The documents keep leaking - Vedanta's Call Option Deed now online

I love the readership of this blog. You put out a request for someone to post a confidential document and moments later it appears in your inbox from an anonymous email address!

So I am grateful to our anonymous mole and proud to present again for the first time for public inspection, Vedanta's Call Option Deed on ZCI shares. It is now on this website at http://www.minewatchzambia.com/reports/vedantacalldeed.pdf

As discussed, Vedanta's attempt to exercise its claimed option on the shares is currently the subject of a heated debate and subject to an incomplete investigation by the Zambian Competition Commission. Do readers think this document helps clear anything up?

Paramilitary police defend Kansanshi as strike looms

The Post reports that negotiations between management and workers represented by the Mine Workers Union of Zambia (MUZ) and National Union of Mines and Allied Workers (NUMAW) at Kansanshi mine have collapsed. Paramilitary police officers have been deployed as the mine-owners fear a looming strike and a possible repeat of violent scenes from Chambishi recently.

Management have refused to meet workers' demands, which The Post claims include for a salary increment of 30 per cent, tax relief on housing allowance and an education allowance to be increased from K100, 000 to K1,000,000.Again tensions over the disparity in terms and conditions for local and expatriate staff is at the heart of much of the bitterness.

“They have built a school within the Golf Estate and the school fees per term are K6 million. The question is, can we take our children to this school when they are giving us an education allowance of K100,000? If you look at the wage of foreigners who are doing the same job with us, they are getting a lot of money. And if you look at our gratuity after working for two years, it is less than K3 million. We are not being stubborn for demanding for a decent wage because we know that they are able to pay,” a source told The Post.

North Western Province Permanent Secretary Jeston Mulando has appealed to both management and the unions to get back to the negotiating table and conclude the negotiations. Mulando said the unions’ decision to reduce their 50 per cent salary increment demands to 30 per cent was a positive move which management should appreciate. Kansanshi Mine public relations manager Philip Msiska said no dispute had been declared between the unions and management but promised to issue a press statement if appropriate. Management also insisted that they could only give the workers a 15 per cent salary increment across the board because of the new tax measures introduced by the government.

MinewatchZambia publishes Vedanta Resources secret contract to buy Konkola Copper Mines

MineWatchZambia, the website that brought the Zambian public access to previously secret Development Agreements between the state and international mining houses, is proud to announce another coup. We have received from an anonymous contact what we believe to be a genuine copy of one of the contracts we did not previously have access to. Unlike some of the other contracts previously leaked to us, these contracts are not signed so they should be treated with mild scepticism. On the other hand, they look pretty convincing to me!

The documents appear to be the Development Agreement between the Zambian state and Vedanta Resources, which took on a 51% stake in Konkola Copper Mines (KCM), and was signed in 2004.

The document is posted at http://www.minewatchzambia.com/reports/KCM2004.pdf .

Readers' analysis and discussion of the document would be extremely welcome. This site works best when readers get stuck into discussion.

I have not attempted a close reading of the whole thing, but a couple of things interested me:
1) Page 2, paras 6-11: discusses the 'call option' for ZCI's shares, which the company is currently trying to exercise, but the contract as a whole does not clarify the detail of this deal. The document refers to the call option, "Vedanta holds an option over ZCI Holdings' shares in KCM, exercisable in certain circumstances." That's not very helpful without access to the Call Option Deed. Any readers feeeling like leaking this further document would be making an important contribution to freedom of information in Zambia! Contact me if you want postal detals - otherwise use the email address on the site.
2) Sections 21-24: As previously discussed on this blog, some of the DAs contained clauses specifying that any arbitration between the Government and companies over the new mines taxes would occur under the World Bank's ICSID. In this updated KCM agreement, a different system is proposed, the "UNCITRAL Arbitration Rules" overseen by a sole arbitrator. UNCITRAL is a UN body with a mandate similar to that of ICSID. The document continues, "The appointing authority the Secretary General of the Permanent Court of Arbitration at the Hague. The place of arbitration shall be Johannesburg and the language of the arbitration shall be English." This helps explain comments made by some commentators during the politicised discussions over possible 'legal action' relating to breaches of stability clauses. I am currently assuming the companies are going to take the new tax regime on the chin and will not pursue their previous threats of legal action. Nonetheless, if we find ourselves having to revisit the issue, this might be relevant. So might the comments under Section 23 where the Government appears to waive its own sovereignty. Mr K's previous comments on the legality or otherwise of DAs might be relevant here, particularly since the following paragraph places the whole thing under 'Zambian law'. Interestingly confusing - can we call in the lawyers!

I look forward to others' comments.

Alastair

Sata's bizarre u-turn on mine taxes

A most unpredictable development in the mining story is reported in The Post today. Michael Sata, firebrand leader of Zambia's main opposition movement the Patriotic Front, has apparently changed his position on Zambia's mining taxes just as the legislation is signed with the raucous backing of his own MPs and strong arguments made in favour of the government's position by Sata himself and his key parliamentary allies Given Lubinda and Guy Scott.

It had seemed to me perfectly sensible to analyse the Government's increased determination to win a better deal from mining as a response to the electoral gains made by the PF in the 2006 elections and since, because the PF was willing to criticise 'investor friendly' policies of the ruling MMD and the costs to the country of those policies. However, The Post's report claims that Sata recently reversed his position and wrote on March 19 to finance minister Ng'andu Magande and President Mwanawasa asking them to abandon the windfall and variable taxes. The claimed content of the letter seems to me so counter-intuitive that it's probably worth waiting a few days to see whether some strange political machinations lie behind the story.

Apparently Sata stated that PF was concerned that if mining companies were not allowed to build up enough capital for reinvestment and if the international community perceived Zambia as a country that could not honour its agreements, jobs would be in jeopardy, as expansion plans and new investment projects would be shelved. However, Sata stated that PF was in favour of a royalty tax that was free from manipulation. Asked why he had changed his position when he initially supported government on the new fiscal regime, Sata said government should be more subtle in the manner it handles the matter to avoid the sad experience of Zimbabwe.

Magande responded "It is surprising that Mr Sata today is telling us not to implement the windfall and variable taxes imposed on the mining companies. He was one of the people who supported government when it was earlier announced that a new tax regime would be put in place," Commenting on the threat by mining companies to use legal means to block the government from implementing the new mining fiscal regime, Sata previously said mining companies should get out of the country if they did not want to pay taxes."This government should be as bold as Dr Kenneth Kaunda. We don't need to nationalise the mines but if they don't want to pay, they must get out of the country. We shall go to Chile and get people who know how to run the mines," Sata said. "We shall back government and fight them and make sure that if they don't pay tax, it will be impossible for them to run the mines." Sata said this was the right time for Zambia to get as much from its mineral wealth especially that copper prices were very high. He said the mining companies were making too much profit and that it would be immoral for them to refuse to pay the taxes "They know that they have contributed enough to the MMD and if they threaten to take legal action, they feel some cowards in government will back down," said Sata. "Why should they refuse when unborn babies are subsidising them? Who are they?"

And PF vice president Guy Scott, during an extended sitting of the parliamentary committee on estimates when Chamber of Mines council member Jeremy Allen made submissions, threatened that he would personally lead demonstrations on the Copperbelt against mining companies once they take legal action after new taxes take effect in April. "The government heard the voices of people who wanted a fair share of resources. It is now time for the mines to pay taxes like others have been doing," said Scott. "This is the time for the government to make hay while the sun shines when there is still a boom in copper prices on the international market."

Odd, very odd! Anyone got a suggestion of what's going on here?

Zambia wins battle with mining companies - no legal challenge to new tax regime

Mining Journal confirms yesterday's report that the mine houses will accept Zambia's new tax regime, without winning any concessions, and without legal action. Congratulations to the Zambian Government for standing firm, and to Zambian politicians and campaigners who, in a highly politicised time, recognised that the Government deserved support and have presented the mining companies with a united front, a situation I believe became the decisive factor in making up the companies' minds. The companies have made a political calculation as much as an economic one.

