Stiffer Environmental and Safety Rules in the pipeline

It really must be a miserable time to be a manager at Mopani Copper Mines (MCM). On Friday the company found out its long-running tax holiday was to be curtailed. Yesterday a Minister raised the politically sensitive issue of delays in pension payments, placing blame that Mopani would dearly love to shift elsewhere squarely on the doorstep of the mining house. Today, The Times of Zambia report that the Environmental Council of Zambia has charged and fined MCM's mine manager and three other employees in relation to the pollution of Mufulira water system on January 2 this year.The company polluted the water supply system affecting 800 Mufulira residents who were attended to at Ronald Ross and Malcom Watson Hospitals. Mines and mineral development minister Kalombo Mwansa also announced that Government would be introducing tougher legislation to regulate both environmental and health and safety standards in the mining sector and to impose stiffer penalites on failing companies.

Dr Mwansa said the Mine Health and Safety Policy which would provide strict safety guidelines was being formulated while the Mines Safety Department was also being strengthened. In response to Chasefu Member of Parliament (MP) Chifumu Banda (FDD) who wanted to know if the Mufulira victims would be compensated, he said the victims were free to take any action they wanted although Government wanted to stiffen punishment.

All in all, I find these developments incredibly encouraging. In the 'For Whom the Windfalls?' report I predicted that Government would press the companies for more social responsibility and would re-negotiate tax arrangements. I wouldn't have predicted the tax measures would be imposed in the way that they have been. But I also suggested that local resentments against the mining firms related as much to failures of responsibility and regulation on environmental, safety and labour issues. We now hear talk of reforms and increased regultory capacity in two out of three of these areas (environment and safety) and the ECZ does appear significantly energised in recent months. We have also seen interssting Government action in relation to local supply chains. Of course delivery of new regulations will be key, and is massively overdue. Minewatchers will want to keep an eye on these proposals. Campaigners might like to remind the Minister of his commitments if the reforms are not forthcoming. And labour campaigners need to work out how to get their serious grievances onto the Governments agenda while the issue remains hot.

In other news, The Post report that FDD vice-president Chifumu Banda yesterday commended the government for the windfall tax. Banda said it was unacceptable that Zambian minerals should be enriching foreigners while 80 per cent of Zambians continued to suffer from poverty, economic exploitation and social degradation. "As FDD, we believe in joint ventures where the government of Zambia must hold not less than 50 per cent shares in any mining or any business venture of such magnitude," said Banda.

More responses to budget

The Post yesterday provided more responses to the budget, including from influential civil society activist Father Peter Henriot, Executive Director of the Jesuit Centre for Theological Reflection (JCTR) who was speaking at post budget analysis organised by the Economics Association of Zambia (EAZ) on Friday.

As discussed in a previous post there has been a dramatic shift over the past fifteen years in the burden of taxation in Zambia moving from companies to individuals. One of the themes of the budget was that the increase in taxes from the mining sector should decrease the burden of personal taxes, and thus start to reverse this process. The budget increased the PAYE threshold for non taxation from a monthly salary of K500, 000 to K600, 000 and decreased VAT from 17.5% to 16%.

While Fr Henriot welcomed the announcements on mining, he also said the adjustments in Pay-As-You-Earn (PAYE) and Value Added Tax (VAT) were not adequate to significantly reduce the high levels of poverty in Zambia.

"I think we have to ask if that is really significant in terms of addressing the needs of the people,” Henriot said. “The JCTR does the basic needs basket and in Lusaka food alone, not extravagant but just basic needs of food, for a family of six are K569, 000... Surely people who get a little bit above K600, 000 or K700, 000 still haven’t met the basic needs basic which include, not just food but also lodging electricity, water and a lot other things. It’s now K1.6 million per month,” Fr Henriot said. “Surely there might be a possibility that the PAYE adjustment is not adequate enough to adjust the question of poverty... let the government continue listening and VAT has to drop even lower.”

“We don’t have clarifications how much of the US $ 415 million will come in this year? For what will it be used, for infrastructure, for social services or agriculture or some special fund? We need to know more about that,” he said.

“It’s true we need to deal with pensions that have not been paid but to say the K577 billion will be spent on social protection when K435 billion of that goes just to paying off arrears it leaves only K141 billion, a minimal amount, to deal with social protection,” Fr Henriot said.

However, Zambia Business Forum (ZBF) past vice president Phillip Chilomo said he was worried because the government was not ‘willing’ to renegotiate the mining development agreements. “The mining industry has always been ready to negotiate with the government because the windfall gains which have come out of the mines nobody anticipated them,” he said. “We are appealing to the government that whatever happens, we need to ensure that the return on investment is satisfactory so that we don’t see another exodus of investors in the mining sector.”

Meanwhile, the World Bank, who one might have expected to object to the non-negotiated nature of the reforms seem to have decided to take it on the chin, and offer further donor endorsements of the budget in an interview with the UK Guardian

World Bank country manager for Zambia, Kapil Kapoor tells the paper, "The new mining fiscal regime makes taxes more equitable as it places Zambia in the middle point of (global mining taxation)... The resources will help the exchange rate although it will make non-traditional exports non-competitive. It therefore requires ways of how to manage exports like cotton and tobacco." Kapoor said the government should now come up with a proper structure for managing the extra revenue to better benefit Zambians. "This is a good opportunity for Zambia to invest in rural infrastructure development," he said.

The Guardian also notes that Mwilola Imakando, the head of the Economics Association of Zambia, a Lusaka think-tank, said the new taxes would create mutual benefits for investors and Zambians.

Mopani still hasn't paid up on pensions

The Times of Zambia reports today that Mines and Minerals Development deputy minister Bornface Nkhata yesterday told Parliament that Mopani Copper Mines (MCM) still has an outstanding financial obligation of K7.9 billion to Mukuba Pension Scheme. The failure of privatised mining companies to honour the pension responsibilities for former employees of the state-owned firm has been a topic of massive anger and controversy on the Copperbelt. Tensions over land and squatting of mine land for farming are explained at least in part by the poverty of pensioners and those laid off from their previous jobs in the mines.

Mr Nkhata said the financial obligation arose from an actuarial funding deficit covering the five years period from March 2000 to September 2005.

He said this when responding to a question by Kankoyo MP Percy Chanda (PF) who wanted to know when MCM would remit pensioners' contributions to the Mukuba pension scheme, and when Mukuba would in turn pay the pensioners. Mr Chanda also wanted to know who would pay the interest on pensions once finally paid. Mr Nkhata explained that although Mukuba Pensions Scheme and MCM have held discussion over the issue, the two parties have not resolved the actuarial funding to pay MCM employees their full pension.

As a result, the pensioners have commenced court proceedings against MCM for non-payment of their benefits. In turn, MCM has also instituted court proceeding against Mukuba Pension Scheme because they have raised a dispute on the actuarial deficit to be paid to Mukuba. Mines and Minerals Development minister Kalombo Mwansa said he did not want to start explaining the position of former Roan Antelope Mining Corporation (RAMCOZ) pensioners, as that would require the ministry researching.Dr Mwansa was responding to a supplementary question by Roan MP Chishimba Kambwili (PF) who wanted to know the position of former RAMCOZ employees.

Equinox still hope they're special

The Times of Zambia reports that Equinox Mineral's Lumwana Mining Company (LMC) is seeking clarification from the Government on whether changes to the mining fiscal and regulatory regime in the 2008 Budget will affect the development agreement signed two years ago. Lumwana managing director, Harry Michael told the Times, "If the development agreement is intact, then we can continue with our obligations". Mr Michael said Lumwana and the 12 international banking institutions lending to the US $762 million project were doing separate internal financial revaluations on the changes. He said with shareholders having used up their money, the project was now depending on the international banks, which were spending $1.5 million per day.

The original 'For Whom The Windfalls?' report did not discuss the situation at Lumwana because it is a greenfield development rather than a result of the privatisation of previous state assets. Do readers think they have any case for special treatment?

