“I am confident that the targeted $415 million will be collected. The compliance levels so far by the mining companies are very encouraging, hence we are extremely hopeful that the government will meet the target. The first payments for mineral royalty were due on May 14, 2008 following the introduction of new taxes but the bulk of the revenue will be paid in June when the first returns and payments for company income tax and other taxes are due,” Mwansa said.
Mwansa's comments somewhat contradicted earlier reported commments from Emmanuel Ngulube, permanent secretary in the Ministry of Finance, who said on Monday that power outages would affect mine production, reducing projected income for the state in 2008. On the other hand, Finance Minister Ng’andu Magande said on Wednesday Zambia was on course to achieve a targeted 1.0 million tonnes of refined copper in three years and that the revenues predicted would be collected. Well, it's all reading as breezily good news so far, including Magande's comment, also reported in The Guardian (UK), that "all but two foreign mining firms in mineral-rich Zambia had agreed to pay the increased taxes, after initial threats of litigation in international courts." Indeed, the Government-sponsored Times of Zambia concludes in its editorial "Contrary to the sentiments of some sceptics in some circles both within and out side Zambia, mining houses operating in the country are showing themselves to be true partners with the people of Zambia."
.... HANG ON.... Does it make me a horrbile sceptic if I say, 'all but two?' It has been a significant achievement of skilful politics by the Zambian Government, opposition parties and civil society to resist the World Bank and IMF's love of 'property rights' and 'stable investment environments', and to refuse the blackmail of a 'negotiated solution' and get most of the mining companies this far. But there aren't that many mining companies in Zambia. Two not paying is still pretty serious.
So, which two? (From media noise, I am guessing Equinox and First Quantum). This transcript of a phone conference between First Quantum management and journalists on May 14 this year suggests the company is not yet paying all the taxes, and is considering legal action. Company President Clive Newall initially states,
"The Company, along with other miners in the region, have entered into development agreements with the Government of Zambia, which unequivocally provide for stability in the regulatory environment and with rights of international arbitration in the event of a dispute. Currently the Company, along with other miners, is seeking mediation with GRZ but, if necessary, will exercise its rights on its development agreement. The industry is also right now awaiting a practice note from the Zambian Revenue Authority, which will hopefully provide some clarity on how these taxes may apply, because I think most of you are probably aware there’s lots of different interpretations on how these taxes are to be applied. Hopefully this practice note will at least to allow us to see what we’re dealing with, which is not the case at the moment."It's looks from that comment, issued 4 days before First Quantum was supposed to pay up on its taxes due, as other companies evidently have, that the firm is trying to buy time and is non-compliant. If that were the case, as far as I am concerned, the question is, what does the state propose to do about this illegal non-payment? The Guardian quotes Magande commenting, "I think everybody now wants to move on except for two companies that are still asking some questions. We now want them to provide us with their accounts because we feel everyone is making profits as a result of high copper prices."
However, further into the teleconference transcript (page 4) there is a discussion with institutional investors about how First Quantum calcuated its taxes in May. Here it appears the company paid the new mineral royalty and corporate tax rates, but feels the windfall and profit taxes are unclear. After more discussion on page 5 it seems pretty clear the company does have an understanding of how those taxes would apply. There's more on page 8 and page 10. In none of these cases does the specific nature of the 'confusion' First Quantum are suffering from become clear. The journalists and management seem, in each case, to reach agreement on the nature of each tax. Some clarity comes eventually on page 13 where Newall says, "The big question marks still, Kerry, on are deductibility of these new taxes. That’s what we don’t... And it makes a huge difference." The other big question is of course what, legally and politically, the company plans to do. This comes out on page 10:
"Onno Rutten, UBS Securities:
Okay, and that then begs the question your statement that you’re willing to challenge this according to your stated rights of the stability agreement. Are you going to include as well you actually believe your stability agreement is the legal document?
Clive Newall, President:
We have advice that that is true. We of course are taking more advice from our legal advisors on how better to deal with this, i.e. whether to pay the tax and recover it through the stability agreement or not pay the tax and handle it another way. We have yet to decide which way to go."
I guess we'll all find out soon.
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