The journal reports that Finance Minister Magande said in an interview on Friday in the capital, Lusaka. "The law has changed and the mining companies will now be obliged to pay all the proposed taxes." Mining companies with operations in Zambia had requested that they not have to pay both the windfall and variable-rate taxes and asked the government to consider charging only one of the two. "None of the proposed changes was accepted by legislators," Magande said.

Zambia`s Chamber of Mines, which represents all of the major mining houses, some of which had threatened legal action should the taxes be imposed unilaterally, has announced that it will not continue fighting the government over the new law, although it warned that consequences from the "unilateral action" may damage future investment prospects. "We`ll comply with the new law," Fred Bantubonse, general manager of the chamber, told the Mining Journal in a telephone interview from Kalulushi on Friday.

ZCI asks Vedanta to pay interest on OEP

The Post reports Zambia Copper Investments (ZCI) has requested Vedanta Resources Plc to pay interest on the Option Exercise Price (OEP) pending completion of the transaction. Since it is technical I have pasted the entire story below.

And Zambia Competition Commission (ZCC) acting executive director Thula Kaira has said Vedanta Resource Plc has begun the process of fulfilling requirements of the Competition Commission before it can take over 28.4 per cent shares of ZCI in KCM.

In a statement released to shareholders, ZCI chairman Thomas Kamwendo stated that Vedanta Resources would be required to pay interest on the Call Option Price of US $213.85 million (approximately K850 billion) for the 28.4 per cent it holds in KCM.

Kamwendo further stated that the company has no direct influence on negotiations between Konkola Copper Mines (KCM) and the Zambia Competition Commission (ZCC), or their ultimate outcome although it had been kept informed of the discussions. He stated that indications received from KCM and Vedanta were that the prospects of the ZCC not granting final approval for the transaction were remote.

“While the ZCC initially granted Vedanta interim authorization for the transaction, it has subsequently withdrawn this, citing a failure by Vedanta to comply with an understanding on notification that had been reached with the ZCC,” stated Kamwendo in a notice issued to sharesholders. “

A further issue being dealt with in parallel to the above is the conclusion of a suitable termination agreement relating to the New Shareholders Agreement concluded between the shareholders of KCM in November 2004. Be assured that every effort is being made to conclude the transaction as soon as is practical and on the best possible terms for the Company.”

And Kaira, in an interview, said Vedanta’s bid to take over 28.4 per cent shares of ZCI in KCM would only be considered once the notification process was concluded.

Vedanta Resources, which plans to acquire the additional shares in KCM through a Call-Option Deed with ZCI, was asked to seek the commission’s authorization as mandated by the laws of Zambia.

“Vedanta Resources have not completed the notification process. They have agreed to notify the commission over their decision to take over the 28.4 per cent of ZCI in KCM,” Kaira said. “Since the valuation of the ZCI shares have already been done, all we have to wait for is notification from Vedanta Resources. They have begun the process of fulfilling requirements of ZCC, and once they are done, we will start the transactions.”

There has been opposition from some ZCI shareholders and other concerned members of society regarding Vedanta Resources Plc’s bid to acquire the 28.4 per cent shares owned by ZCI in KCM.

The ZCI shareholders rejected the plans as they felt cheated by the “undervalued” offer price of US $213.85 million (approximately K850 billion).

The move faced further trouble from the competition commission which said Vedanta needed authorization before increasing its stake in KCM through its Call-Option Deed with ZCI.

According to section 8 subsection (1) of Cap 417 of the Laws of Zambia: “Any persons who in the absence of authority from the commission whether as a principal or agent and whether by himself or his agent, participates in a merger between two or more independent enterprises engaged in manufacturing or distributing substantially similar goods or providing substantially similar services; a takeover or one or more such enterprises by another enterprise, or by a person who controls another such enterprise shall be guilty of an offence and shall be liable, upon conviction, to a fine not exceeding K10 million or imprisonment not exceeding five years or to both.”

Subsection (2) of the same section further states that: “No merger or takeover made in contravention of subsection (1) shall have any legal effect and no rights or obligations imposed on the participating parties by any agreement in respect of the merger or takeover shall be legally enforceable.”

KCM is owned 51 per cent by Indian Vedanta; 28.4 per cent by ZCI, a legal entity from Bermuda; and 20.6 per cent ZCCM-IH (88 per cent of which is owned by the Zambian government).

Vedanta currently holds a Call-Option Deed on the 28.4 per cent of KCM still owned by ZCI whereby they agreed that the latter, upon exit, would offer its 28.4 per cent shares in KCM to the former.

On January 17, 2008, independent investment bank N M Rothschild & Sons Limited, pursuant to their appointment by Vedanta and ZCI to establish the price at which Vedanta shall have the option to acquire ZCI's 28.42 per cent interest in KCM submitted their report.

Rothschild, who assessed the value as it stood in August 2005, came up with the figure of US$213.85 million for the 28.4 per cent, thus evaluating 100 per cent of KCM at US$750 million.

Vedanta has the right to accept or refuse to go on with the call, but ZCI cannot refuse to sell. As a result, Vedanta now has a reasonable period within which to accept or reject the valuation price as determined by the bank.

According to a submission by Jean-Luc Chaillan, Chairman of ZCDEFENSE, a group of minority shareholders in ZCI and ZCCM, the trouble is that ZCI shareholders feel the shares have been undervalued and Vedanta will buy the shares very cheaply as it did to the 51 per cent shares in KCM, as latest independent evaluations for KCM shares are far more than that of Rothschild.

Vedanta bought 51 per cent of KCM stock in November 2004 for a mere US $48 million. Back then, this sale came under fire from a cross section of Zambian industrialists, unions, political parties and the media, and was described as an outrageous pillaging of Zambian resources.

All the evaluations conducted by various financial audit agencies are way above the Rothschild figure.

For instance, Morgan Stanley & Company International, in a survey about Vedanta dated December 15, 2005, evaluated the 51 per cent of KCM at US$1.321 billion, which makes KCM worth US$2.590 billion, far above the US$750 million proposed by Rothschild.

Other subsequent assessments are even higher. When the Rothschild evaluation came out, financial analysts Lehman Brothers, immediately concluded that it was a bargain on the part of KCM because KCM was worth at least twice the suggested amount.

Mining tax to be imposed without talks April 1

Looks like it's all over, bar the shouting. Bloomberg report today that the Zambian parliament has approved an amendment to the Mines and Minerals Act, leading to an increase in taxes and the abolition of existing agreements between the government and mining companies. Royalties on sales will be raised to 3 percent. Corporate income tax will be raised to 30 percent. The tax rate on miners will now be 47 percent. As a result of tax increases, Zambia is expected to earn $450 million in additional revenue. Fred Bantubonse, general manager of the Chamber of Mines, has expressed concern that the amendments to the M and M Act will compromise future investments as miners shy away from expansion projects that would now generate poor returns. Bantubonse makes no mention of any legal action, suggesting that, as predicted on this blog, the mining houses were attempting to frighten the Zambian state with threats of litigation, but eventually backed off recognising that the state holds all the cards.

Reviewing Zambia's labour laws

An interesting contribution in yesterday's editorial in The Post, entitled 'Let's review our Labour Laws'.

It notes, "we agree with International Labour Organisation country director Gerry Finnegan’s observation that Zambian labour laws should seriously be updated and modernised if people are to feel the value and importance of employment."

The editorial accepts that some part-time labour is necessary in Zambia, but, I think rightly, focuses on the poor treatment of short-term employees, and on 'causalisation' in general, where full-time workers are being employed on poor terms through rolling short-term contracts. It argues that this practice is prevalent in Zambia due to a loophole in the Employment Act which fails to explicitly make it illegal to hire casual workers to fill permanent positions. As the 'For Whom the Windfalls report pointed out these employees are denied pension contributions from their employers, lose out on sick pay and medical protection and, though legally free to unionise and organise collective bargaining, are extremely vulnerable to intimidation without legal protection of their jobs. The report argued that these issues, rather than either reform of taxation or improved corporate social responsibility, lay at the heart of the social and political crisis on the Copperbelt.