Donors Respond Positively to Budget

I wrote a couple of days ago, wondering if the World Bank was lining up to criticise Zambia's newly announced reforms to its mining taxes. However, in their public responses to the budget, the Bank and a number of other aid donors appear broadly positive. "Overall, the budget is good," according to the Bank

The Post reports a number of comments on the recent budget from Zambia’s major donors: the EU, the US, UK and the World Bank, none of which questioned the new tax regime for mining. The EU Head of Delegation challenged the reduction in VAT, US representatives praised the focus on social spending, while the British Ambassador appeared relieved Magande wished to continue the co-operative relationship with aid donors and World Bank country manager Dr Kapil Kapoor advised the government to ensure that revenue proceeds from windfall mining taxes are spent on projects that will benefit poor people. “Overall, the budget is good, especially that key sectors such as health and education have been prioritised, but what remains is to grow the economy and sustain it and also implementation of major projects is a positive development,” said Dr Kapoor. “But it is not clear how revenue proceeds from windfall mining taxes will be utilised and we advise the government to ensure that funds are spent on projects that will benefit poor people who are in the majority.”

We did however, also see the first negative response to the developments from the Chamber of Mines, which represents the major mining houses. Business Day reported Fred Bantubonse, spokesperson voicing concern about the changes. “If you tear up a contract today, what value has the new one got?”

In an interesting, detailed and highly critical editorial on both the general budget process and it contents, The Post still finds, “The good news is that the mines are now going to be taxed in a variety of areas and in a manner that brings substantial revenue.” The paper enters an important caveat: “in public interest it would be good if the Minister of Finance could also give us the downside - what if the price of copper is below $2.50/lb? What would be the projected revenue for the government?”

BREAKING NEWS - BUDGET ADDRESS

Edited version below of the whole thing which can be downloaded from : http://www.postzambia.com/post-read_article.php?articleId=36730

So, what do readers make of it? I look forward to the debate.

__BUDGET ADDRESS BY THE HON. NG’ANDU P. MAGANDE, MP
MINISTER OF FINANCE AND NATIONAL PLANNING
DELIVERED TO THE NATIONAL ASSEMBLY ON 25TH JANUARY 2008__

1. Mr. Speaker, I beg to move that the House do now resolve into Committee of Supply on the Estimates of Revenue and Expenditure for the year 1st January 2008 to 31st December 2008, presented to the National Assembly in January 2008....

MINING

81. Mr. Speaker, investment in the mining sector, on the back of the high global commodity prices, has been an important engine of economic growth for Zambia. This investment has involved not only the establishment of new mines but has also attracted additional investments in mineral exploration, with very promising results.

82. Sir, in 2008, the role of the Government in the mining sector will continue to be that of providing an enabling environment for private sector led investment. In this regard, as announced by His Excellency the President during the opening of the 2nd Session of the 10th National Assembly, the Government will be introducing a new fiscal and regulatory framework for the mining sector.

83. Mr. Speaker, the mining sector under this framework will begin to adequately contribute to the advancement and the social and economic welfare of the people of Zambia. At the same time, the new regime will secure an appropriate return on investment by mining companies. The additional revenues arising from the new mining tax regime will be set aside and a clear and transparent mechanism for their utilisation will be established.

84. Sir, the proposed framework will also ensure transparency in the accounting and utilisation of mineral revenues and also protect the rights of all those investing in the mining sector.

85. Sir, another major policy intervention in 2008 will be to review the Petroleum (Exploration and Production) Act of 1985. Recent developments in this area have highlighted the inadequacy of this legislation in securing our national interests in the sector. The objective is to lay the groundwork for the eventual prospecting and production of oil.

...

DIRECT TAXES

121. Mr Speaker, there has been an understandable concern that the tax burden is high. As a responsible Government, we are mindful of the burden of taxation on our workers especially those in the lower income groups. In order to reduce the tax burden, I propose to revise the Pay-As-You-Earn by increasing the non-taxable monthly threshold income from K500,000 to K600,000. The following is the proposed Pay-As-You-Earn regime:

122. Sir, this measure will give tax relief to workers in formal employment earning below K4,535,000 per month. The measure will result in a revenue loss of K64.8 billion, which will go in the pockets of the workers.

123. Mr. Speaker, currently, the interest paid on mortgage for residential property is not tax deductible. The Government fully recognises the aspiration of most families to construct or purchase their own houses. I, therefore, propose to allow mortgage interest to be deductible for tax purposes to any Zambian individual who obtains a mortgage for residential property. It is envisaged that this concession will encourage home ownership.

124. Mr. Speaker, I also propose to increase the low cost housing unit capital expenditure limit for tax purposes from K2 million and K10 million to K20 million. This is meant to encourage employers to build decent housing units for their employees, particularly, in the agriculture sector. This measure will have a minimal revenue loss.

125. Mr. Speaker, in an effort to encourage savings and streamline the collection of withholding tax on interest earned on savings and deposit accounts, I propose to reduce the withholding tax rate applicable from 25 percent to 15 percent. I also propose to abolish the exempt portion of the interest, which is not subject to withholding tax. This measure has minimal revenue impact.

126. Mr, Speaker, last year, this august House approved the proposal to increase the tax credit applicable to persons who are differently-abled from K36,000 per annum to K144,000 per annum. The Government believes that this increase was insufficient. I, therefore, propose an additional increase so that the threshold will now be K600,000 per annum.

127. Sir, I further propose to increase the allowable deduction for any employer who employs a differently-abled person from K500,000 per annum to K1,000,000 per annum for each such person employed. There will be minimal revenue loss as a result of this measure.

128. Mr. Speaker, all the above measures will take effect on 1st April, 2008.

...

CHANGES TO THE MINING FISCAL AND REGULATORY REGIME

144. Mr. Speaker, in my 2007 Budget Address to this august House, I proposed new tax measures for the mining sector. I also informed the nation that the Government would engage mining companies, with whom we had signed Development Agreements, as part of the process of introducing the new tax regime for the mining sector.

145. Sir, given the complexity of the mining sector, a team of experts was appointed to study this matter in great detail. The findings of the study show that:
(a) the Development Agreements in their current form are lopsided; and
(b) even if mining companies were to move to the 2007 tax regime, the country would still not get a fair share from its mineral resources.

146. Sir, the Government has, therefore, decided to introduce a new fiscal and regulatory regime in order to bring about an equitable distribution of the mineral wealth between the Government and the mining companies.

147. Mr. Speaker, effective 1st April 2008, the new fiscal regime for the mining sector will include the following:
(a) The corporate tax rate will be 30 percent;
(b) Mineral royalty rate on base metals will be 3 percent of gross value;
(c) Withholding tax on interest, royalties, management fees and payments to affiliates or subcontractors in the mining sector will be at the rate of 15 percent;
(d) Withholding tax on dividend will be at zero percent;
(e) A variable profit tax of up to 15 percent on taxable income, which is above 8 percent of the gross income, will be introduced;
(f) A windfall tax will be introduced to be triggered at different price levels for different base metals. For copper, the windfall tax shall be 25 percent at the copper price of US $2.50 per pound but below US $3.00 per pound, 50 percent at price for the next 50 cents increase in price and 75 percent for price above US $3.50 per pound;
(g) Hedging as a risk management mechanism shall be treated as a separate activity from mining;
(h) Capital allowance, that is a depreciation of capital equipment, shall be reduced from 100 percent to 25 percent per year;
(i) A reference price, which shall be the deemed arms length price, shall be introduced for the purposes of assessing mineral royalties and any transaction for the sale of base metals, gemstones or precious metals between related or associated parties. The reference price shall be the price tenable at the London Metal Exchange, metal Bulletin or any other commodity exchange market recognised by the Commissioner General; and
(j) Capital expenditures on new projects shall be ring fenced and only become deductible when the projects start production.

148. Mr. Speaker, the new mining regulatory framework will be provided for in the Mines and Minerals Act. The framework will also have a modern licensing system based on transparent procedures.

149. Sir, these measures are competitive, reasonable and balanced. The expected additional revenues, in 2008, as a result of these new measures are estimated at US $415 million.
...

