax purposes 32,468

33,470

Unrealised foreign exchange (gains)/losses 111

(167)

32,586

33,303

9. Property, plant and equipment

Buildings US

$’000

Transmission

and distribution

network US $’000

Equipment,

fixtures and

fittings

US $’000

Motor vehicle

s

US $’000

Capital work- in- progress

US $’000

Total US $’000

Cost

At 1 January 2006 8,833 156,312 4,835 3,532 3,303 176,815 Additions - - - - 5,907 5,907 Transfers from WIP 691 2,648 94 625 (4,057) - Disposals - (66) (32) (36) - (134) At 31 December 2006 9,524 158,894 4,897 4,121 5,152 182,588 At 1 January 2007 9,524 158,894 4,897 4,120 5,152 182,588 Additions - - - - 10,454 10,454 Transfers from WIP 1,213 5,880 247 1,041 (8,381) - Disposals -

- -

(438) - (438)

At 31 December 2007 10,737

164,774 5,144 4,724 7,225 192,604

Depreciation At 1 January 2006 1,174 53,304 3,439 2,143 - 60,060 Additions 208 7,459 457 425 - 8,549 Disposals - (17) (25) (34) - (76) At 31 December 2006

1,382

60,746

3,871

2,534

-

68,533

At 1 January 2007

1,382

60,746

3,871

2,534

-

68,533

Charge for the year 233 7,678 402 532 - 8,845 Disposals -

- -

(365) - (365)


86

At 31 December 2007

1,615

68,424

4,273

2,701

-

77,013

Net book value

At 01 Jan 2006 7,659 103,008 1,396 1,389 3,303 116,755 At 31 Dec 2006 8,142 98,148 1,026 1,587 5,152 114,055 At 1 Jan 2007 8,142 98,148 1,026 1,587 5,152 114,055 At 31 Dec 2007 9,122 96,350 871 2,023 7,225 115,591

(i) A schedule listing the properties as required by Section 164 and the Second

Schedule of the Companies Act, Cap 388 of the Laws of Zambia is available for inspection by Members or their duly authorised representatives at the registered office of the Company.

(ii) Included in cost of plant, property and equipment are fully depreciated assets

amounting to US$7.4 million (2006: US$5.6 million). (iii) The transfer of some of the title to property transferred from ZCCM Investments

Holdings (ZCCM-IH) has not yet concluded, but is in progress. (iv) Capitalised borrowings

Interest amounting to US$666,394 (2006: nil) was capitalized to property, plant and equipment calculated at the rate of 2.5% plus LIBOR (2006: nil).

10. Inventories

2007

2006 US$’000 US$’000

Fuel 888 766 Spares and consumables 419 370

1,307

1,136

11. Trade and other receivables

2007 2006

US$’000 US$’000 Trade receivables 15,623 13,345 Less: debt impairment (2,206) (1,128) 13,417 12,217 Prepayments and deposits 628 776 Other receivables 2,327 1,640 16,372 14,633

The company’s exposure to credit, currency and impairment losses related to trade and other receivables are disclosed in note 19.


87


12. Cash and cash equivalent

2007 2006

US$’000 US$’000 Bank balance Petty cash

23,198 10

23,208

1,614 12

1,626 Bank overdraft (5,736) (1,562)

17,472 64

The Company’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in note 19.

13. Share Capital 2007

2006 US$’000 US$’

000 Authorised

1,000,000,000 (2006: 10,000,000) ordinary shares of 0.01 US cent (2006: 1 US cent each)

100 100

1 special share of 1 US dollar - -

Issued and fully paid

1,000,000,000 (2006: 10,000,000) ordinary shares of 0.01 US cent (2006: 1 US cent each)

100 100

1 Special Share of 1 US dollar - -

The rights relating to the Special Share include the right to convene, receive notice for and attend any general meeting of the Company or any meeting of any class of shareholders of the Company and to add items to the agenda.


88


14. Interest – Bearing Loan

This note provides information about the contractual terms of the Company’s interest bearing loans and borrowings which are measured at amortised cost. For more information about the Company’s exposure to interest rate, foreign currency and liquidity risk see note 19.