The Post argues, "through casualisation, employers ultimately pass the burden of providing workers with social security onto families, the government, the church, charitable agencies, and so on and so forth." Given the weakness of state and the inevtable inadequacies of voluntary sector provision, I would suggest what such contracts typically do is simply to immiserate the Zambian population.

The Post notes that Zambia's Employment Act has not undergone major modifications since the time when all employees in Zambia either worked for the government or for parastatal companies, and is completely inadequate for today's needs. Confusion about the legal obligations of employers has been the primary cause of labour disputes in this country and has also allowed employers to exploit legal loopholes to minimise investment in workers. The editorial also provides detailed discussions of the problems with pension arrangements. It notes, "The current debates about adjusting the law on minimum wages and conditions of service have stalled since 2002 over the issue of terminal benefits. Employer groups claim that the cost of hiring labour is too expensive in Zambia, and at the root cause they cite their legal obligation to pay retirement benefits and the expectation of all workers to receive gratuity at the end of employment. It is for this reason, they claim, that the wages of all employees are kept low and that contracts are set for periods less than 10 years. On the other hand, the unions constantly face resistance in negotiating for wage increments that even meet the costs of basic food items and that keep up with the rapidly rising cost of living. The union leaders claim that employers pay exorbitant wages to top management and take home large profits, while at the same time bluffing that wage increases for the average worker are financially impossible."

The editorial concludes: "It is clear that there is urgent need to review our labour laws and the heart of our revised labour laws needs to be a clear, comprehensive and grounded minimum wages and conditions of employment Act that promotes the common good within individual places of employment. And the minimum wage should be tied to a poverty datum line."

Hear hear to that.

New Copperbelt, new line of rail?

The Daily Mail reports that North-Western Railway have assured the government that they will commence construction work once mine operators in North-Western province have committed to using the new railway. N-W Railway are looking for government intervention to ensure this commitment. While the government is apparently keen on the railway project as it would reduce road-damage caused by trucks, they also suggested that the mining companies themselves would be keen on the project as it would reduce the export route for their minerals. N-W Railway claim that they are awaiting approval from the Surveyor General and from the Environmental Council of Zambia (ECZ), having submitted an Environmental Impact Assessment (EIA) report. Following approval, the first phase of the rail project will run from Chingola to Lumwana; the second phase (in conjunction with the Chinese) will run from Lumwana to Angola. Some funding may be forthcoming from America, South African banks, and the European Investment Bank. It is predicted that approx. 2000 people will be employed on the project once it is up and running. This story is of interest since proximity to the existing 'line of rail', built in the colonial era, has defined the developmental geography of Zambia. The Chinese helped construct then helped construct the TAZARA link to Tanzanian ports on the Inidan Ocean. A link to the Atlantic Coast, via Angola, would represent a significant symbolic and practical statement about development in Zambia and would transform hopes of industrialisation in areas previously considered 'bush'. But the project, it appears, will not go ahead without the mining companies taking a financial punt, raising questions about the commitment of major multinationals to the transformation of Zambia under the current copper boom. As discussed, continuiing to use road infrastructure has significant costs to Zambia.

Some thoughts relating to the proposed fiscal framework and its impact on future investment

Dear MineWatchers,

First of all, many thanks to Alastair and MineWatchZambia for giving us this comprehensive one-stop-shop for news on the current ongoings in the Zambian mining sector. You are doing a fantastic job, and I for one appreciate it very much. I wanted to add some reflections on the current situation in Zambia and the question of whether the new tax regime, if imposed in its current form, will deter further investment and development of Zambia’s copper mining sector. The tone of this blog entry will strike a more cautious note compared to what we have seen recently, and in some sense I’m playing the devils advocate here. But personally I do think the current situation may well impact is on future investment, the question is only to what extent? This is hard to predict, but I wanted to stress a couple of points that are worth bearing in mind when discussing this issue.

First, the increase in taxes per se constitutes the first reason to expect a reduction in investment. The key point here is that compared to the tax regime previously in place, the new taxes do not represent a conservative tax increase. Granted, the new taxes may not be extremely high compared to other countries, but the tax burden increases significantly, in particular because of the reduction in capital allowances from 100% to 25%. The financial viability of all projects will be affected. Although incumbents with sunk costs are likely to continue with announced projects, I think many of the over hundred prospecting companies in Zambia are likely to pull out. At prospecting stage companies have not yet developed the ‘bankable documents’ which use proven reserves to raise financing necessary develop mining operations. They have yet to go to the capital markets and raise long-term financing, and some previously viable project will no longer be viable. Thus, although incumbent are in a sense ‘locked in’, prospecting companies are not. One effect over the medium term may be a relative increase in Chinese mining investment! The access to financing on subsidised terms provided by the Chinese government to many of its mining firms (e.g. through ExIm Bank) means that these firms require a lower ‘minimum’ returns to be profitable.

Secondly, there is the issue of regulatory stability in Zambia. A key concern for any investor is predictability, the ability to forecast cash flows. Indeed, from interviews with managers at the mines, it seems that the stability afforded by the DAs by far outweigh the importance of tax concessions per se. Stability is not so much about never changing regulations, but rather about firms having an element of predictability in their dealings with government. This can be seen in the development of new environmental regulations (revisions to the Environmental Prevention and Pollution Control Act), which in some cases may impose higher costs on firms, but which firms nonetheless support because they are seen as necessary in adapting the framework to modern mining methods. However, consider how government has publicly represented the mining sector as partly to blame for its decision to impose, without negotiation, a new fiscal regime (because of an alleged unwillingness of mining companies to renegotiate). Now, it is true that mining companies were initially against this idea, but during 2007 they all agreed to renegotiate. A senior manager at one mining company I spoke to referred to a letter from mid-2007, signed by the President himself, stating clearly that the Zambian government would not impose unilaterally a new fiscal. Where this type of commitment (never mind the DAs) end up entirely losing their value in promoting predictably, this clearly means investors are subject to greater risk. This sends a signal to future investors, who will require even greater forecast returns next time they come to invest in Zambia, to compensate for the evidence that the government does not attach much value to its commitments. As an executive director at Macquarie Bank, one of the world’s largest arrangers of financing for mining companies, put it “the Zambian government currently has the bargaining advantage given the high copper prices, but investors will remember this how government handled this situation once copper prices fall again and the bargaining pendulum swings back”.

This brings me to my third point. When we say that the Zambian mining sector will remain profitable, let’s bear in mind that what investors are looking for is a risk-weighted rate of return. In other words, the mere fact that this or that level of copper prices enable investors to earn a positive return is not enough to ensure that this investment will take place. It is not a binary issue about either breaking even or not, but rather about achieving an adequate return that compensates investors for the political and economic risks they are taking. For mining investments in developing countries, this can be in the range of 15-20%. Higher returns are required where institutional arrangements are weak, where property rights and contracts are not reliable, and where there is much government intervention. If one consequence of a unilaterally imposed new tax framework means that Zambia is considered a less ‘stable’ destination of investment, then investment into Zambia’s mining sector might get a double squeeze: financial forecasts will fall because tax costs increase (reducing forecast returns), at the same time as the hurdle rates, i.e. the risk-weighted returns that financiers require to consider a project feasible may increase (increasing required returns). Of course, as long as copper prices remain high, the number of projects which become unprofitable (and thus don’t take place) in Zambia is probably small – however, the government is dangerously placing all its eggs in one basket here. With the prospect of global recession, with China recently reporting its highest inflation in 12 years, there is a growing risk of a global softening of demand which may take some air out of copper prices.

At this stage, we should, of course, also be asking ourselves: if future investment into the mining sector is reduced slightly, then so what? Indeed too rapid investment may not be in the interest of the Zambia's development! (if the regulatory and institutional structure is not in place to ensure environmental and social sustainability) There are already serious constraints in regulatory capacity in bodies charged with oversight of the mining sector (Env. Council of Zambia, Mines Safety Department, the labour inspectorate etc.), with regulatory agencies already have a difficult time keeping up with existing developments in the mining sector. The shortage of such skills among regulators in Zambia will not abate in the near term, and is driven by the growth in the mining sector: salaries at the ECZ and the MSD are not competitive compared to those offered by the mines, and skilled engineers working as inspectors quickly get poached by mining companies.

