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.