Resistance to windfall taxes - is the World Bank joining in?

I blogged on Tuesday about a Post newspaper business editorial responding to concerns raised by the Zambia Association of Chambers of Commerce and Industry (ZACCI) that breaking mine companies contracts would create 'anxiety' amongts investors. I suggested that the ZACCI line was part of a campaign against the Government's announcement that it will impose a new, fairer tax regime on the mines, and that campaigners should pressure the big mine companies to speak up and recognise the right of the sovereign Zambian Parliament to enact an improved tax regime, and to state that they will neither initiate any legal action in response nor withdraw any investment.

Today in the depths of The Post website I stumbled across the original article to which that editorial was a response. Published on Tuesday, the article, 'Windfall profit tax on mines will cause anxiety' includes concerns expressed by a wide-range of organisations and individuals. Here are some of them:

• As reported, the ZACCI chief executive officer Justin Chisulo said windfall taxes would create 'anxiety'.

• Equinox Minerals president Craig Williams has asked the government to grant them an opportunity to study details of the windfall taxes before they are presented to parliament.Equinox last week made an announcement that US $300 million has been lost in shares following the announcement of windfall taxes. Lumwana clearly sees itslef as a aspecial case, having not taken on a previously state-owned mine. Williams noted that Lumwana was among the major green fields development in Zambia since independence and required the largest capital investment in the nation’s history. Williams stated that Lumwana Mining Company was, in addition to the mines, building Zambia’s first modern town in a generation with over 1000 houses and state-of-the-art facilities in an area that was undeveloped land with no infrastructure or services. “These houses will be provided to our employees under a home ownership scheme so that they are empowered to own the land and house in which they live,” stated Williams."Needless to say, the company is investing on average US$1.5 million per day in Lumwana (about K6 billion) and is still several months away from producing its first pound of copper and has clearly not enjoyed any windfall profits,” stated Williams in response to a press query. “In fact to build Lumwana it has taken a debt of US$584 million, the largest debt finance for a minerals project in African history that will take nine years to repay (completed by 2018).”
• Luanshya chief executive officer Derek Webbstock said, “We accept the President’s announcement since we are not here for confrontation or to argue with government, but it is a pity that we were not consulted before hence the need to take a balanced view but we are ready to discuss the matter. It is understandable the mines are doing reasonably well,” said Webbstock.
• First Quantum Minerals president Clive Newall and Kansanshi Mines general manager Russell Alley refused to comment
  
• Economics Association of Zambia national secretary Chibamba Kanyama said the mining companies actually called for this decision from the government because they did not want to voluntarily renegotiate the agreements when the calls for higher taxes started last year

None of the is particulrly surprising. However, by far the most interesting and detailed comments are attributed to Robert Liebenthal who is described as a "former World Bank advisor for Africa". I have been trying to work out what Mr Liebenthal's current position is. He appears to have been working and publishing under the World Bank banner at least in 2007. Any information from detective-minded readers is welcome. Suffice to say, if these comments are in any sense attributable to the World Bank, I would consider them profoundly scandalous. They speak for themselves, and I quote them at length.

Mr Liebanthal is quoted as arguing that the government should make it clear if the revised tax regime for the mines was negotiated or not. And Liebenthal, in an interview, said mining companies could delay or even challenge the implementation of new taxes as the previous tax regime was entrenched in binding legal agreements. “This is why it’s important to know whether the changes were negotiated or not. Since the previous tax regime was entrenched in binding legal agreements, the mining companies may have the right to challenge these new taxes in court. Such challenges could at least delay the application of the new taxes,” Liebenthal said. “The mining companies may have the right to challenge these new taxes in court and such challenges could at least delay the application of the new taxes.” He also said it was important that the new mining regime goes beyond the changes in taxes and also incorporates all developments in the sector. “The companies might also slow down or stop new investment, including investment they were considering outside the mining sector; for example in the power sector, where there were reports that they were considering investing in the Kafue project. We need to see the whole picture, not just the taxes,” he said. Liebenthal further challenged the government to state the criteria used to come up with new mining fiscal and regulatory regime in the mining sector which would see Zambia increasing its tax from the current 31.7 per cent to 47 per cent. “It is also important that government informs us on how they arrived at these taxes. Has it resulted from the negotiations with the mining companies on the existing agreements, or did government decide it unilaterally? What account does it take of the companies needs to finance new investment and service their debt? Remember that the mining companies are also investing heavily in new capacity, and some of that money will have come from profits,” said Liebenthal.

D-Day -1: today's budget is Magande's biggest test

After the long phoney war over the taxation of Zambia's mining industry, we will finally find out tomorrow exactly how the Zambian Government intends to raise money from the exploitation of the nation's mineral resources, and how it intends to spend what it raises.

How to raise it?
Finance Minister Magande will put the meat on the bones of the President's speech that opened the session of tbe National Assembly, which included the shock announcement that the Government had given up on seeking a negotiated solution with the mining copmpnaies and would over-ride their Development Agreements, imposing new profit and windfall taxes.
The Lusaka Times suggests "Government has so far cheered a cross section of society that had over the years called on the New Deal Government to review taxes in the mining sector. Mr. Magande is expected to spell out new taxes in the sector following the conclusion of work by the mining negotiating team appointed to review and recommend taxes to be introduced."

How to spend it?
In line with calls made by Peter Sinkamba of Citizens for a Better Environment, The Lusaka Times reports that the opposition UPND has proposed the government plough back in communities where monies are operating, at least 5 percent of mineral royalties and 10 percent of windfall tax.

In an article in The Post, leading civl society activists put forward their positions:

• Federation of Free Trade Unions of Zambia (FFTUZ) president Joyce Nonde has said, “We want a budget that will translate the belief that the economy is doing well... We don’t want a budget that lets others go scot-free. It must touch all sectors of the economy; workers have been overburdened with high taxes for too long.” Nonde said workers were expecting the government to review tax measures to encourage them to save and invest in productive ventures. “We are expecting that the finance minister will reduce Value Added Tax (VAT) from the current 17.5 per cent to 14 per cent, relief on Pay As You Earn (PAYE) such that tax on the highest paid bracket will be reduced from 36.5 per cent to 30 per cent, on educational allowances and increasing the tax exempt threshold from the current K500,000 to K1,500,000... We also hope the government will reduce the 15 per cent withholding tax on rented houses to 10 per cent because resulting from the high withholding tax on rented houses, our members are complaining that has translated in high house rentals.” She also said she was expecting the government to allocate more funds to paying off the debt that it owes to pensions funds in workers’ contributions. “Government should pay the funds they owe NAPSA and other pensions bodies,” said Nonde. “Also if the minister can put a deliberate measure that if retirement packages for public service workers are not paid to pensioners within a year then their pension should be tax free because what happens is that many pensioners are paid late when their packages would have lost their value, in the meantime the government has been using their money.”
• Civil Society for Poverty Reduction acting executive director Ivy Mutwale said the expected increase from mining revenues should reflect in lessening the burden of taxation on the few people in the formal sector.And Mutwale said additional resources from the mines should reflect in the planning of poverty reduction programmes. She also said the 2008 budget was expected to reflect a correlation of the kwacha stability to poverty reduction. “The growing strength of the kwacha has not translated into meaningful tangible benefits for the ordinary Zambians,” she said. She said infrastructure development was to be backed by a realistic budget, otherwise it would be meaningless to build infrastructure and employ teachers and health personnel but fail to provide sufficient resources for them to deliver quality services.
• Millenium Development Goals Zambia campaign manager Dennis Nyati said the organisation expects to see a lot of money being allocated to the social sector and wants to see creation of employment among the youths. Nyati said he would want to see parliamentarians support President Levy Mwanawasa’s decision to increase mineral taxation because it would help in allocating more funds to the social sector.
  

MCM workers get 15% rise as accidents highlight risks

The Post reports that workers at Mopani Copper Mines have secured a 15% wage increase in negotiations led by the Mineworkers Union of Zambia. The dangerous nature of much of the work carried out in Zambia's mines was highlighted by another terrible accident at the plant, with two workers fighting for their lives in a local hospital.