Coming back to renegotiations (or lack thereof), I personally hope that the GRZ does engage the mining companies in some form of dialogue and negotiation. Reaching a negotiated settlement would send a signal that this is a government that, although it prioritises the welfare of own citizens (as it should), also listens to economic stakeholders, to avoid the sudden surprises that may deter foreign (and local!) investment.

• On the one hand, I am concerned that the GRZ may find it politically unacceptable to sit down to negotiate following the rallying behind the government. The new fiscal regime may have been announced with the aim of catching the mines on the offensive, letting the government set the agenda, and letter the mines respond to government’s position rather than letting them dictate the agenda. Although this may have been the intention, the widespread support by civil society, donors, the media, and virtually everyone else means that going to the negotiating table may become politically unacceptable.

• On the other hand there are many details surrounding the new fiscal framework which appear unclear, which government may have kept secret to allow for behind-the-scenes negotiation with the mines. I admit to not yet having looked at the new bills on Cho’s website, but it is my understanding that things like whether or not withholding taxes are time limited, whether windfall taxes are tax deductible and so on, have not been made clear. Another thing to keep our eyes peeled on is to what extent these rules will apply to companies with smelters (KCM, Kansanshi, MCM, CCS), as the fiscal framework applies to operations carried out under ‘mining right’ referred to in section six of the Mines and Minerals Act. For instance, CCS will *not* fall under the new fiscal framework as it operates under a mineral processing license, not a mining license. If companies are allowed to restructure in order to take advantage of this, their effective tax burden may become less, and this is one way the government can reach a ‘negotiated’ settlement, without being seen politically to be negotiating.

To sum up, I believe government is doing the right thing reforming the fiscal framework, but it is also adopting a strategy which appears, on the face of it, somewhat risky. Finding a win-win situation which improves (significantly) the tax receipts from the mining sector whilst signaling that it does incorporate concerns of private investment. An amicable solution to all of this would also engender more open state-firm relationships, on the back of which greater long-term transparency of the mining sector can be sought, for instance through the Extractive Industries Transparency Initiative. Any comments or thoughts about this would be much appreciated!

Dan Haglund
PhD candidate
University of Bath

Mandelson backs Zambia in mining row

The Post reports comments from European Union trade commissioner Peter Mandelson advised mining companies in Zambia to recognise their obligation to share their profits with Zambians. “Where companies are doing well from high prices then they have greater obligation to put back into the country in which they have invested…and I think that foreign countries in the mines will recognise the obligations from large returns to investment and the current high prices of mineral resources,” said Mandelson.

Mandelson has no role in the mining tax renegotiation and was in Zambia to discuss Economic Partnership Agreement talks with the East and Southern African trade ministers, and it's not the most interesting comment, but I thought it worth sharing as it shows a) how high profile the issue has become such that Mandelson feels the need to have a position, b) that the EU, of all donors has been one of the most supportive from the beginning of the discussion, and remains so. Of course it is in a sense in the interest of aid donors to Zambia that the country has alternative sources of revenue. And though the Anglo-Indian Vedanta Resources is housed on the London Stock Exchange, none of the mining companies is 'European' (one is Swiss).

Mining Bills Now Online

Cho at the Zambian Economist site has posted all the new bills relevant to mines reform. Thanks Cho! I haven't read them but felt people would be interested to analyse themselves. Discuss further here or on Cho's blog.

Mines and Minerals Development Bill 2008 - An Act to revise the law relating to the prospecting for, mining and processing of minerals; and to repeal and replace the Mines and Minerals Act, 1995.

Income Tax Bill 2008 - An Act to amend the Income Tax Act, with new provisions for mining windfall taxes etc.

Customs and Excise (Amendment) 2008 - An Act to Amend the Customs and Excise Act, with new measures that will apply a 15% export levy on copper concentrates, from the beginning of April 2008.

Value Added Tax 2008 - An Act to amend the Value Added Tax Act as laid out in the Budget.

Chambishi Copper Smelter sacks 100 workers, again!

The Daily Mail reports that management at Chambishi Copper Smelter have dismissed 100 workers after what company bosses describe as "police investigations" revealed that they allegedly instigated the riot last week in which company property was destroyed. Previous news reports suggested that, having sacked all 500 unionised workers immediately following violent protests against the companies approach to negotiations with the National Union of Miners and Allied Workers (NUMAW) , the company back-tracked, re-instating them, but asking that they picked up letters of summary dismissal, before being interviewed by management, in a process attended by riot police, and designed to identify ring-leaders.

Company secretary Sun Chuanpqi said that according to the disciplinary code of the company, those sacked could appeal against their dismissals. “We have instituted disciplinary measures in accordance with the rules and regulations of the company, but we have given them chance to appeal against the company decision if they wish.” He said management completed the post-mortem interviews to screen the workers on Saturday and that:

• 400 workers out of the 500 were reinstated.
  
• of those, 280 agreed to the management’s optional condition to work overtime on Saturday,
  
• 20 workers did not collect their summary dismissal letters and that their chances of returning to the company were dslim.
  

The approach may well accord with the rules of the company, but whether those rules accord with Zambian law is a question I would be interested to have a better answer to. The process was not, previously described however as part of a legal process and it strikes me this is likely a strategy designed to prevent a challege from the workers that the companies' approach involves unjustified collective punishment, the selective targeting of unionised workers, and an abrogation of the natural law principle that one is innocent until proved guilty. Any views?

NUMAW president, Sikufele Mundia, said in an interview yesterday that the union would fight to ensure that the dismissed 100 workers were reinstated. “We have stated from the word go that we do not condone indiscipline, but we shall stand by our workers because we cannot abandon them now, we are not even sure if they are guilty,” Mr Mundia said. He said he agreed with the workers that their conditions of service were bad but was opposed to the form of action they took to destroy company property as a means to air their grievances

'Thorough investigation' delays ZCI's Konkola share sale to Vedanta

The Post reports that Zambia's Competition Commission has withdrawn authorisation for Zambia Copper Investments (ZCI) to sell its stake in Konkola Copper Mines (KCM) to Vedanta Resources. While the companies continue to insist that the delay is 'simply procedural', the tone of the Competition Commission's comments could be interpreted as reflecting a more serious concern with what has always been a controversial sale.

ZCI recognised that the Competition Commission has "withdrawn an interim authorisation that was granted earlier to Vedanta.” Zambia Competition Commission (ZCC) acting executive director Thula Kaira has said there was need to undertake a thorough independent assessment to ascertain the suitability of the transfer of 28.4 per cent shares in KCM to Vedanta Resources at a cost of US $213.15 million. “It is mandatory for the two companies to seek our authorisation to carryout a transaction of that magnitude but it is too early to say we have allowed the transaction or not since they have just applied and an independent assessment team will need to study the proposal before we can make a decision," said Kaira.

Currently, the KCM share structure comprises Vedanta with 51 per cent while ZCI has 24.8 per cent with the Zambian government through ZCCM Investment Holdings having 24.2 per cent, but with this development, Vedanta would now control 75.8 per cent shares of Zambia's largest copper mines. Independent shareholders have protested (on this blog as much as anywhere else) that the price offered for the shares both disadvantages them. The sale also removes any potential benefits to Copperbelt communities that might have flowed from a development scheme built into the structure of ZCI and that was designed to redistribute the benefits of any dividends paid out by KCM. These concerns have dovetailed with an 'economic empowerment' agenda currently making waves in the Zambian political scene as the Government, which has been responsible for the sale of vast numbers of Zambian companies into foreign ownership, seeks to rebalance relations between foreign capital and local investors.

Zambian Economist blog discusses MFEZ

'Cho' recently wrote interestingly on the Zambian economist blog on the proposed tax free economic zone at Chambishi. He asks particularly whether Zambia is getting enough in the way of infrastructure development out of the new companies. His posting created a lively discussion that can be viewed by clicking on the 'comments' tab at the botttom of the original post.