Capital

payment Interest Principal Capital

Payment

Interest Principal

2007 US$’000

2007 US$’000

2007 US$’000

2006 US$’000

2006 US$’00

0

2006 US$’000

Less than 1 year 2,703 1,008 2,703 1,300 298 1,300 More than 1 year 32,597 - 32,597 5,300 - 5,300

35,300 1,008 35,300 6,600 298 6,600

The loans of US$35.3 million comprise $5.3 million, $20 million and $10million payable to Development Bank of South Africa (DBSA); Citibank N.A. London, Citibank Zambia and DEG; and African Life Financial Services respectively. The DBSA loan of US$5.3 million bears interest of LIBOR plus 1.9%. The loan is secured on the COSAK Sub station at Chambishi Metals Plc and will be fully repaid in 2012. The $20 million is made up of three Tranches [A ($4,800,000) / B ($8,914,286) / C ($6,285,714)]. Tranche A Loan bears an interest of LIBOR plus 2.3 %, while Tranches B and C bear interest at LIBOR plus 2.5 %. Tranche A is repayable by December 2012, while Tranches B and C are repayable by December 2014. The US$10 million African Life Financial services loan obtained, during the year bears interest of LIBOR plus 2.5% and will be fully repaid by 2013. The loan has a five year grace period and will be repaid in four semi annual installments.

15. Provisions

2007 US$’000

Balance at 1 January 2007 500 Provisions made in 2007 7,000 Provisions used/released in 2007

(500) At 31 December 2007 7,000


89

Notes to the financial statements for the year ended 31 December 2007 The provision released relates to the actuarial deficit of Mukuba Pension Scheme which was fully paid in 2007. The US$7,000,000 provision made in 2007 relates to disputed tax assessments for the tax years from 1998/99 to 2003/2004. The matter was heard by the Revenue Appeals Tribunal which ruled in the Company’s favour in 2006. However, Zambia Revenue Authority appealed to the High Court against the ruling and the High Court ruled in favour of Zambia Revenue Authority in 2007. CEC has lodged an appeal before the Supreme Court of Zambia. In the event that the Supreme court does not support CEC`s arguments in part or in whole we are of the opinion that a liability from such a judgement may arise from the period following the amendment to Section 46 of the Income Tax Act which came into force on 1st April, 2002 resulting in an increased tax liability of $7,000,000 and a provision for this amount has been made.

16. Deferred Employee Benefits

The company has established a defined contribution pension scheme for its employees, membership of which is compulsory. In addition, the company provides further benefits to its employees based on the salary of each employee on retirement as summarized in Table A below. The company’s obligations, based on overall retirement benefits, are accounted for as a defined benefit scheme.

Date Joined Company

Employee Class Entitlement

Before January, 2004 After January, 2004

Senior Staff Four months salary per each year of service inclusive of portion from Pension scheme. One month per each year of service.

Before January, 2005 After January, 2005

Junior Staff Four months salary per each year of service inclusive of portion from Pension scheme One month per each year of service.


90

Notes to the financial statements for the year ended 31 December 2007 (i) Actuarial Assumptions

An actuarial valuation was carried out for the financial year ended December 2006. Assumptions for the Actuarial Valuation are as below:

Retirement benefit valuation done as per Table A shown above.

Salary increases have assumed at 10%. Investment returns will exceed future inflation by 4% per annum.

Discount rate of 10% has been used on future cash flows.

Mortality is assumed as per actuarial assumptions.

Withdrawals have been put at a rate of 12.5% at age 20 reducing to nil at age 50 and thereafter.

Age Annual Rate

20 12.5% 25 10.0% 30 7.5% 35 7.5% 40 5.0% 45 2.5% 50 0.0% 55 0.0%

Normal Retirement age for the company is 55 years.

16. Deferred Employee Benefits continued

(ii) The amounts recognized in the balance sheet are as follows:

2007 2006 US$’000 US$’000

Present value of unfunded obligation 2,093 2,338 Recognised liability for defined benefit obligation 2,093 2,338 Total Employee Benefits 2,093 2,338


91

Notes to the financial statements for the year ended 31 December 2007 (iii) Movement in the present Value of Retirement /Redundancy Obligation

2007 2006 US$’000 US$’000

Opening Obligations 2,338 2,108 Retirement provisions 14 1,081 Exchange gain/(loss) 275 (535) Benefits paid (534) (316) Closing Obligations 2,093 2,338

(iv) Expense Recognized in the Income Statement

2007

2006

US$’000 US$’000

Current Service Costs 288 546 Interest on obligation - - Expected return on plan assets - -

288 546

17. Trade and other Payables

Current 2007

US$’000 2006

US$’000 Trade creditors 17,831 17,023 Accruals 823 846 Other creditors 1,717 1,150 Social security and PAYE 497 372 20,868 19,391 Non current Long term creditor 4,690 -

4,690

- Total trade and other payables

25,558

19,391

The long term creditor relates to the procurement of upstream transmission assets in Mufulira from Mopani Copper Mines. The loan is interest free and


92

Notes to the financial statements for the year ended 31 December 2007 repayment is based on achieving milestones for the sale of electricity through these assets. In the year under review $145,000 was repaid. At the inception of the agreement, the company recognised an asset and a liability at an amount equal to the fair value of the equipment.