Reuters report that the District Commissioner commented that the rate of accidents at Mopani was 'alarming' and said management needed to improve safety standards. "This accident comes barely a few days after an incident where a mine worker was suffocated by gas and he is also still in hospital and the contamination of water by the same company."

Will the big mining companies accept windfall taxes?

An editorial in the Business Section of The Post (www.postzambia.com/?articleId=36566) today challenges Zambia Association of Chambers of Commerce and Industry (ZACCI) chief executive officer Justin Chisulo's pronouncement, that windfall taxes will create anxiety.

The editorial responds, "There is no need for anxiety at all because the government has the right to impose windfall taxes to any industry making super profits as they deem fit. Windfall taxes are not a new phenomenon because governments all over the world do it.... Copper boom won’t last forever and history has taught us that, hence the need for Zambians to benefit from their national resources because minerals once mined cannot be replaced. All well-meaning persons should support the windfall tax."

What seems to me to be going on here is a stealthy campaign against the Government's announcement that it will impose a new, fairer tax regime on the mines. As we know from the interviews with mining executives for the 'For Whom the Windfalls?' report, fifteen months ago most were unsurprisingly resistant to proposals for the renegotiation of their 'Development Agreements', claiming that the stability clauses contained in those deals put their 'tax incentives' beyond the reach of the Zambian Government or Parliament, and were protected by 'legally binding contracts'. Some, such as Derek Webbstck at Luanshya Mining Company, had a sense of the political realities in Zambia and recognised that the companies had got an absurdly good deal, that the people and Government of Zambia would rightly want to revisit the terms of those original contracts since they did not envisage the dramatic shifts in world copper prices that followed.

Since the President annouced a new tax regime, including 'windfall taxes' so far as I know, neither the Chamber of Mines nor the big two mining companies, MCM and KCM, nor the international mining companies that own them, Glencore and Vedanta, have responded, other than to say, 'we are assessing the proposals'. Initially, this position seemed to reflect wishful thinking, and various mining executives and business friendly journalists were wheeled out to try out some alternative interpretations of the speech:
- maybe the President didn't mean a new tax (which would immediately breach the terms of the stability clauses),
- maybe the taxes would only apply to new investors,
- maybe this was just a shot across the bows of the investors and designed to pressure them in ongoing negotiations over each individual Development Agreement.

However, on Saturday we found out from the Deputy Finance Minister that the new tax regime will certainly be imposed, not negotiated. The Minister said that Government found that they were making no progress in trying to negotiate with the companies and decided to impose a solution, which will be announced along with the national budget.

The silence of the major investors has left smaller companies to do all the responding:
- Webbstock and LCM have again made politically intelligent noises, effectively saying: yes, we understand why the Government needs to do this, we look forward to working with them on the detail.
- On the other hand, Cancdian based representatives of Equinox (owners of Lumwana) initially said 'we'll sue if they try anything, before loacl managers were forced to quickly back off.

Still, however, the collective representatives of the mining companies, the Chamber of Mines, and the big companies themselves are all keeping quiet and letting the media run an 'anxious' legal action/investor confidence spin for them, effectively trying to hold the Government to ransom by hinting at legal action or the withdrawal of investments.

Well, I think it's time the big companies were challenged by public pressure to speak up and to recgonise:
- The Zambian people have made their views clear.
- The Zambian Government have listened to the people and have signalled their intentions to act.
- The companies rely on the goodwill of the Zambian people and Government for their license to operate, and recognise the right of the sovereign Zambian Parliament to enact an improved tax regime.
- They should state that they will not initiate any legal action, and should annouce their commitment to staying in Zambia for the long term.

When will Vedanta and Glencore find their voices?

Guest blog: KCM 2008 - Will the Zambian People be Plundered Again?

Commentary received from Jean-Luc CHAILLAN, Chairman of an association of shareholders of ZCI and ZCCM. (www.zcdefense.com)

+++

The capital of KCM (Konkola Copper Mines) is divided between various owners as follows:
-51% VEDANTA, an Indian corporation
-28.4% ZCI (Zambia Copper Investment), a legal entity from Bermuda
-20.6 % ZCCM-IH (88% of which is owned by the Z government)

The Indian corporation VEDANTA bought 51% of KCM stock in November for a mere US$48m. Back then, this sale came under fire and was described as an outrageous pillaging of Zambian resources.

VEDANTA currently holds a call option on the 28.4 % of KCM still owned by ZCI. On Thursday, January 17, 2008, Rothschild banking, who had to assess its value as it stood in August 2005 (although the evaluation came out in 2008) came up with the figure of US$213.85m for the above mentioned 28.4%, thus evaluatingKCM at US$750m. Vedanta can either accept or refuse to go on with the call, but ZCI cannot refuse to sell.

Why call this a new plunder committed against the people of Zambia? At first sight, it might seem irrelevant to evoke Zambians since ZCI is based in Bermuda. In addition, most journalists and politicians in Zambia routinely refer to ZCI as exclusively foreign interests. In 2003, the Anglo-American Company owned half of ZCI when it decided to part with ZCM. At that point, it transferred its stock to a Zambian foundation and to the Trust of Employees of KCM. In the annual report of ZCI for the end of2002, available online at the following address: http://www.zci.lu/annual_report_2002.pdf, one can read (pp 1-2) : "As a consequence of this restructuring, your company is now owned 47.7% by public shareholders, 44.3% by the CDF (Copperbelt Development Foundation) and 8% by the ESOT (KCM Employee Share Ownership Trust)."

"The Copperbelt Development Foundation (CDF), whose objectives are, inter alia,to promote diversification of the economy of the Copperbelt Province of Zambiaand to promote the social development, relieve poverty and contribute to the provision of health, education and other social services in the Copperbelt Province and Mumbwa District of the Central Province of Zambia, (.)"

Public shareholders are shares on stock exchange, in Paris and Johannesburg, most of them possessed by small's shareholders. Between 2005 and 2006, ESOT distributed its stock to KCM employees, so that today, the latter must control 8% of ZCI. As a result, ZCI is owned majoritary(44,3+8=52,3%) by Zambian citizens. And we're not talking wealthy Zambians who took advantage of KCM's rise and thus of that of ZCI, but on the contrary low-income workers, thanks to the action of The Copperbelt Development Foundation.

When it was created, the CDF did not receive any cash, only ZCI stock. Consequently, the foundation will be able to conduct its charity work only when KCM distributes money. But Vedanta, which controls KCM, hardly ever gave anything, in spite of the huge benefits it made almost overnight.

Let's now come to the plunder. All the surveys, all the evaluations conducted by various financial audit agencies are way above this figure. For instance, for the year 2005, Morgan Stanley, in a survey about Vedanta dated December 15, 2005, evaluates the 51% of KCM as US$1,321m, which makes KCM worth US$2,590m, far above the US$750m proposed by Rothschild. Other subsequent assessments are even higher. When the evaluation came out, Lehman Brothers, a financial analyst, immediately concluded that it was a bargain because KCM was worth at least twice this amount.

Vedanta acquired KCM in November 2004. Between the end of December, 2004 and the end of September, 2007, the share of the benefits one can safely attribute to 28.4% of ZCI (and that has remained so far undistributed) reaches more thanUS$144m. (In ZCI financial reports, we found: in December 31, 2004 : "Investment inassociated companies 61,282" and KCM is the only one investment in associated companies of ZCI, and in September 30, 2007 (the last report): the line"Investment in associated companies" disappear, but the line "Assets classified as held for sale 205,398" appear, and the difference between the 2 lines = 205.398 - 61.282 = US$144.116m and represents the "Dividends not received").