"In terms of value for money, the real question is whether new economic activity generated by the Chambishi zone would more than compensate the government for revenue lost from tax-breaks and expenditure on new infrastructure. The economic analysis underpinning the Chambishi zone deal needs to be made available so that we can check whether this question has been addressed (we are still suffering from mining DAs). A key element of the analysis is the issue of what would happen if the tax - breaks and concessions are not made? Would Zambia get the investment anyway from other players? The government analysis presumably has also factored in the costs of displacement for those that have lost the land. What are these costs?"

He concludes, "It strikes me that we have moved from abandoning development agreements on the mines (with their zero taxes!) to creating new ones with the economic zones."

________

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No-one was sacked at Chambishi!

The Lusaka Times reports the most remarkable climbdown by management at the Chambishi Copper Smelter, which now claims that it did not dismiss striking workers.

In a statement to ZNBC News Company Secretary, Sun Chuanqi said the workers were merely being asked to explain why they took part in the riotous act, and why they stayed away from work while ctalks went on between company and union.

Meanwhile, three of the eight Chambeshi Copper Smelter workers have been charged with malicious damage to property while five union officials have been released unconditionally. Workers have since been asked to report back for work.

The Daily Mail covers the same story, and reveals that management are nonetheless, running the workers through interviews, with a heavy riot-police presence, to establish who the ringleaders were.

Minister of Labour and Social Security, Ronald Mukuma criticised the workers for rioting: “We are spending hours at the tripartite committee discussing the importance of dialogue and yet people are doing the contrary,” he said. He claimed labour laws clearly stipulated procedures to follow when there was a dispute, other than the action taken by the workers. As discussed in other blogs, this is actually where the problem in Zambia lies. Mukuma claimed that some National Union of Miners and Allied Workers (NUMAW) officials were reported to have incited workers to go on strike.

Meanwhile, CCS company secretary Sun Chuanqi said in a statement the workers will not be dismissed indiscriminately, and that CCS would be guided by its in-house code of conduct and the country’s labour laws. “For now, none of the workers has been fired. We have merely given them three days in which to exculpate themselves, and there after, that is when management is going to make a decision. But for now, they still remain our employees,” he said.

Mr Chuanqi said the company’s idea to write summary dismissal letters to the workers was meant to keep them away from work because some of them were intent on destroying company property.

He said “We have come a long way with our workers and their services to this company are valuable. In fact, this is their investment, and the challenge is upon them as employees to guard it jealously.”

He said management and the union would continue negotiations and that management established that only a quarter of the workers took part in the riot while most of them were unwilling participants who were persuaded by their colleagues to take part.

He was convinced that most of the workers would soon resume work. By yesterday afternoon, management had given 300 employees their summary dismissal letters while 100 had already exculpated themselves and were working. A Zambia Daily Mail team that visited the plant found workers taking turns in walking into human resource offices to be interviewed on whether they took part in the riot or not. The interviews of the workers were conducted under heavy presence of police in riot gear.

In another development reported in the Lusaka Times, Luanshya Copper Mines (LCM) has awarded its employees an 18 per cent percent salary increment across the board. Speaking at the signing ceremony of the new collective Agreement LCM Chief Executive Officer, Derek Webbstock said the increament will harmonize the working environment. And Mine Workers Union of Zambia President, Rayford Mbulu assured the mining company of its continued support. He said MUZ will work closely with LCM to enhance growth of the mining company.

Post editorial condemns Chambishi violence

The editorial in The Post today condemns Zambian workers for the violent expression of their grievances at the Chambishi mine.

Well, I don't want to condone violence, but I think the editorial misses an opportunity to consider why labour relations have been so violent on the Copperbelt, a theme I considered at length yesterday.

The editorial notes, "The rights of workers, like all rights, are based on the nature of the human person and on her and his transcendent dignity. Among these rights are: a just wage; a working environment not harmful to the workers’ physical health or their moral integrity; social security, and their right to assemble and form associations. In this regard unions which enable workers improve their conditions should be valued and promoted by everybody in society. The dignity of work must be recognised with just wages and safe conditions." The editor also reconises, "We will always be with them in their peaceful and just demands for wage increments and the improvement of their working conditions," and that, "Anything our workers have attained was granted to them only after a grueling fight, after strikes and organised movements demanding wage increases."

However, I don't think The Post editor has a very fully developed view of what legal rights workers in Zambia enjoy. Yes, they can 'form associations' for collective bargaining. But, without the right to strike, which is virtually impossible to do legally in Zambia, workers are not really able to negotiate with bosses through their trade unions; rather the union officials are left to beg for better wages. The workers at Chambishi claim they are being paid narrowly above Zambia's pathetically low minimum wage. It is thus to a degree inevitable that if they attempt to press for better conditions outside of formal union negotiations that do not appear to have got them very far so far, things will proceed in a chaotic manner.

The editorial strikes me as a missed opportunity. Any review of the situation at Chambishi, which is apparently in the pipeline, should focus attention on the inadequacy of labor legislation and shoudl press for the recognition of the rights of workers, including those on temporary contracts, to be represented by unions and to withdraw their labour in strike actions.

Magande clarifies tax regime

The Daily Mail and The Post both report on Finance Minister Magande's comments to Parliament on Wednesday evening during the second reasing of the Income Tax, Customs and Excise, and Value Added Tax amendment bills. All three bills passed the second reading, reflecting widespread Parliamentary support for the proposed reforms.

Magande clarified how windfall and variable tax would be implemented. “It is our intention that when (copper and other minerals’) prices are high, the windfall tax will be attractive to ensure more revenue…the two taxes will not apply at the same time.”

The Customs and Excise (amendment) Bill also introduces a 15 per cent levy on both copper and cotton seed exports to encourage local value addition and job creation.

Parliamentary Expanded Committee on Estimates chairperson, Godfrey Beene welcomed the reforms, and urged their immediate implementation but said his members were concerned about the utilisation of the anticipated income from the mining sector, especially since it was not provided for in the 2008 budget. Mr Beene urged the government to consult relevant stakeholders, including the National Assembly, on the utilisation of the financial resources.

Competition Commission delays Vedanta's takeover of ZCI

Mining Weekly reports this morning that the Competition Commission have delayed Vedanta's controversial plans to purchase ZCI shares in Konkola Copper Mines. The story below suggests that the delays are purely procedural, yet the situation has been highly political and subject to complaints from both shareholders and concerns from nationalist-oriented politicians in Zambia.ZCI's official note is here.

++

Indian miner Vedanta's acquisition of the 28,4% of Konkola Copper Mines (KCM) shares held by JSE-listed Zambia Copper Investments (ZCI) has been delayed, after the Zambian Competition Commission said that it would exercise jurisdiction over the transaction, ZCI reported on Thursday.

The regulator had withdrawn an interim authorisation granted earlier to Vedanta.

As a result, ZCI had not yet received payment for the Konkola shares, which it still held, the company said.

ZCI and KCM have been entangled in a series of legal processes, to resolve a dispute over a call option on ZCI's shares in KCM.

Finally, Vedanta said last month that it would accept an independent investment bank’s valuation of the stake, at $213,15-million.

The companies said on February 14 that Vedanta had agreed to complete the payment within a week and that ZCI would then transfer the shares to the Indian firm.

ZCI said on Thursday it had been assured by both KCM and Vedanta that the competition authority's concerns were “purely procedural” and would likely be resolved soon.

The companies were confident that approval would be received for the transaction, ZCI said in a statement.

ZCI said in February that the board planned to present shareholders with proposals regarding the future of the company, including whether it should be wounded up and its assets distributed to shareholders, or whether it should continue as an investment or operating vehicle.

Chambishi Workers Reinstated

This in the Lusaka Times, which seems to have the march on the other news sources on this story.

++

The Chinese managers of Zambia’s Chambishi Copper Smelter (CCS) agreed on Thursday to reinstate 500 workers who had been sacked, their union said.

“They have assured us that everybody will get back to work and we hope normal operations will resume on Monday,” National Union of Mining and Allied Workers (Numaw) general secretary Albert Mando told Reuters.

“We will then start our salary negotiations again.”

CCS employees went on strike and rioted on Tuesday over pay and work conditions, injuring a Chinese manager and a Zambian.

The incident highlighted tensions between Zambian workers and Chinese managers in the mining industry.