The Company’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 19.

18. Related Party Transactions

On 27 October 2006, Cinergy Zambia BV and National Grid Zambia BV (companies are incorporated in the Netherlands) holding 77% shareholding of the Company, passed resolutions to change their names to Zambian Power BV and Zambian Transmission BV. The two entities were subsequently acquired by Zambia Energy Corporation (Nertherlands) BV. ZCCM-Investments Holdings Plc and individual shareholders continue to own shares in the company.

The following transactions were carried out with related parties:

(i) Purchases of Services

2007 2006 US$’000 US$’000

National Grid Company (commercial support services) - 538 Cinergy Global Power (executive services) - 271

-

1,285

The commercial support services relate to various services undertaken during 2006 by personnel from National Grid Company on behalf of the Company. During the year the Company provided funds to Power Sports Limited, a wholly owned subsidiary amounting to US$nil (2006: US$462,555).


93


(ii) Amounts due to Related Companies 2007 2006

US$’000 US$’000

National Grid Company (commercial support services)

- 209

-

209

(iii) Directors’ Remuneration

A listing of the members of the Board of Directors is included in the Directors’ report.

During the year, Directors received cash remuneration for services rendered to the Company amounting to US$226,391 (2006: US$196,375).

(iv) Executive Management Remunerations

During the year Executive Management Team, excluding directors (shown in (iii) above received cash remunerations amounting to US$1,133,000 (2006: US$999,000).

(v) The Five Zambian Individual Shareholders

Two of the individual shareholders were Directors of the Company during the year, one of whom was an Executive Director. The Company pays salaries and provides other benefits to three of the individual shareholders that are in employment with the Company, inclusive of the Executive Director.

(vi) Zambian Energy Corporation

Two of the Zambian Energy Corporation representatives on the Company’s Board are also Executive Directors. Of the two said Executive Directors one is also an individual shareholder. The


94


Company pays salaries and provides other benefits to the two members that are in employment with the Company.

19. Financial Instruments

Exposure to currency, interest rate, credit and liquidity risk arises in the normal course of the Company’s business.

(I) Credit risk

Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

Carrying amount Note 2007 2006 US$’000 US$’000

Trade and other receivables 9 11

16,372 14,633

Cash and cash equivalents 12 23,198 1,614

39,570 16,247

The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:

Carrying amount

2007 2006 US$’000 US$’000

Domestic DRC

13,147 292

12,042 196

13,439 12,238


95

Notes to the financial statements for the year ended 31 December 2007 19. Financial Instruments (continued)

The Company’s most significant customer, Mopani Copper Mines accounts for US$4,451,826 of the trade receivables carrying amount at 31 December 2007 (2006: US$3,975,985)

(ii) Impairment losses

The aging of trade receivables at the reporting date was:

2007 2007 2006 2006

US$’000 US$’000 US$’000 US$’000

Gross amount impairment Gross

amount

impairment

0-21 12,798 - 12,097 -

22-45 525 - 118 -

46-59 110 - 20 -

Over 60 2,184 2,184 1,107 1,107

Total 15,617 2,184 13,342 1,107

The movement in the allowance for impairment in respect of trade receivables during the year was as follows:

2007 2006 US$’000 US$’000

Balance at 1 January 1,107 - Impairment loss recognised Impairment reversed

1,077 -

1,107 -

Balance at 31 December 2,184 1,107

The collectibility of receivables is assessed at the balance sheet date and specific allowances are made for any doubtful receivables based on a review of all outstanding amounts at year end. Bad debts are written off during the year in which they are identified.


96


(iii) Liquidity risk

The following are the contractual maturities of financial liabilities

31 December 2007

Carrying

Amount

Contractual

cash flows

Within

1 year

1 to 2

Years

2 to 5

years

Longer

than 5

Years

US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

Non-derivative

Financial liabilities

Loans

Trade payables

35,300

22,521

35,300

22,521

2,703

17,831

5,406

4,690

5,406

- -

21,785

-

-

Other payables 3,037 3,037 3,037 - - -

Bank overdraft 5,736 5,736 5,736 - - -

Derivative Financial

liabilities

Foreign exchange

Contract

-

-

-

-

-

-

Total

66,594

66,594

29,307

10,096

5,406

21,785

(iii) Liquidity risk (continued)