So, Vedanta will pay only US$213.15m for shares with dividends not received attached of US$144.116m ? So the real price will only become 213.15-144.116=US$69.034m for Vedanta. About the amount of profit for one year of exploitation of the mine! Conclusion: This is plunder. This is highway robbery. ZCI being held in majority by Zambian interests, it is the Zambian people who, once again, are being deprived of retribution for their natural resources by a powerful foreigner. The ambition of the Foundation was, as quoted above, to "promote social development, relieve poverty and contribute to the provision of health,education and other social services"; this ambition has been thwarted, and it is not the wealthiest Zambians who will suffer from this plunder, but the poorest, the most needy, those precisely targeted by the Foundation.

Meanwhile an Indian billionaire is getting richer and richer. Will this state of affairs continue and will journalists, politicians and GRZ look the other way ? Or will the GRZ step in to stop the plunder?

Power cuts leave miners trapped in cages

Zambia, Zimbabwe power cuts hit mining output
Mon 21 Jan 2008, 9:59 GMT
By Shapi Shacinda and Nelson Banya LUSAKA/HARARE (Reuters) -

A nation-wide power blackout over the weekend hit copper and cobalt output in Zambia and briefly trapped workers underground, as mines also ground to a halt in neighbouring Zimbabwe, officials said on Monday. Zimbabwe was plunged into darkness on Saturday and power was only partially restored on Sunday, after what officials at the state electricity utility said was a "systems disturbance" at its Kariba hydropower station on the border with Zambia. Zambia state power utility Zesco Ltd. said it was investigating the cause of a power blackout, which left the entire country in darkness for several hours on Saturday night. Zambia state media said about 300 miners on night shifts at units of Konkola Copper Mines (KCM) and Mopani Copper Mines (MCM) were trapped in shafts for hours after power went off. The power outage also caused partial flooding at Chililabombwe copper mine, a unit of KCM, as water could not be pumped out, officials said. Luanshya Copper Mines (LCM) Chief Executive Officer Derek Webbstock said operations at the mine were suspended after power went off while equipment was damaged. "We lost a day's production and that is 75 tonnes of copper and 89 tonnes of cobalt. Our net loss is $2 million because the switch and associated electrical equipment were damaged at the mine," Webbstock told Reuters. Miners at KCM's Chililabombwe and Mopani Nkana mines were trapped for several hours after the power disruption. "The good thing is it happened on a weekend when our production is not very much. We also responded quickly and there were no fatalities," said Passmore Hamukoma, Mopani's spokesman. EMERGENCY POWER IMPORTS Chililabombwe mine suffered some flooding after water could not be pumped out due to the power failure, while KCM, Zambia's largest copper producer, was still assessing the amount of loss. Bwana Mkubwa Mine, a unit of Canada's First Quantum Minerals said it stopped copper production for 16 hours due to the power failure, but gave no details of the loss in output. The mines re-started after Zambia imported emergency power from the Democratic Republic of Congo, Zambia's Daily Mail said. Officials say water utilities switched off pumps to protect them from damage as the capital Lusaka and most urban areas experienced water shortages into Sunday. Jack Murewa, president of Zimbabwe's Chamber of Mines, told Reuters several hours of production was lost during the outage. More time would be lost as flooded mines were drained. "Things came to a halt at most mines, with serious ramifications on production," Murewa said. "Apart from the failure to produce, mines also lost pumping capacity and lots of time will be spent pumping out water from the ground." Murewa said although the total loss suffered by mining companies as a result of the electrical failure was yet to be ascertained, it ran into millions of U.S dollars. Among the firms affected by the power outage was Zimplats, in which Impala Platinum, the world's second biggest producer of platinum, holds a majority stake. Apart from frequent power cuts, miners in Zimbabwe -- which boasts the world's second largest platinum reserves after South Africa as well as huge gold, nickel and coal deposits -- have had to grapple with a skewed exchange rate, foreign currency shortages and the threat of nationalisation.

Angry ZCI shareholders consider legal options

Mining MX reports that speculators hoping to make money from the sale of ZCI's shares in Konkola Copper Mines (KCM) to majority shareholders Vedanta Resources under a 'call option' are very disappointed by the outcome of a valuation of the shares. Independent investment bank Rothschilds has issued its long-awaited valuation of the stake - it can be downloaded from the ZCI website. Rothschilds has valued the stake at $213.15m, shocking investors and dropping the value of ZCI shares by a massive 48%.

Because the valuation dates back to what the company was worth in 2005 it misses the effects of the current boom in world copper prices. However, the valuation is binding on ZCI, and while Vedanta has a "reasonable time" to decide whether to exercise its option, it seems likely they will chose to 'consolidate' their hold on KCM.

Shareholders who have contacted Minewatchzambia anonymously suggest that legal action to try and block any purchase is likely. Amongst other complaints, the shareholders argue that the basis on which Vedanta claims a right to a 'share call' is unclear - they say no documentation has been made available to shareholders in ZCI.

Govt tells companies: Taxes non negotiatable. Resist and 'face the wrath of the Zambian people'!

The Post reports Deputy Finance minister Jonas Shakafuswa has announced that new windfall taxes on the copper mines will be imposed through an ‘executive decision’ and will come into effect immediately following this year's budget.

The Deputy Minister also said that the decision was a direct result of public pressure and, in a massive change of tone for the MMD Government, threatened the companies with the 'wrath of the Zambian people' if they tried to challenge the decision. “Being a listening President, President Mwanawasa listened to the calls of Zambian people who were calling for increasing mineral taxes in mining sector and that is why we started renegotiating the development agreements,” Shakafuswa said. “But when we realised the renegotiation process was taking long, the President made an executive decision of imposing a windfall tax which is going to come into effect immediately after the presentation of this year’s national budget.”

Shakafuswa urged mining companies in the country not to resist the new tax regime in the mining sector as doing so would ‘tarnish the image of multinational companies’. “Our colleagues should understand that the Zambian people are in a hurry to develop and they should not frustrate this because this decision was made by the government based on the wishes of the Zambian people,” said Shakafuswa. “So if they decide to resist these changes, they will be leaving a bad legacy not only for themselves but for all international companies. And remember, these changes are a call of the people, so if they want to frustrate this decision, then they will face the wrath of Zambian people.”

MCM Leach plant re-opens - Will company pay for failures?

The Lusaka Times reports that the Environmental Council of Zambia have inspected improvements in equipment at Mopani Copper Mines (MCM) and will allow the plant to re-open. Since the replacement of one pump with two was a condition established by the ECZ in April 2005 (see blog of January 9 2008), and that condition was flouted until now, and since, as the report makes clear, Mopani have not sufferred any reduction in production while sourcing new parts, it remains unclear how or whether the ECZ plan to 'punish' Mopani.

Government tells Equinox they will pay new taxes

The Lusaka Times reports that North-Western Province Permanent Secretary Jeston Mulando has urged Candian investors Equinox, who are building Africa's biggest mine at Lumwana, not to be scared of the recent announcement by President Levy Mwanawasa on increasing taxes. Yesterday's blog reported comments from Equinox's vice-president stating that he believed that company would not be subject to any change of terms as it already holds a Development Agreement. Mr. Mulando seemed to rebut that assertion, stating the mines would still make enough profit with the 47 per cent tax.

Lumwana Managing Director, Harry Micheal, responded that the increase in tax was a blow to his company since they were still in construction phase. He lamented that soon after the President’s announcement on the increase in tax by mines, Equinox had lost three million US dollars. The Managing Director however, said he would travel to Lusaka to seek clarification from Government on the details of how they would effect the new tax regime on mines.

The Permanent Secretary also encouraged Lumwana management to procure materials from local people. Lumwana is typically described as being 'a new Copperbelt' emerging fully formed 'in the bush'. Little infrastructure surrounds the new plant, and the area has seen little formal employment. The company is building entire new settlements to house workers. Building is at an advanced stage, including the 5 km long converyor belt from the primary crusher to the process plant, a chemical storage shed, twin tower laboratory and a largest mill in the world. Management have confirmed that 320 housing units have been completed for junior workers and have targeted to construct 1,000 more houses. Mr. Micheal said that management wanted to complete construction works on time so that by the end of June this year full production of copper commences.