Chambishi Copper Smelter is the first of 50 Chinese companies that plan to invest over $800 million in a tax free zone in Zambia within the next five years, Zambian officials said.

The growing presence of Chinese firms in Zambia has prompted an anti-Chinese backlash in some parts of the country, with the main opposition party accusing Mwanawasa of allowing the Asian newcomers to exploit workers.

Earlier , the Federation of Free Trade Unions of Zambia (FFTUZ) asked Chambishi Copper Smelter to reconsider its decision to fire 500 workers, for riotus behaviour.

The FFTUZ also appealed to government to immediately intervene in the matter.

FFTUZ National Executive Secretary, Lyson Mando, said in a statement to ZNBC news that government should help the two parties, resolve the matter amicably.

Mr. Mando also called for the release of seven workers detained by police, in connection with the riot at Chambeshi Smelter - Tuesday.

He said there is an urgent need for the union and management at the smelter to resume negotiations to resolve a number of concerns raised by the workers.

However, Mr. Mando has warned that his union will not condone unruly behavior from its members.

On Tuesday, Zambian workers at Chambeshi Smelter fought with their Chinese colleagues, in an incident sparked by demands for better conditions of service

Fackson Banda on constitutionality of Development Agreements

From The Post today, Media and the mines: gems of truth? Part II Professor Banda carries on the discussion he started a couple of week's ago and engages the bloggers, including those on minewatchzambia who've taken up the discussion. If you want to consider this further, there are interesting comments in the previous entry on the same issue. Let's keep this debate going until we find a lawyer to help, or reach a resolution ourselves!

"I must return to my theme of media and the mines. It continues to reverberate throughout the country, and the world! I did remark last week that I would not be surprised to see more reactions from a cross-section of constituencies. Well, I received comments from a mining shareholder. I also received word from web-bloggers (A “blog” is a periodically updated website that posts the thoughts and observations of a single writer and any responses to those observations).

As a way of amplifying their voices, I will be highlighting their observations on the mining investments in relation to the constitutional aspects of the development agreements and the environmental concerns expressed by so many. It is important to highlight their observations as a way of demonstrating the abiding importance of this subject. I will deal with the contributors in no specific order.

In my article I observed that the Agreement between the Chambishi Metals Plc and the government prohibits the government to legislate against the mining companies for a period of fifteen years. I also pointed out that the Agreement refers to the need for the company to comply with an Environmental Plan.

Well, according to Alastair Fraser, based at Oxford University and manager of the informative “MineWatchZambia” blog, the company failed to comply with this condition, simply by failing to produce an Environmental Plan, for many years after the Development Agreement came into action. This is just one of many examples of why the companies have not complied with the terms of the agreements.

An important point raised by Fraser is that this dawning evidence is systematically presented in the report entitled “For Whom the Windfalls? Winners & Losers in the Privatisation of Zambia’s Copper Mines”, authored by Fraser himself and Professor John Lungu. It seems to me that this is the kind of evidence that might have to be brought into any litigation in support of the government’s position. If the matter were to be settled in a court of international arbitration, the companies would not escape unscathed, as seems to be their suggestion. It is as though they stood on the high legal ground. If invoked in a court of law, this evidence could indicate how the companies have shown callous disregard for the Development Agreements.

I then set out to sketch my argument for analysing the (un) constitutionality of the Development Agreements. My key concern was the extent to which the agreements cohered with the Constitution of the Republic of Zambia. I took the issue of so-called “tax stability”. I showed how the agreement between Chambishi Metals Plc and the government forbid the imposition of “new taxes or fiscal imposts on the conduct of Normal Operations”.

I am glad that the blogger, calling himself “Mr. K”, has attempted to throw some light upon this debate. He argues thus:

“…According to the constitution of 1991…the tax exemption in the Development Agreements is unconstitutional. Article 100 (Imposition of taxation] says:
(1) Subject to the provisions of this Article, no taxation shall be imposed or altered except by or under an Act of Parliament.

(2) Except as provided by clauses (3) and (4), Parliament shall not confer upon any other person or authority power to impose or to alter, otherwise than by reduction, any taxation…

(3) Parliament may make provision under which the President or the Vice-President or a Minister may by order provide that, on or after the publication of a bill being a bill approved by the President that it is proposed to introduce into the National Assembly and providing for the imposition or alteration of taxation, such provisions of the bill as may be specified in the order shall, have the force of law for such and subject to such conditions as may be prescribed by Parliament: Provided that any such order shall, unless sooner revoked, cease to have effect – (i) if the bill to which it relates is not passed within such period from the date of its first reading in the National Assembly as may be prescribed by Parliament; (ii) if, after the introduction of the bill to which it relates, Parliament is prorogued or the National Assembly is dissolved; (iii) if, after the passage of the bill to which it relates the President refuses his assent thereto; or (iv) at the expiration of a period of four months from the date on which it came into operation or such longer period from the date as may be specified in any resolution passed by the National Assembly after the bill to which it relates has been introduced…

(4) Parliament may confer upon any authority established by law for the purposes of local government power to impose taxation within the area for which that authority is established and to alter taxation so imposed…

(5) Where the appropriation Act in respect of a financial year has not come into force at the expiration of six months from the commencement of that financial year, the operation of any law relating to the collection or recovery of any tax upon any income or profits or any duty or customs or excise shall be suspended until that Act comes into force:
Provided that – (i) in any financial year in which the National Assembly stands dissolved at the commencement of that year the period of six months shall begin from the day upon which the National Assembly first sits following that dissolution instead of from the commencement of the financial year; (ii) the provisions of this clause shall not apply in any financial year in which the National Assembly is dissolved after the laying of estimates in accordance with Article 103 and before the Appropriation bill relating to those estimates is passed by Parliament…”

Based upon this constitutional review, Mr. K suggests that the National Assembly seemed to have been completely bypassed. In fact, he goes on, given the fact that the development agreements are considered to be “secret”, the tax part alone would be unconstitutional.

“In short”, Mr. K concludes, “the development agreements were never put up for examination by parliament, and Article 100 of the constitution (1991) is very clear on that.”

I myself have not had enough time to investigate which Parliamentary Act, if any, was enacted to give legislative recognition to the tax-related aspects of the development agreements. Nor have I investigated the possibility that such an Act may have been passed after the fact of the signing of the agreements. This would have implications, I believe, for the morality-cum-legality of the agreements.

Now to the matter of the ethics of mining investment and its implications for the Zambian people. You will recall that the Zambia Copper Investments (ZCI) supported Rothschild’s valuation of its 28.4 per cent shares in Konkola Copper Mines (KCM), with the intention of buying additional shares in KCM. The Zambia Competition Commission (ZCC) stated that Vedanta Resources Plc could not buy additional shares in KCM without its authorisation.

Vedanta Resources Plc’s bid to acquire the 28.4 per cent shares owned by ZCI landed into trouble following its rejection by ZCI shareholders who felt cheated by the “undervalued” offer price of US $213.85 million.

Well, Mr S.C. Judge, a management consultant and ZCI shareholder, communicated his opposition to the above deal. I wish to highlight his point of view because its seems to support the general position that many have taken in support of the kind of mining investment that balances profitability with responsibility. The ZCI minority shareholder, whose self-interested position is understandable, was concerned to show how this buy-out could potentially amount to “a spoliation of the Zambian people and shareholders” alike. He was also keen on demonstrating the anachronism of the development agreements, given the fact that the copper prices had exponentially risen over the years. This is an important viewpoint because it indirectly lends weight to the argument that it makes “business” sense for the government to revise the tax regime in keeping with global market forces.

According to Mr. Judge, his was “an International viewpoint as to the interpretation of the 2004 agreement between ZCI and Vedanta concerning the Vedanta acquisition of the 56.8% ZCI equity in KCM.”

Following the Rothschild report concerning the 2005 value of the remaining 28.4% ZCI equity in KCM, he argues, it is considered by all shareholders that the $213 million identified is greatly undervalued, due to parameters that were fixed during the 2004 agreement and today have become gravely inaccurate.

In consequence, the eventual Vedanta acquisition of the remaining ZCI equity for only $213 million can be considered to be a second “spoliation” of the ZCI Zambian and international shareholders investment.

