This article straight out of The Post yesterday. There's nothing really to add to the story.
"ABOUT 2000 Chingola residents have sued Konkola Copper Mines (KCM) over the pollution of the Kafue River, complaining that they have suffered from eye and skin diseases as a result of using the contaminated water.
The residents have also sued Environmental Council of Zambia (ECZ) and Chingola Municipal Council as second and third defendants respectively.
James Nyasulu explained on behalf of the other residents that on November 6, 2006, KCM negligently and wrongfully caused to be released into the Kafue River mining effluents containing concentrations of copper, manganese and cobalt thereby contaminating the water supply for the whole Chingola.
Nyasulu further explained that the negligence was due to the failure to ensure safety checks on pipes, acid levels, maintenance of all necessary equipment related to the securing of a clean environment and the prevention of spillage.
He added that ECZ contributed to this negligence by failing to carryout its statutory duties of inspection, supervision and ensuring that KCM maintained its pipes.
Nyasulu pointed out that Chingola Municipal Council also contributed to the negligence by not ensuring that KCM complied with the safety standards of the local council.
He averred that the council failed to warn the residents of the dangers of drinking contaminated water.
Nyasulu complained that as a result of the negligence of KCM, ECZ and Chingola Council, the residents have suffered from diarrhoea, eye infections, and severe skin conditions as well as other latent effects that only manifest in the long-term such as brain damage, kidney failure and respiratory diseases.
He lamented that the damage inflicted on the residents was not different from the damage done to the people during chemical warfare with little or no regard to their health, welfare and lifestyle.
The residents are claiming damages from KCM, ECZ and Chingola Municipal Council and are asking the court to make ECZ and the council to perform its statutory duties to the residents by prosecuting KCM.
They are also claiming compensation for the pain they have suffered and want the court to order KCM to issue quarterly statements of maintenance and safety levels of its acid pipes."
Saturday 22 December 2007
Wednesday 19 December 2007
How good is the good news about mining?
Reuters report that massive new Chinese investments are on the way to the recently created 'economic investment zone' around Chambishi. The zone was announced as one of a small number of such projects being established by China across Africa at the Sino-African summit earlier this year. It is scheduled to start operating next year and Reuters reports claims it will attract US$900 million in new investments in mining, smelting and, significantly, manufacturing. An official (it doesn't say Zambian or Chinese) reports that the investment will generate a massive 60,000 jobs.
Alongside that, University of Zambia economist Dr Francis Chigunta argues in The Post that on the back of high copper prices Zambia will hit the Government's prediction for the year of 7% GDP growth .
One might, then, have expected the Government to be crowing. However, a couple of signals suggest that both the President and Finance Minister are increasingly aware that growth has thus far been relatively jobless and has had a limited, occasionally negative, impact on Zambian workers and communities.
Chinese investment on the Copperbelt has been extremely controversial, and the offer of further tax concessions in the economic zones raised fears about the state's willingness to offer Chinese firms the right to operate outside normal legal constraints. No-one has ever been prosecuted following incidents when protesting miners were shot in Chambishi last year, or when workers were killed in an industrial accident at a Chinese explosives factory. Reuters report however that President Mwanawasa publicly recognised the problems in the current relationship, telling Luo Tao, the head of China Nonferrous Metal Mining Group Company Limited (CNMC), which owns NFC-A's Chambishi mine, "I want to assure you that we will continue supporting your investments in Zambia. But when incidents of Zambians being disadvantaged come to the fore, we will find it difficult to defend your record." Reuters continue, "Mwanawasa said he was happy with assurances by CNMC to adhere to Zambian labour laws and safety standards at Chambishi mine." The For Whom the Windfalls? report suggests that, at least at the end of 2006, in terms of labour law, safety standards and immigration law, this was not the case. Any investment agreements made with new investors should be subject to public scrutiny to ensure that this situation does not repeat itself.
Another article in The Post reports that Finance Minister, "Magande said he sometimes felt ashamed to face Zambians because of poverty... Magande said it would be difficult for the ordinary Zambian to feel the impact of the economic growth if the monies in various ministries were not used properly. He said although the country had reached a single digit inflation rate, people on the ground were still poor... Magande said even if the government increased the tax base in the mining sector as proposed by some stakeholders, it would still be difficult to improve people’s lives unless the financial monitoring system was improved."
"Even if"? I thought there was supposed to be a team working on this renegotiation! Well, I am sure there is, but... well, we'll see.
Alongside that, University of Zambia economist Dr Francis Chigunta argues in The Post that on the back of high copper prices Zambia will hit the Government's prediction for the year of 7% GDP growth .
One might, then, have expected the Government to be crowing. However, a couple of signals suggest that both the President and Finance Minister are increasingly aware that growth has thus far been relatively jobless and has had a limited, occasionally negative, impact on Zambian workers and communities.