Markets confused... aren't we all

There has been quite a lot of movement in the shares of various of the major Zambian mine-owners since Friday's speech announcing a new tax regime. This is partly a result of confusion and inaccurate reporting over what the President's speech actually meant. A UBS research note published on Monday included the prediction that the Government’s new bill will increase the corporate tax rate on mining companies from 25% to 30% and hike royalty rates from 0.6% to 3.0%. But that's exactly the regime that Finance Minister Magande announced would apply to companies not holding Development Agreements last year, and which he suggested would be applied across the board once re-negotiations were completed with those holding contracts. I think it's very difficult to read reports of the speech this way, given its discussion of a new windfall tax, amongst other things.
There is also a lengthy news item on the President's speech and the background on the mining industry in the Government-owned Times of Zambia. I don't think it adds anything to the original article in The Post.

Meanwhile, opposition Patriotic Front MPs, who represent all seats held on the Copperbelt have had a chance to debate the President's speech. Government-controlled newspaper 'The Times of Zambia'
reports a broad welcome for the announcement (it would). However, it also reflects confusion, reporting questions from MPs about how new income would be spent, how much would stay in the local areas, and whether there should be more transparency around the content of the new agreements of legislation.

Finally, the Lusaka Times also reports further aggressive noises from the Environmental Council of Zambia, which has really been upping its publicity in the last month or so, suggesting a whole new approach to regulation in Zambia.

MCM, NFC-A and the environment

The Post reports that Environmental Council of Zambia (ECZ) will continue to monitor operations at Mopani Copper Mines' (MCM) refinery in Mufulira, and that the company has purchased new pumps to replace those that caused the leaks last week. Nonetheless, local residents are heavily critical of the ECZ for failing to tackle MCM and local MP Percy Chanda has threatened to start legal proceedings against MCM for “trivialising” the pollution.

Meanwhile, The Post also reports that the Chinese firm Non-Ferrous Construction Africa (NFCA) Mining plc, owners of the Chambishi Mine, will spend $70,000 a year for environmental mitigation and management plans as well as developing and implementing a decommissioning, rehabilitation and closure plan at a total cost of US $11,790,000. Although The Post report reads like a good news story of 'corporate social responsibility', these requirements of the companies' Environmental Management Plan (EMP), should have been agreed by the company many years ago. Before finalising the plan, NFC-A was in breach of one of the major commitment of its Development Agreement, and was allowed to operate that was as a result of the failure of ECZ to effectively regulate the management at Chambishi.

Equinox think they are untouchable

Canadian Newsletter 'The Northern Miner' reports that at least one of Zambia's copper investors thinks they are untouchable.

While First Quantum Minerals declared themselves unwilling to comment on the president's announcement of a new tax regime because the ramifications are as yet unclear, Kevin van Niekerk, vice president of Equinox Minerals (who are developing the Lumwana project) told the Northern Miner he is confident that all Development Agreements will be honoured. "We will not see unilateral cancellation of existing Development Agreements," he says. "They are protected in law as binding international agreements." Van Niekerk seemed to believe that, as with Finance Minister Magande's announcement last year, the new system would apply only to new investments not those that already hold Development Agreements.

The report also claims, "Since the [Development] Agreements were created as part of a privatization process overseen by the World Bank and the IMF they hold international legal status, meaning the Zambian government cannot modify the agreements even through legislation. Development Agreements are also secret, not available for public viewing or scrutiny." Now we know that second bit's not true any longer; many of the Development Agreements are published on this website. But what about the first bit? Firstly, of course the Bank and Fund deny that they 'oversaw' the privatisation process - that is not how they chose to understand their own conditionality regime and they deny direct involvement in the negotiations - they were at most, they say, advising. So, what about his idea that the agreements have 'international legal status'? I would suggest this is simply wrong and that the sovereign parliament can introduce any taxes it likes. The constitutionality of the original agreements is much more likely to be challenged than Zambia's right to re-visit them. At worst, this could result in a tribunal at the Intenational Centre for the Settlement of Investment Disputes (ICSID), of which Zambia is a signatory. Bolivia recently chose to exercise its right to leave ICSID in order to facilitate a significantly more radical re-working of its natural resource sector than is being considered in Zambia. I can't see any companies being foolish enough not to realise that things have moved politically in Zambia and that they need simply to accept a new regime. Bolivian investors are seeing their plants nationalised - the Zambian proposals, even if we can't fully understand what they are yet, are most unlikely to be anywhere near as radical.

PS - Flatteringly, this news report cuts and pastes a significant section of the 'For Whom the Windfalls?' report!

ZCI shares valued - would a Vedanta buy-out shortchange local communities?

Mining Weekly reports that Zambia Copper Investments (ZCI) has received the independent investment bank’s valuation of its 28,4% stake in Konkola Copper Mines (KCM): $213.15 million.

In a statement to shareholders, ZCI said that Vedanta Resources, the majority shareholder of KCM, now has a “reasonable period” within which to decide whether to exercise its right to buy out ZCI. See previous blog entries on this issue for discussion of what this all means and whether it is important to defend ZCI as is, to demand that it be sold on the Lusaka Stock Exchange, or anything else. I have been very confused about this issue, but some further clarity is starting to arrive.

In interviews with a colleague, senior sources from ZCI have suggested that the Copperbelt Development Foundation (a charitable foundation, itself a shareholder in ZCI) has done very little to promote the wellbeing of workers and communities on the Copperbelt since it was established as Anglo American pulled out of Zambia. It seems ZCI has been getting so few dividends from KCM that there has been no money to channel towards it. My colleague also reports however, that in the ZCI offices there are signs up for the CDF so it obviously exists in some sense. Questions about what it has achieved might be directed to the Zambian Government in Parliament before any decision is made, to the ZCI management, as well as to Anglo American and the aid donors that were involved in establishing CDF as a sweetener on the Anglo pull-out.

Potentially, the issue here is not whether ZCI should have done more to make the CDF operational, but whether Vedanta has any right to have paid so few dividends to shareholders, retaining 97% of earnings, supposedly for investment in the Konkola Deep project, when Vedanta's Development Agreement says that the majority of funding for KDMP should come from external sources. The promise of this massive investment was one reason Vedanta secured KCM so cheaply in the first place.

KK: 'implement new taxes now'

The Post report former-President Dr Kenneth Kaunda's views on the proposed new tax regime. "I wish the decision was taken yesterday. I am in full support of government's decision. They must implement it now for the good of Zambians."

Meanwhile, still nothing from the big mining companies. Mineweb report that Fred Bantubonse, General Manager of the mining houses business association the Chamber of Mines of Zambia (CMZ), told them: "The President's speech is still being studied by the owners of the companies [the investors]. We are, therefore, unable to offer any comments at the moment."

Mineweb also seems to read the announcement as a prelude to further negotiatoins, rather than a unilateral decision by Government, stating that revised Development Agreements have, "been the subject of renegotiation since late last year but talks are yet to conclude." On that issue a colleague asked me what I think is an important question, and I don't have an answer. For those of us concerned to see the best outcome for Zambian communities and workers from this process, are there risks in ripping up the Development Agreements and imposing a unilateral solution? The agreements contain some commitments on the part of the companies that we would like to see them respect - the Environmental Management Plans for example. Any views folks?

Consumers Association: use mine money to drop IFIs

Zambia Consumer Association (ZACA) executive secretary Muyunda Illilonga is quoted in The Post, arguing that increased revenues from copper should be used to shift away from reliance on the World Bank and IMF: “It is time for the government to start deciding on its own. We have had a lot of things done in an improper manner because we prefer to listen to the World Bank or the IMF... The Bretton Woods institutions have contributed greatly to some economic problems we are experiencing today, for example, the concessions given to the mining companies.” Illilonga argues that monies raised under the new tax regime should be invested in infrastructure and social development.

Amid continuing confusion (not least in my head...) over the meaning and importance of the President's speech last Friday, The Post also offers some confusing comments from Economics Association of Zambia (EAZ) national secretary Chibamba Kanyama.