“In November 2007”, he reminds us, “it is understood that the Zambian Government expressed its preference that Vedanta renounce their ‘Call Option’ for the remaining 28.4 per cent of KCM and de facto would not obtain almost 80 per cent ownership of this prime Zambian national heritage. If this is the position of the Zambian Government, does Vedanta have the pretension to ignore and defy the democratically elected representatives of the Zambian people?”

An interesting point raised by the shareholder is that currently the majority shareholders in ZCI are the Copperbelt Foundation and KCM employees and that to date Vedanta has not paid any dividends since they acquired 51per cent of KCM in October 2004. As such, he concludes, the Copperbelt Foundation has been prevented from carrying out the Zambian social improvement functions for which the foundation was created. This action has also had the consequence of reducing the revenue injected into the Zambian economy.

One caveat: I have not independently investigated the veracity of some of the comments made by Mr. Judge. My judgement is that they are sufficiently credible to warrant exposition here.

Clearly, then, the issues surrounding the mines are not simply about the development agreements. That kind of simplistic legalism hides the many contested social and developmental issues implicated in the structure of our mining. My analyses, complemented by many others, show how complex the issues are. It is by appealing to this complexity of issues that we can show that the mining investors are not as honest as they might think they are. Indeed, it is by rejecting simplistic notions of legalism that the media can demonstrate the overall impact of the development agreements upon our lives as Zambian citizens.

Making sense of the chaos at Chambishi

The BBC , the Daily Mail and The Post all report on the story noted last night that management at Chambishi Copper Smelter (CSS) have issued 500 worker with summary dismissal letters following their two-day riotous behaviour in protest against poor conditions of service. This appears to be a profoundly unethical and likely illegal form of collective punishment of all unionised workers. The process described below treats each worker as guilty until proven innocent, in contravention of all principles of natural law, let alone Zambian law.

If anyone needed convincing that, as the 'For Whom the Windfalls?' report argued, reforming taxation of the mines was only the first step to solving the crisis on the Copperbelt, the strike, riots, sackings and arrests at Chambishi should serve as a powerful corrective. The sacrifice of reforms to establish a rational labour law to the concept that 'labour market flexibility encourages investment', the failure to enforce those legal rights that do exist, and the impunity with which mine investors offend against the law with the backing of the Zambian state lies at the heart of the wider tensions on the Copperbelt, and indeed in the country.

To understand what is going on, and why the situation is so chaotic, one needs to understand something about both Zambian labour laws and the history of the various trade unions in the mining sector in Zambia.

As the 'For Whom the Windfalls?' report explains, organising a union, winning recognition from employers which lead to collective bargaining with management, and withdrawing labour in strike, all basic elements of labour rights, are exceptionally complex in Zambia and have been intentionally made more difficult by the management at Chambishi. Partly as a result, workers have never simply been represented by union leaders, they also act autonomously. As Miles Larmer argued in his book, Mineworkers in Zambia, historically, "the MUZ was simultaneously the Katilungu House officials with their direct links to State House and ZCCM senior management; the branch officials who contested their dominance at Supreme Council and Biennial Conferences; the shop stewards challenging workplace controls on behalf of members; and the members themselves, commonly dissatisfied with the limited achievements of all these leaders and prepared to challenge them in the contested space of the public meeting." (p194) Little seems to have changed.

All the labour action at Chambishi and elsewhere has actually been wildcat strikes organised autonomously by the workers. Union representatives are then frequently found condemning the workers in the press, and saying to the workers officially 'trust us, negotiation is the way, get back to work'. This is perhaps not what they say in the background even when it is what they need to be seen to be said in the papers. Rather walkouts/riots may be organised with some communication with branch chairmen to assess when it would be useful to any ongoing negotiations to have a strike or a riot.

Finally, workers, acting autonomously, and sometimes being condemned by MUZ/NUMAW leadership still understand themselves as acting as a union, as they are either organising through the local branch, or just see all collective action as union action and thus don't see 'MUZ' or 'NUMAW' as referring to the heirarchy, but to themselves. With a rational labour law including the right to strike and companies willing to negotiate in good faith, this chaotic situation might not occur.

In a typical display of high-handedness which has hardened divisions between workers and the mine, CCS company secretary, Sun Chuanqi said the workers had been given a grace period of three days within which to exculpate themselves and show cause why disciplinary actionshould not be taken against them. Mr Chuanqi warned that all workers identified as ring leaders would be dismissed from employment to discourage others from behaving in a similar manner. By press time yesterday more than 19 alleged ring leaders had been identified while more than 66 workers collected their summary dismissal letters. “We’re appealing to the workers to respond quickly to the summary dismissal letters so that those that did not take part in the riotous behaviour could be reinstated because work has been grossly affected and we need local manpower,” he said. The approach taken here smacks of illegitimate collective punishment and the use of a presumption of guilt, not innocence and surely presents potential claims of unfair dismissal from many workers. It also seems likely only to stoke local tensions. Nonetheless, the Zambian state has immediately taken the side of the company. The Lusaka Times reports the comments
of Copperbelt Permanent Secretary, Jennifer Musonda said the workers at Chambeshi Smelter should blame themselves for the action taken by management to dismiss them. Mrs. Musonda said the government will not protect unruly behaviour by workers especially where they over look dialogue and grievance procedures. What Musonda in effect is saying is that the state will back the mining companies in any dispute with workers. Surely the role of a 'Government of Laws', the current administrations preferred description of itself, is to allow for due process in any disciplinary process, in which evidence in each individual case would be key, rather than the sacking of all unionised workers, selected for collective punishment precisely because they are unionised.

The Daily Mail report that police have apprehended seven CCS workers in relation to the riot that took place on Tuesday at the copper smelter company. Copperbelt Police commanding officer, Antonneil Mutentwa, revealed that six officials of NUMAW and one member were apprehended by police in connection with the riot.

NUMAW national secretary Albert Mando condemned the action by the workers to riot and damage company property. “We are not in support of what the workers did. We are also disappointed with what happened on Tuesday because the negotiations have not yet collapsed, so why strike or riot?” Mr Mando said.

The Post list those arrested as Aswell Sibale Malume who is NUMAW Chambishi branch chairperson, his vice Christopher Yumba, Steven Kabwe (secretary) and his vice Clifford Nkandu. Others are Kasweya Dombwani (treasurer) and his vice Chanda Mwaango. Mando said the detention of union leaders was unfair because they were the ones who tried to calm down the situation at the company. He said there was need for management and the union leaders to sit down and sort out the matter once and for all. Mando said calm had returned at the company but workers had by yesterday morning not reported for work.

In the meantime, The Post also reports that workers at Collum Coal Mine have also continued their strike.

Mining companies 'coming round' to new taxes

Bloomberg report that Kalmoba Mwansa, Zambia's minister of mines and mineral development believes that companies that resisted increased taxes are "coming around'' after talks with the government, he said.

"We're holding a dialogue to make sure they understand,'' Mwansa said in an interview from Toronto, declining to name companies protesting the increase. "It was a failure on their part to understand how it would affect them. I don't think there will be a confrontation with us.''

"The industry has now been revived, and I don't think there should be the same tax regime,'' Mwansa said. "Things have changed. People from Zambia can share in the wealth.''

Mwansa estimates the nation's mines will produce about 606,000 metric tons of copper this year, 800,000 tons in 2009 and as much as 1 million tons in four years. The mines had 520,000 tons of production last year, Felix Nkulukusa, Zambia's chief budget analyst in the finance ministry, said in the interview.

Zambia's government isn't concerned the higher taxes will drive companies to scale back investments in Zambia in favor of neighboring Democratic Republic of Congo, which has a 10th of the world's copper reserves and more than half its cobalt, Mwansa said. Other companies in the region are also looking to raise taxes, he said, declining to name any.

"Taxes can't scare anyone'' Mwansa said. "What should scare people is instability, and we are stable and predictable. The reality in the neighborhood is that countries will revisit their contracts to get a bit more.''