Chinese investment on the Copperbelt has been extremely controversial, and the offer of further tax concessions in the economic zones raised fears about the state's willingness to offer Chinese firms the right to operate outside normal legal constraints. No-one has ever been prosecuted following incidents when protesting miners were shot in Chambishi last year, or when workers were killed in an industrial accident at a Chinese explosives factory. Reuters report however that President Mwanawasa publicly recognised the problems in the current relationship, telling Luo Tao, the head of China Nonferrous Metal Mining Group Company Limited (CNMC), which owns NFC-A's Chambishi mine, "I want to assure you that we will continue supporting your investments in Zambia. But when incidents of Zambians being disadvantaged come to the fore, we will find it difficult to defend your record." Reuters continue, "Mwanawasa said he was happy with assurances by CNMC to adhere to Zambian labour laws and safety standards at Chambishi mine." The For Whom the Windfalls? report suggests that, at least at the end of 2006, in terms of labour law, safety standards and immigration law, this was not the case. Any investment agreements made with new investors should be subject to public scrutiny to ensure that this situation does not repeat itself.
Another article in The Post reports that Finance Minister, "Magande said he sometimes felt ashamed to face Zambians because of poverty... Magande said it would be difficult for the ordinary Zambian to feel the impact of the economic growth if the monies in various ministries were not used properly. He said although the country had reached a single digit inflation rate, people on the ground were still poor... Magande said even if the government increased the tax base in the mining sector as proposed by some stakeholders, it would still be difficult to improve people’s lives unless the financial monitoring system was improved."
"Even if"? I thought there was supposed to be a team working on this renegotiation! Well, I am sure there is, but... well, we'll see.
Monday 10 December 2007
Clarification of last post on quarterly reports
Sorry, I am not sure the last post 'Are the mines submitting reports?' is entirely clear. The point is that the companies should always have been submitting quarterly reports. They are required to do so by their Development Agreements, and if they have not been doing so are in clear breach of the terms of the contract - a factor that should be helpful to the Zambian negotiators seeking to re-open discussions on the Agreements.
For example take a look at Clause 10 of the original KCM Agreement, on page 31 of the .pdf loaded on this site. (This is the original Anglo contract for taking over KCM - we don't have Vedanta's contract - but most of the agreements are cut and paste jobs, so I would be confident similar provisions are in each of them).
For example take a look at Clause 10 of the original KCM Agreement, on page 31 of the .pdf loaded on this site. (This is the original Anglo contract for taking over KCM - we don't have Vedanta's contract - but most of the agreements are cut and paste jobs, so I would be confident similar provisions are in each of them).
Have the mines been submitting reports?
An article appears in today's Post newspaper, titled 'Govt starts quarterly meetings with Chamber of Mines'
It quotes Mines Minister Dr Kalombo Mwansa, who says that the main reason for new quarterly meetings with the Chamber (a trade association representing all of the major mining companies except NFC-A) is so that mining companies to can start submitting quarterly reports to the Ministry. “The purpose of these meetings is to keep the Ministry of Mines and Minerals Development informed on what is going on in the sector through the submission of quarterly reports by mining companies,” Dr Mwansa said.
Intriguing. While researching the 'For Whom the Windfalls?' report, I asked at the Ministry if it would be possible to access the reports. I was not granted access. In discussions with mine exectutives, some argued that the companies were already sufficiently regulated since they had to make these reports to Government.
The phrasing of The Post article, "start submitting" reports just made me wonder if the report was wrong to focus on full disclosure of all existing documentation. Maybe it never existed anyway? Whichever way, the demand for full disclosure should remain. Let's insist the companies submit detailed reports to the Ministry and that copies are lodged in Parliament. The reports should include, at a minimum, detail on how the companies are complying with labour, health and safety and environmental legislation, alongside detailed figures for investment, production, revenue, profit and taxes paid.
It quotes Mines Minister Dr Kalombo Mwansa, who says that the main reason for new quarterly meetings with the Chamber (a trade association representing all of the major mining companies except NFC-A) is so that mining companies to can start submitting quarterly reports to the Ministry. “The purpose of these meetings is to keep the Ministry of Mines and Minerals Development informed on what is going on in the sector through the submission of quarterly reports by mining companies,” Dr Mwansa said.
Intriguing. While researching the 'For Whom the Windfalls?' report, I asked at the Ministry if it would be possible to access the reports. I was not granted access. In discussions with mine exectutives, some argued that the companies were already sufficiently regulated since they had to make these reports to Government.