Kanyama argues that:
- Zambian investors should be able to join in the copper profit bonanza and that the Government should force foreign companies to sell 10 per cent of their shares via the Lusaka Stock Exchange,
- if that happened Government could then cut rather than raise the tax burden on the companies,
- the companies should have seen the Government's intentions and accepted a re-negotiation,
- and finally, and frankly bizarrely given what's gone before, that the use of the state's unilateral powers to enforce a solution may lead to pressure on Zambia from international donors and the mines' companies, with the 'policy reversal' leading Zambia to be seen as a pariah, like Zimbabwe! "Their messages will be aimed at sending a signal that Zambia abrogates on agreements, cannot honour contracts with the private sector and should, therefore, not be taken as a worthy destination for foreign direct investment or any form of financing through the private bond market.” Early responses from the mining houses and international donors quoted over the last few days seem to suggest this is a rather over-heated interpretation.

The mines did indeed threaten to sue if the Government tried to impose a unilateral solution. However, in the first place it is still unclear if that's what we're looking at (although how would Levy know how much money will be raised from any new regime if it is still 'to be negotiated?'). Secondly, it strikes me that the political context has changed in Zambia and that the Government is responding to widely accepted social and political demands for a new deal in mining. The Government, as regulator and sovereign authority, still holds all the cards in relatoin to these companies - it could make their lives very difficult if it wanted, especially as it seems the companies have been operating way outside the original terms of their contracts and so won't have too much of a leg to stand on in any renegotiation.

MUZ / NUMAW respond to tax plans

Reuters report today responses from the two mineworkers unions, MUZ and NUMAW, to Friday's announcement of a new windfall tax on copper exports.

Mineworkers Union of Zambia General Secretary Rayford Mbulu said: "We now want the government to reduce personal income tax which is 35 percent of gross pay, including allowances so that the workers can benefit directly from the money the government will raise. The government should cushion the impact of high tax." Mbulu said the workers were "paying too much" in personal income tax while the owners of the southern African country's vast copper and cobalt mines paid less tax to the Treasury.

Numaw general secretary Albert Mando said miners were going to benefit only if the bulk of the revenue the government would collect was spent on improving facilities in mining areas. "We pay too much tax as people who produce the copper and we require some kind of cushion on tax, we want the government to address this in the budget this year. We would be glad if most of the money was spent on improving mine townships," Mando added.

Mining companies respond to new tax regime

The Post reports today the response of a number of mining executives to the new tax fegime announced on Friday.

The most interesting thing about the responses is that they suggest the companies had not been consulted about the changes, let alone involved in negotiating the detail. This analysis accords with reports arriving with MineWatchZambia that Norwegian advocates brought in by the government to assist in negotiations with the companies have not yet sat down with mining executives. This suggests how far the debate has moved on in the last year and positive impact of campaigns in Zambia for a re-working of relations with multinationals in bolstering the government's position. The government looks like it is doing the one thing mining companies and foreign donors were initially determined to prevent, and which senior civil servants told me during research interviews for the For Whom the Windfalls? report that they would avoid: a unilateral action by government to overrule development agreements, rather than a re-negotiation of the contracts with the companies.

The Post suggests that Luanshya Copper Mines (LCM) chief executive officer Derrick Webbstock said it is understandable that Zambians needed to benefit from mineral resources revenue.Webbstock told The Post that, "We accept the President's announcement. We are not here for confrontation or to argue with government, but it is a pity that we were not consulted before."

Lumwana Mining Company corporate affairs manager Nathan Chishimba said the government should ensure that the new mining taxes must not work against further investment in the sector: "Government is right to put up changes to the mining tax regime to secure more benefits for the country... But as government seeks equitable systems of benefiting from the mining sector, it is important to ensure a balance between the benefits and also to ensure the investment climate remains favourable and we hope this development will not work against further investment in the sector."

No comments have yet been heard from the two biggest mining houses. The Post was unable to reach MCM executives while KCM communications advisor Sam Equamo said the mining giant was still consulting before a comprehensive statement could be issued on the matter.

Major Breakthrough for Mining Campaign

Zambian President Levy Mwanawasa has outlined long-awaited reforms to the tax regime for mining companies. In his speech to the official opening of the second session of the Tenth National Assembly on Friday Mwanawasa announced that legislation will be brought to the house in the next month that will replace the existing Development Agreements held by mining multinationals.

The new system should bring in an extra $400 million to Government revenues in the coming financial year 2008/09, as well as introducing new measures to assure transparency and more effective regulation. Opposition lawmakers, impatient with repeated announcements of the intention to reform the system responded with cries of "Bring them tomorrow...bring them tomorrow."

The Lusaka Times offers a description of the ceremony itself and plenty of excerpts from a wide-ranging speech.
The Post also provide a detailed summary in a news item.

The new regime needs to be debated and approved by Parliament, but campaigners will be pleased that the Government is proposing a more comprehensive solution than merely raising ‘mineral royalties’ paid by companies. A new windfall tax and a variable profit tax will be introduced. The President said the variable profit tax had been designed to work in periods of both high and low prices and for high and low cost mining projects. The Post reports, “The development moves Zambia into the median position in international comparisons at 47 per cent effective tax rate for mineral resources.” The Lusaka Times reports, “The President assured mining companies that the new regime will still be immensely profitable to them and the mining industry in Zambia will continue to be attractive to investors.”

Mwanawasa told lawmakers that in recent years the price of copper on the international market had risen over 400 per cent and that, as a result, the mining companies re-couped their initial capital investments quickly and are now making huge profits. The Post quotes him saying, "To illustrate the point of the effect of mining companies paying taxes at concessional rates, the companies only paid a paltry US$142 million in company taxes and mineral royalty to the treasury from the total earnings of US$4.7 billion in the 2005 and 2006 financial year… If the current prevailing prices and production forecast hold, the mining companies under the development agreements tax regime will earn an estimated income in excess of US$4.0 billion in the 2008/9 financial year while they will only pay an estimated US$301 million in taxes to the treasury... Assuming that current prices and production forecasts hold, we anticipate that the country will earn in excess of US$400 million in additional revenues in 2008 when the new fiscal regime is implemented by all the mining companies."

Mwanawasa recognized that the current regime meant Zambia earned far less from mining than any other comparable country, with an average effective tax rate at 31.7 per cent, eight per cent lower than the next lowest country in the world, Peru at 39.2 per cent. President Mwanawasa said it had been brought to his attention that even if the mining companies were to move to a revised tax regime introduced in last year's budget for companies that did not already hold Development Agreements, the country would still not get fair returns on its mineral resources.

It appears that the new regime will involve significant revision, and possibly the complete cancellation of existing Development Agreements. The President said, “It has been concluded that the development agreements in their current form and in the current circumstances are unfair and unbalanced, and further, the development agreements no longer meet their stated purpose of providing maximum benefits to the Zambian people and an appropriate return to the mining companies." Reuters report that Mwanawasa said: “There will no longer be any need for special agreements with investors in the mining sector and eventually all the sectors… It will have a modern licensing system based on transparent procedures (and it) will provide for transparency in the accounting and utilization of mineral revenues.”

Reactions to new proposals

The Post’s editorial on Saturday concluded, “There are two reasons to celebrate. First, that it is the beginning of the end of a regulatory and tax framework for mining that clearly benefits large-scale mining to the detriment of the country. And second, that citizens are now able to impose their views on those who govern and an industry increasingly distant from the concept of great politics in which the public task evolves strategic vision... In the beginning the government was uncomfortable with altering anything in their agreements with the mining companies. Of course, this is for understandable reasons. The government tried all means to close the subject, claiming that an increase in royalties and other taxes would be a break on investment. But the evident injustice of the mining sector’s level of contribution, and above all common sense, inspired many citizens to agitate for an increase in royalties and other taxes. Others, just by expressing their opinion, contributed to breaking the wall that had been built to block any discussion of this subject. Finally, in the face of civic opinion and parliamentary pressure, Levy’s government has decided to put forward legislation providing for an increment in the level of royalties and other taxes on mining. By this decision, the existence of company obligation and the legitimate right of Zambia to demand reasonable payment has been acknowledged.”

