Govt wants Vedanta to offload shares

I post this story, which is long and technical, exactly as is, from The Post. The issue is well discussed on this site, so I won't offer any comment for the moment other than to say this looks like a 'political clarification', after the fact of whether the ZCC was leant on by the Government or decided for itself (having been leant on?).

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THE government is discussing with Vedanta Resources Plc to compel the mining company to offload part of the shares purchased from Zambia Copper Investments (ZCI) to the public, commerce permanent secretary Davidson Chilipamushi has said.

And Chilipamushi has said the Zambia Competition Commission (ZCC) voluntarily withdrew from handling the Vedanta Call-Option Deed as a result of the legal technicalities involved in the transaction.

Chilipamushi said as much as Vedanta has successfully purchased 28.4 per cent shares in Konkola Copper mines (KCM) previously held by Bermudan registered ZCI, the government could still negotiate for a certain percentage of shareholding to be held by Zambians.

“Government is closely monitoring what is happening although the 28.4 per cent additional shares bought by Vedanta did not belong to the state. The interest of government is to ensure the transfer of wealth to the Zambians through shareholding in these major companies,” Chilipamushi said. “We are in discussion with Vedanta Resources so that they can sale some of the shares to the Zambians.”

But University of Zambia (UNZA) Development Studies lecturer Dr Francis Chigunta expressed doubts on whether Vedanta would agree to offload some of its shares to Zambians.

“Considering Zambia’s attempt to promote economic empowerment, Vedanta should offload shares on LuSE so that Zambians can participate in KCM’s shareholding. I however have doubts whether Vedanta will do that because the company fought aggressively to increase its shareholding in KCM,” Dr Chigunta said.

“Vedanta is obviously happy. It has struck a good deal considering that the price of copper is very high and it is projected to remain like that for quite some time, and so the company will make good money. There will be reluctance for Vedanta to offload shares.

It’s a bit of a challenge for government to attempt to persuade Vedanta to offload shares to the public.”

And Chilipamushi said the Ministry of Commerce, Trade and Industry was working at a programme that would compel each mining company to offload part of its shares to the Zambian public before accessing any incentives from the government.

“We have had a bad experience as the country in terms of investments that have been coming in Zambia. For example, those that bought off enterprises like ZCBC just left after making money in Zambia.

Others came with one suitcase and went back with suitcases after making as much profits as they could from our resources,” Chilipamushi said. “What the problem has been is that there is no local participation in most of these investments. That is the reason why government’s immediate plan is to have local participation in the running of foreign companies so that when they decide to leave, Zambians can take over the operations.

We are trying to create an incentive scheme where if you meet certain requirements such as local participation in the company, corporate social responsibility programmes and giving top positions to some Zambians, then such a company will have an opportunity to do business with the government, being the largest player in the market.”

Chilipamushi said the ministry was therefore considering the amendment of the ZDA Act, Empowerment Act and Companies Act so that the proposed initiative could be included in the three pieces of legislation.

Vedanta Resources Plc has concluded the purchase of 28.4 per cent of ZCI shares in KCM through a “Call-Option Deed” entered into by the two companies a couple of years ago. Vedanta held a Call-Option Deed on the 28.4 per cent shares of KCM owned by ZCI whereby they agreed that the latter, upon exit, would offer its 28.4 per cent shares in KCM to the former.

The mining company has since concluded the deal and US $213.85 million (approximately K739.1 billion) has been paid to ZCI for the 28.4 per cent shares, as assessed by Rothschild in August 2005.

Rothschild evaluated 100 per cent shares of KCM at US$750 million – a move that most shareholders and concerned Zambian citizens opposed, saying Vedanta needed to pay more for the shares in question.

South Africa-based investment advisors, Southern Charter Wealth Management (Pty) Ltd said the US $213.85 million paid by Vedanta for the 28.4 per cent ZCI shares in KCM would rob shareholders and Zambian citizens of millions of dollars in value.

Some ZCI shareholders insist that Vedanta bought the 28.4 per cent shares very cheaply as it did with the 51 per cent shares of KCM stock in November 2004 for a mere US $48 million (approximately K166.5 billion).

And Chilipamushi said ZCC had not been directed to discontinue the handling of the Vedanta case, but willingly gave up in view of the legal technicalities involved in the “Call-Option Deed.”

Vedanta and ZCI concluded the deal after government’s invocation of section 3(f) of the Competition and Fair Trading Act under the Zambia Competition Commission to allow the latter become a majority shareholder in one of Zambia’s huge mining operations.

Section 3 (f) of the Competition and Fair Trading Act CAP 417, states that "nothing in this Act shall apply to...activities expressly approved or required under a treaty or agreement to which the Republic of Zambia is a party."

The government’s approval of Vedanta’s bid to takeover ZCI’s 28.4 per cent shares in KCM comes at a time when Parliament is debating the percentage of foreign ownership of mining rights, proposing a shareholding of not more than 49 per cent for an individual entity.