The phrasing of The Post article, "start submitting" reports just made me wonder if the report was wrong to focus on full disclosure of all existing documentation. Maybe it never existed anyway? Whichever way, the demand for full disclosure should remain. Let's insist the companies submit detailed reports to the Ministry and that copies are lodged in Parliament. The reports should include, at a minimum, detail on how the companies are complying with labour, health and safety and environmental legislation, alongside detailed figures for investment, production, revenue, profit and taxes paid.
Sunday 9 December 2007
Does Vedanta pay dividends?
The following statement appears in Vedanta’s response to the SCIAF/Christian Aid/ACTSA campaign (you can download Vedanta's letter and the NGO's reply to Vedanta from a previous entry in this blog titled 'Vedanta responds...'): “The report implies that Vedanta is taking money away from Zambia, which would be factually incorrect. No substantial dividends have been paid out from KCM since Vedanta made its initial investment.”
While trying to understand better the ZCI-Vedanta share issue (see next post down titled 'Help clear my confusion...'), I came across this in the 2007 Annual Report for ZCI: “Although production levels at Konkola Copper Mines (“KCM”) remain below their targeted levels, KCM returned excellent results for the year, with a net profit figure of USD 301 million (2006: USD 114 million). The effect of the sustained strong international copper price continues to have an extremely positive influence on KCM’s performance. I am also delighted to announce that KCM declared an inaugural interim dividend during the 2006/2007 financial year of USD 5.74 million, of which ZCI received USD 1.6 million in November 2006. Indications are that KCM will shortly confirm the declaration of a final dividend in the same amount and we hope that this is a positive indication of what KCM’s shareholders may continue to expect in the new financial year.”
I guess it depends what you take ‘substantial’ to mean.
While trying to understand better the ZCI-Vedanta share issue (see next post down titled 'Help clear my confusion...'), I came across this in the 2007 Annual Report for ZCI: “Although production levels at Konkola Copper Mines (“KCM”) remain below their targeted levels, KCM returned excellent results for the year, with a net profit figure of USD 301 million (2006: USD 114 million). The effect of the sustained strong international copper price continues to have an extremely positive influence on KCM’s performance. I am also delighted to announce that KCM declared an inaugural interim dividend during the 2006/2007 financial year of USD 5.74 million, of which ZCI received USD 1.6 million in November 2006. Indications are that KCM will shortly confirm the declaration of a final dividend in the same amount and we hope that this is a positive indication of what KCM’s shareholders may continue to expect in the new financial year.”
I guess it depends what you take ‘substantial’ to mean.
Help clear my confusion over Vedanta, ZCI and Anglo?
One issue that I have failed to understand in thinking and writing about the Zambian mining industry is the status of shares in Konkola Copper Mines (KCM) owned by a company called Zambia Copper Investments (ZCI). The issue is much in the news, particularly on the wires for metals investors, and while it's perfectly possible to get a surface level explanation of what's happening from various reports, such as the latest on Mineweb here, the general lack of analysis leaves me baffled as to why different actors are taking different positions. Put very briefly, Vedanta are trying to buy up shares in KCM controlled by ZCI, the Government and various MPs have been objecting. Then today The Post (you need a subscription) report that Anglo-American are publicly refuting President Mwanawasa's suggestion that they are interested in coming back to Zambia.
Maybe these things aren't connected and maybe I am the only one who doesn't understand what's going on?
Andrew Sardanis' book 'A Venture in Africa' seems to tell a large part of the story, but the free Amazon browser cuts short just as we get to the intersting bit, and I think he is basically arguing the whole thing is murky! I've ordered a copy and will report back on what it says if this conversation gets going. If anyone has contact details for Mr Sardanis, I'd be interested to try and include him in the conversation.
Anyway, here's a summary of my muddled thoughts - much of the history here might be wrong or completely irrelevant. Anyone who can clarify any of it is very welcome to add something to comments, or to write a guest entry for the blog to replace this one.
1) When the mining sector was first developed on the Copperbelt, it was developed by private companies, including Anglo-American who developed the mines at Konkola.
2) When the mines were nationalised Anglo's assets were taken over by the state (and eventually consolidated with other companies into a massive parastatal - ZCCM).
3) But, even in the ZCCM era, Anglo maintined a minority share in the Konkola division, and pre-emptive rights. In other words, if the state chose to privatise, Anglo would have first refusal to buy back their old assets.
3) When privatisation happened in 2000, Anglo-American did indeed buy back KCM, under the terms of the then-secret Development Agreement, now published on this website. They did so through a newly developed investment vehicle in which they were the majority shareholder - namely Zambia Copper Investments (ZCI). ZCI was a majority shareholder but other shares were also held by the Zambian Government in a rump company ZCCM-IH, the Commonwealth Development Corporation and by the World Bank's investment arm IFC. Anglo was also not the only shareholder in ZCI - they controlled 50%, while 33% was held by Sicovam, another South African-listed company.