Chambishi Smelter sacks 500 unionised workers

The Lusaka Times reports a story that, if true, will surely run and run. I will be amazed if the Zambian Government don't come under massive pressure from the opposition Patrtiotic Front and trade unions to pressure the company to reverse this decision.

The paper reports that Chambeshi Copper Smelter has dismissed all the 500 unionised employees who went on strike recently demanding improved conditions of service.

Copper Smelter Company Secretary, Sun Chuanqi, confirmed the sacking of the Zambian Workers.

And a check by znbc news at the construction site in chambeshi found CCS officials waiting for the workers to collect their dismissal letters.

Kalulushi District Commissioner, Joshua Mutisa regretted the workers action.

However the sacked workers have not been to collect their dismissal letters.

Mr. Mutisa said the workers behaviour deserve the kind of punishment which has been meted on them.

Zambian workers, Tuesday fought with their Chinese colleagues at the smelter and damaged company property.

China in Zambia - Investment, tax breaks and labour strife

The Lusaka Times (http://www.lusakatimes.com/?p=2263) reports today that fifty Chinese companies plan to invest over $800 million in a tax free zone in Zambia within the next five years under an agreement to be signed shortly.

Trade and commerce minister Felix Mutati said on Tuesday that Zambia and China would sign an investment deal to allow foreign companies, mainly from China, to start construction at the Multifacility Economic Zone (MFEZ) in Chambishi. An agreement is expected soon for the companies to start setting up in May. Mutati said there was a change in policy, “Initially we had agreed that this should only be a Chinese zone, but they (Chinese) want other foreign firms to come and invest in the multi-facility economic zone... We are looking for a cocktail of companies that will add value to our raw materials to use the Chambishi zone. China is helping to attract other foreign companies on our behalf.”

Preliminary data provided by China indicated that the Chambishi zone would generate in excess of $900 million per year in turnover by firms that would invest in the processing of copper into finished products. Zambian officials have not given details on which Chinese companies would invest in the zone but China Non-Ferrous Metals (Group) Co Ltd. is one of them.

Mutati said the Chambishi zone, which should be fully functional within five years, would initially create 6,000 jobs and offer incentives such as tax relief and easing customs duties on imported equipment and machinery. Zambia’s government would build roads and set up telecommunications, and water facilities in the zone.

It's an interesting moment to make these announcements, and Zambia should certainly be seeking to process more of its copper in country and to create more jobs around the mines in linked industries. At the same time, however, three questions raised by the idea of a multi-facility investment zone are particularly sharp at the moment in Zambia.
1) To what extent should Zambia incentivise investment by offering tax breaks, easing customs and building infrastructure. The disastrous 'Development Agreements', signed with mining companies 8 years ago, are currently in the process of being revised. One of the major problems with them, recognised by almost everyone including the Zambian state, is that they offered too many tax incentives and customs exemptions to investors such that the Zambian state did not benefit financially from their presence.
2) If the Zambian state is also going to pay for the construction of the infrastructure needed to make the firms profitable, why should it not sting them for the costs of this provision. Zambian economist has some interesting reflections on this question on his blog today (http://zambian-economist.blogspot.com/2008/03/free-riders.html).
3) How should Zambia regulate the behaviour of investors on labour, environment, health and safety? Again in relation to previous Development Agreements, 'incentives' - in other words exemptions from the normally operative laws of Zambia, mandated by Parliament - have been at the heart of social and political tensions between investors and workers and communities on the Copperbelt. Would the Multi-Facility Zone offer any exemptions in these areas, explicit or implicit (while part of the problem on the Copperbelt has been the poor regulatory framework, as many problems stem from the perceived protection and impunity offered companies breaking labour laws by the Zambian state). Some of these issues are currently receiving renewed attention, but how can we ensure they don't recur in this case?
A) As the Lusaka Times notes in another story (http://www.lusakatimes.com/?p=2259) today, miners at the Chinese Collum Coal Mine (CCM) have continued with their strike action led by the Gemstone and Allied Workers Union of Zambia (GAWUZ) . The strike has entered day five since Friday last week when workers refused to go underground until the Chinese management effect the new salary increment that was signed in September 2007. The GAWUZ President Mr. Nyumbu said after the strike management decided to increase salaries by K1000 which was far below the agreed amount and the workers have rejected it. He also revealed that in their desperation to have the workers get back to work, the Chinese connived with the Sinazeze police to arrested three workers who they alleged to have incited others to go on strike. “The situation is purely a violation of industrial matter the police should not get involved if the workers are peaceful,” he said. Mr. Nyumbu noted that Management was also imposing on the workers to belong to a union that they wanted but they have rejected. That's a clear violation of basic labour rights for workers to select their own trade unions. On Friday the miners said they do not want to belong to the Mine Union of Zambia (MUZ) because they failed to improve their conditions of service with management.
B) The Lusaka Times also picks up on the ongoing strike at Chambishi Smelters, which has resulted in violent confrontations between workers and Chinese management. (http://www.lusakatimes.com/?p=2260) Further detail emerges from a report in the Daily Mail. The comments from readers below each of the Lusaka Times stories are well worth reading to get some sense of the tone and content of the debate on this issue in Zambia.

National Union of Miners and Allied Workers (NUMAW) Branch Secretary, Steven Kabwe described the situation at the plant as serious. The Daily Mail reports that three workers, two Zambian and one Chinese, sustained severe injuries in a riot that erupted following a protracted labour dispute at Chambishi Copper Smelter (CCS) in Kitwe yesterday. The fracas between unionised workers and senior management staff at the Chinese-owned copper smelter under construction lasted several hours and left one Chinese worker without teeth after he was stoned on the mouth. Riot police from Kitwe, Chambishi and Kalulushi were called in to quell the situation.

CCS company secretary, Sun Chuanqi, said the company had not refused to address the workers’ demands and was therefore disappointed by the unrest that turned violent. “The process of negotiation is still going on. We have not refused to meet their demands in any way. We are still negotiating, but I must state that we are disappointed that the workers damaged company property,” Mr Chuanqi said.

Workers rioted and damaged infrastructure worth millions of Kwacha. They set ablaze infrastructure and fought with police for several hours. The damaged property included a tractor, a security checkpoint, a crane, rear gate, Chinese workers’ hostels and a water tanker. The protesting workers attempted to set ablaze a company bus before police contained the situation. The workers blocked all the roads leading into the company premises and demanded that their pay be increased by over K800,000. Workers’ representatives said the K291,000 workers were paid per month was not enough to sustain them and demanded a minimum of K1.2 million for the lowest paid.

The incident demonstrates the degree to which Chinese investors have struggled to secure any kind of social license to operate in the communities theat surround the plant and are reliant on the security, but also the political cover provided by the Zambian state to continue their operations.

Mike Mulongoti who is Minister of Information and Broadcasting Services said in an interview, “They may have genuine reasons, but then it might be difficult to sympathise with them because they have damaged company property. The owners of the company may one day decide to relocate somewhere else and that property will belong to them, the Zambian people,” he said. “As Government, we don’t condone such destructive behaviour.”

Copperbelt permanent secretary Jennifer Musonda who rushed to the scene condemned the workers for damaging company property. Mrs Musonda said management had since asked all the Zambian workers at CCS to stay away from work until investigations to establish what caused the confusion were concluded. She said management would take action against the ringleaders once they were identified as the ones who led the violence. “What has happened is shameful, but as Government, we would like to assure the Chinese people and Government of our continued support and that their investment is protected.”

The editorial of the Government owned Times of Zambia declares itself 'perturbed' by that it describes as an 'orgy of destruction' and finds the workers' actions 'puzzling' is the workers' stance to take the law into their own hands when CCS management and the National Union of Mines and Allied Workers (NUMAW) are ready to renegotiate the disputed working conditions.

Reuters also report the same incident. NUMAW Secretary Albert Manda said, "Police have managed to calm the situation, but the workers are still gathered outside the smelter ... They are demanding improved conditions of service and better salaries," said Mando. NUMAW General Secretary declined to state how much workers at Chambishi were paid, but confirmed they were demanding salaries ranging from $325 to $400 per month. A government official close to the negotiations told Reuters workers were now paid about $80 in monthly pay.