In my view, this editorial hits precisely the right note. We'll need economists to pour over the detail of the proposals and comment on the significance of the Government's claims about marginal rates of tax and expected revenue increases - I hope some of that debate can happen on the pages of this blog (just hit comment at the bottom of this post to send in your thoughts). And yes, we have been waiting a long time for this. But for the moment let's congratulate the hard working Zambian campaigners and MPs who have pressured the Government to take action, and the Government for having the wisdom to change their position as the facts on the ground changed.

Of course, the battle to secure maximum benefit to Zambian workers and communities from mining is not over. The same Post editorial notes “When a mine closes, in addition to the environmental impacts, another direct consequence for the population of the area is a substantial loss of income and indirect services due principally to the fact that mining does not generate other enduring local activities or initiatives. We therefore hope that the money that will be collected from increased royalties and other taxes will be allocated to the financing or co-financing of investment in production projects that articulate mining with the economic development of each area in order to ensure the sustainable development of urban and rural areas.”

The Sunday Post carried an article that reflected the frustration of Zambian trade unionists that it has taken so long for the measures to be announced.

Zambian Congress of Trade Unions General Secretary Leonard Hikaumba said unionsts were tired of listening to government pronouncements that are not implemented. Hikaumba also raised the question of the terms of service of workers: “We should also make sure that equitable distribution of revenues from the mines encompasses workers… We want to see a significant improvement in the conditions of service for workers.”

Federation of Free Trade Unions of Zambia president Joyce Nonde is quoted as saying that said the new tax regime is too little too late, when the country has already been swindled: “We hope they will act swiftly now. We have had a lot of times when things have been promised without the government having the intention to act.”

The Post on Saturday also reported the following reactions: United Nations resident coordinator Aeneas Chuma: "It is important to realise that the mining agreements were obsolete and it is important to have a regime that is consistent with international standards."

Reform Party president Pastor Nevers Mumba said there was need to set up strong regulations to ensure that safety was not compromised: "Many of the accidents that we've had on the mines are that there's been a compromise on safety."

European Commission head of delegation Derek Fee: "It's important for Zambia to increase revenues from the mines and the important thing is get the economic growth to be felt by the people.”

Citizens' Economic Empowerment Act bites at Kansanshi

The Post reports today that Labour minister Ronald Mukuma has directed Kansanshi Mining to re-advertise catering and cleaning contracts that it recently withdrew from Zambian firms and awarded to two South African companies.

As far as I know this is the first time the state has taken such explicit action over a subcontract, and suggests a considerably more proactive approach to maximising linkages between the mines and the local economy.

Mukuma said, “The contracts should be re-advertised in Zambia and Zambian owned companies should be re-engaged... I wish to inform both local and foreign investors that government’s policy is to promote and encourage effective participation of Zambian citizens in the economic sector. The provision of section 21 of the Citizens Economic Empowerment Act states that specific areas of commerce, trade and industry shall be reserved for Zambians,”

The Post also reports, "Mukuma said in the development agreement signed between Kansanshi and the government, the company undertook to award contracts to local contractors in an effort to promote the quality of goods and services supplied by locals. He warned that if foreigners were engaged on contracts that could be performed by locals, they would find it hard to secure work permits for their workers because there was local capacity."

Chambishi Wildcat Strike Over?

Reuters reports that, following talks with management, the 500 striking workers building the Chambishi Smelter have returned to work. The strikers downed tools and blockaded the plant last week in support of demands for better wages and holiday and transport allowances. Information on the talks is very hazy, and it is unclear whether any deals on pay and conditions were reached. Management offered no comment, and the workers are operating outside of any formal union structure. Commodity Online newsletter suggests workers were demanding a 40% pay increase.
The strike highlights the peculiarities of employment practice at Chinese owned plants around Chambishi as well as failures of labour law and union representation on the Copperbelt. A number of these isssues are discussed in greater detail in the 'For Whom the Windfalls?' report.

• A strikingly low number of workers in Chambishi are on formal, permanent contracts.
  
• Most workers are employed on a temporary basis via labour brokering agencies, and work on much lower wages than those performing similar work in unionised workplaces. Protesters this week taregted the local labour office as well as the mine management.
  
• Organising and forcing management to recognise trade unions in workplaces is especially difficult given 1) management attitudes to unions, particularly in Chinese managed mines, and b) the legal framework in place.
  
• Actually striking on a legal, official basis is also almost impossible.
  

Admirably, Zambian miners have not allowed these issues to get in the way of collective action to press for improved pay and conditions - it simply means that most industrial action happens outside of formal union processes, even in unionised mines. Industrial actions at KCM and MCM last year both involved local branches and members of the National Union of Mineworkers (NUM) organising wildcat actions, and head office of the NUM, which was unable to formally endorse or organise the strike, doing some of the negotiating with management.

In the case of Chambishi mine a small number of workers are held on 'old' NUM contracts while all workers employed since NFC-A took over the plant are not. A breakaway union from the NUM, NUMAW, has been trying, in the face of management blockages, to organise the rest of the workforce. The situation was reflected in comments from Albert Mando, NUMAW general secretary, who told Reuters. "The strike has ended, but we are not sure if they have struck a deal."

Chambishi Smelter, which will cost more than $200 million to construct, is part of China's planned $900 million investment in the mining town of Chambishi, which the government has turned into a tax free economic zone to attract Chinese investment.

Congratulations ECZ!

Today we have encouraging early signs that an effective, transparent and toothy regulatory system may be emerging in Zambia. Sadly, the news comes on the back of more evidence that companies have thus far been behaving on the assumption that the regulators have no teeth and that investors are untouchable. That would fit with yesterday's comment by Edward Zulu, Director of the Environmental Council of Zambia (ECZ) that, although Zambia has an effective legal framework, the ECZ has not had the capacity to enforce its own rules. Today we find out from a report in The Post that the ECZ wrote to Mopani Copper Mines following an earlier spill in April 2005, informing them that they were in breach of the terms of their Environmental Impact Assessment. The company seems to have ignored that message and the ECZ appears not to have done anything further to follow up with the company.

However, things may be changing. The Post reports today that not only has the ECZ ordered Mopani Copper Mines (MCM) to suspend operations of its leach plant, it has also charged MCM for polluting the environment and has asked the company to meet all costs relating to repairing any damage caused to human health or the environment.

ECZ communications officer Chama Nyendwa gave The Post significant detail on the spill, the conditions written into MCM's Environmental Impact Assessment, and the aspects of the agreements it had breached.
“On Wednesday 2nd January 2008, there was a spillage of Pregnant Liquor Solution (PLS) from the In Situ leach at the 430 meter level. The PLS ended in the water sumps located at the 830-metre level. The water from these sumps is pumped to the surface where it is treated by Mulonga Water and Sewerage Company for use as domestic water to former mine townships in Mufulira... This discharge was as a result of failure by Mopani to operate the In Situ leaching operations in accordance with the approved Environmental Impact Assessment of the project and conditions contained in the decision letter therein... In the approved EIA, Mopani was to operate with emergency storage to impound all excursions; sufficient online and standby pumping capacity was to be installed underground to handle the solutions. Inspections revealed that the discharge was a result of non-availability of standby pumping system and no emergency ponds to contain spillages.”

Nyendwa stated that ECZ had previously written to MCM reminding them of their responsibility towards preventing pollution following the pollution incident of April 2005 and that ECZ was disappointed that adequate measures had not been put in place to avoid recurrences.

ECZ has charged MCM for polluting the environment in breach of the Environmental Protection and Pollution Control Act (EPPCA) and non-compliance to the commitments that it made after the pollution incident of April 2005. ECZ has further charged MCM for not reporting the pollution incident promptly contrary to part seven section 86 (1) of the EPPCA which states that “a person who inadvertently or accidentally causes or witnesses an act causing pollution of any aspect of the environment shall without delay report to the inspectorate or the police or a local authority.