Magande to scrap Development Agreements in 2008?

The Zambian Government claimed today that negotiations with multinational copper mining companies are making significant progress and should be completed in 2008. A resolution of the long-running row may involve a comprehensive deal covering not only the question of mineral royalties but also the wider fiscal and regulatory environment in which the companies operate. A complete reworking of these deals could even result in the scrapping of Development Agreements, such that the companies are brought fully within the Zambian legal framework.

The Times of Zambia (a state-sponsored paper) reports today that Finance Minister Magande has announced a new tax regime will be contained in his 2008 national budget statement. Public pressure and opposition party criticism about the speed of the process, the scope of the talks, and the composition of the negotiating team all appear to have had an impact.

The Times reports that Magande:

• Emphasised that the team was wholly composed of Zambian top civil servants, rather than being out-sourced to international consultants. This directly contradicts a report of 24 October 2007 when The Times reported, “Government has established a team of seven international mining experts and senior Government officials to study how best the negotiations of development agreements with the mining sector can be done, Finance and National Planning Minister, Ng'andu Magande has said.” Given the disastrous role of foreign advisors in the original privatisation negotiations, that announcement brought strong criticism inside and outside parliament.
• Confirmed that the discussion will go well beyond just mineral royalties, to consider the wider tax regime within which the companies operate. This would be a significant victory for campaigners since both companies and the Government have in the recent past said the only thing on the table was the level of mineral royalties paid. Mineral royalties are just amongst a range of taxes paid, and evaded, by the companies.
• Suggested that it is not just finance that is under discussion, but the wider regulatory environment in which the companies operate that needs to be considered.This is a major breakthrough and could mean that the core demands of the 'For Whom the Windfalls?' report are on the table. The report noted, "The Government seems to believe that the local population will come on board if the companies pay a little more tax and engage in a few more charitable activities. No doubt both of these things should happen, and probably will as government and companies attempt to respond to the 2006 election. However, evidence gathered for this report suggests that well-founded popular complaints about the mining industry are based on bread and butter issues: poverty wages, insecure terms and conditions, resistance to the legal right of trade unions to organise, inadequate support for retrenched and retired workers and a failure of attention to safety measures and environmental protection by the mining companies. The companies have shown little interest in solving these problems since each of them results from purposeful cost-cutting policies undertaken to maximise profits and dividends to shareholders. This implies that, alongside collecting more tax and encouraging more corporate social responsibility, the Government may need to break free of an obsession with ‘investor-friendly policies’ and use their regulatory and legal powers to prioritise the need and rights of workers and communities."

Magande is quoted as saying that the team involved have discovered that the Zambian fiscal regime had the lowest effective tax rate in the mining sector in the world with a total of 31.8 per cent followed by Peru with 39.7 per cent. "Through this work that the team has undertaken, it has become apparent that there is need for further reform for both the fiscal and regulatory regime if the people of Zambia have to equitably benefit from their natural resources… I can comfortably state that a lot of work has already been done by the team towards developing an optimal fiscal and regulatory regime for the sector. I should therefore be able to give a comprehensive statement in the 2008 budget address on the outcome of the work of the team," he said.

Magande also recognised that a comprehensive new deal on these topics might render the current and future development agreements irrelevant - presumably meaning that the kind of exemptions to national laws contained in the Development Agreements - exemptions that breach the OECD convention on investment - might be permanently rescinded so that the companies find themselves operating at last, under laws and standards established by the sovereign parliament of Zambia.

Hooray! Am I missing something in the small print? Does anyone know when the 2008 budget address might occur? Comments welcome.

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