US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

Non-derivative


Loans 6,600 6,600 1,300 867 2,601 1,832

Trade payables 17,023 17,023 17,02

3

- - -


97

Other payables 2,368 2,368 2,368 - - -

Bank overdraft 1,562 1,562 1,562 - - -

Derivative


Foreign Exchange

Contract

-

-

-

-

-

-

Total 27,553 27,553 22,253 867 2,601 1,832

(iv) Currency risk Exposure to currency risk

The Company’s exposure to foreign currency risk was as follows based on notional amounts:

31 December 2007

US$’000

Trade receivables -

Other receivables 2,939

Cash and cash equivalent

Loans

1,029

-

Trade payables -

Other payables (3,037)

Bank overdraft -

Balance sheet exposure

Net exposure

931


98

19. Financial Instruments (continued)

(iv) Currency risk (continued)

31 December 2006

ZMK

US$’000

Trade receivables

Other receivables 2,398

Cash and cash equivalent

Loans

249

-

Trade payables (94)

Other payables (2,368)

Bank overdraft -

Balance sheet exposure

Net exposure 186

The following significant exchange rates applied during the year:

Average rate

2007

ZMK

2006

ZMK

USD1 4,004 3,602

(iv) Fair values

Fair values versus carrying amounts

The fair values of financial assets and liabilities, together with carrying amounts shown in the balance sheet, are as follows:


99


31 December 2007 At fair value through

profit & loss

Designated

On initial

recognition

Classified

as

Held for

trading

Held – to

–

Maturity

investme

nts

Loans and

receivables

Fair value

For Each

class

US$’000 US$’000 US$’000 US$’000 US$’000

Financial assets

Receivables - - - 15,617 13,433

Other receivables - - - 2,955 2,933

Cash & cash Equivalent - - - 23,198 23,198

Total financial Assets - - - 41,770 39,564


Loans

Trade Payables

-

-

-

-

-

-

(35,300)

(22,521)

(35,300)

(22,521)

Other payables (3,037) (3,037)

Bank overdraft - - - (5,736) (5,736)

Total financial Liabilities - - - (66,594) (66,594)

Total - - - (24,824) (27,024)


100

Notes to the financial statements for the year ended 31 December 2007 19. Financial Instruments (continued)

31 December 2006 At fair value through

profit & loss

Designated

On initial

recognition

Classified as

Held for

trading

Held – to –

Maturity

investment

s

Loans and

receivables

Fair value for

Each class

US$’000 US$’000 US$’000 US$’000 US$’000

Financial assets

Trade receivables - - - 13,342 12,235

Other receivables - - - 2,416 2,394

Cash & cash

Equivalent

-

-

-

1,614

1,614

Total financial assets - - - 17,372 16,243


Loans

Trade Payables

- - - (6,600)

(17,023)

(6,600)

(17,023)

Other payables (2,368) (2,368)

Bank overdraft - - - (1,562) (1,562)

Total financial

Liabilities

-

-

-

(27,553)

(27,553)

Total (10,181) (11,306)


101

Notes to the financial statements for the year ended 31 December 2007 20. Capital commitments

Capital commitments authorised and contracted for by the directors as at 31 December 2007 amounted to US$1,559,000 (2006:US$349,000). And capital expenditure authorized but not contracted for was nil (2006: nil)

21. Earnings per share

The calculation of earnings per share is based on:-

• Retained profitfor the year attributable to ordinary shareholders; and

• Number of ordinary shares outstanding during the year.

2007 2006

US$’000 US$’000

Retained profit for the year attributed to ordinary

shareholders 7,251 7,915

Number of ordinary shares 1,000,000 1,000,000

The company has no additional potential shares

outstanding.

Diluted earnings per share

The calculations of diluted earnings per share was based on

the profit attributable to ordinary shareholders of US$7,251K (2006:US$7,915K) and a weighted average number of ordinary shares.

The denominator used in the calculation for Basic Earnings per

Share (EPS) is 1,000,000,000 for both 2007 and 2006. For the year 2006 , this is a retrospective adjustment as a result of share split from 10,000,000 to 1,000,000,000 by special resolution on 10th October,2007.

22. Events subsequent to balance sheet


102

On 21st January 2008 Copperbelt Energy Corporation Plc was listed on the Lusaka Stock Exchange. On 20th February,2008 a total of US$8,000,000 interim dividend was declared for the year ended 31st December 2008.

23. Contingent liabilities

There were no contingent liabilities at 31 December 2007 (2006: CEC had appealed against the ruling in favor of Zambia Revenue Authority in the disputed tax assessment case).