4) Anglo soon concluded they could not make money in Zambian copper mining - a horrendous miscalculation on their part, the copper price was about to explode again - and in 2002 KCM passed back to the Zambian Government in the form of ZCCM and to a new foundation, the Copperbelt Development Corporation, set up according to Anglo, to meet its corporate social responsibilities. IFC and CDC also exited the scene.
5) Vedanta then took over the holding in 2004, buying 51% of shares for what Andrew Sardanis reports was $44million. 20.6% of the shares were still held by ZCCM-IH, and 28.4% by ZCI. Anglo are not a significant shareholder in ZCI any longer. The biggest shareholders are the Copperbelt Development Foundation (44%) and Sicovam who still hold 33%, and seem to have a base of French activist shareholders who are highly opposed to the sale of ZCI's to Vedanta. They have occassionally emailed me since this blog was set up, but language and translation problems have made our conversations rather difficult.
6) Vedanta seem to have had (possibly written into their Development Agreement (do they have one or did they just inherit Anglo's terms and conditions?) we don't have a copy for this website, but this is another reason why we need more transparency) a similar pre-emptive right to take on the remaining ZCI shares under certain conditions. I don't know what they are.
7) Since 2005 it seems Vedanta have wanted to take up this 'right', but had disagreed with the ZCI board and shareholders over the valuation of the company. Over the past few months an independent evaluator seemed to have smoothed over the disagreement. Mineweb quote Tom Kamwendo, ZCI chairman: "ZCI's shares in KCM are being offered to Vedanta rather than being sold via the Lusaka Stock Exchange or sold in any other way because that is the provision of the legal agreement that was reached at the time Vedanta was acquiring its current 51% shareholding in KCM." Mineweb continues: "Kamwendo's comments followed an announcement a fortnight ago from Vedanta chairman Anil Agarwal that the two parties had resolved their differences over the valuation of ZCI's shares in KCM and that an independent valuation was in progress. And with a willing buyer, willing seller situation apparently prevailing, the deal was as good as done."
8) Last week it seemed that Vedanta would go ahead and take on ZCI’s 28.4 percent interest in KCM as per an earlier agreement, giving them a 79.4% stake in the company.
9) The announcement caused strife in the Zambian Parliament, with various MPs suggesting that ZCI should be sold on the Lusaka Stocke Exchange (LuSE)
10) The Zambian government then wrote to Vedanta advising that it should waive its 'call option'. Mineweb reports: "Zambia's mines minister Kalombo Mwansa says the government would be comfortable if the Indian-controlled diversified miner maintained its current 51% stake. He added that Vedanta has not yet responded to the state's letter. "We have written them [Vedanta] over the matter of taking over the ZCI shares. As government, we are of the view that they stick to what they have [in KCM] and we are urging them not to exercise the call option. Our understanding is that the ZCI shares should be listed on the Lusaka Stock Exchange [the local bourse] or any other alternative measure that will benefit and empower Zambians."
What I don't understand is what we should make of all this. Is ZCI, or the Copperbelt Development Corporation worth defending? Why? What does it do to secure the interests of workers and communities on the Copperbelt? Will it keep doing so if sold on the LuSE? If not, should we object to the sale of the company to anyone?
I confess my ignorance, but can imagine three possible rationales, both for concerns expressed by MPs, and the Government's stance:
1) as a company that has caused a degree of embarrasment to the Zambian Government, the state simply doesn't want Vedanta to hold an even higher share in the country's biggest single company.
2) the state and opposition MPs like Sakwiba Sikota (quoted here in The Post last week) want to play up the 'citizen's empowerment' theme which has marked some of Government's response to concerns about foreign investment. Basically this means businesses will be owned by rich Zambians, not rich foreigners. If we are worried about workers and communities, is there any reason to think rich Zambians will have their interests at heart more than rich Indians and Brits? Saki seems to think so.
3) the LuSE is a struggling entity with few companies listed on it. It would be good for LuSE as an institution to deal with such a big sale.
4) there is some other economic reason, like the current independent valuations do not offer as high a price as might be acheived on the open market. I am not clear what difference this would make to the Zambian state as it seems to be a transaction between private companies.
Apologies for a long, rambling entry full, quite possibly of inaccuracies. Views, explanations etc. are, perhaps more than ever, very welcome.
Maybe these things aren't connected and maybe I am the only one who doesn't understand what's going on?
Andrew Sardanis' book 'A Venture in Africa' seems to tell a large part of the story, but the free Amazon browser cuts short just as we get to the intersting bit, and I think he is basically arguing the whole thing is murky! I've ordered a copy and will report back on what it says if this conversation gets going. If anyone has contact details for Mr Sardanis, I'd be interested to try and include him in the conversation.
Anyway, here's a summary of my muddled thoughts - much of the history here might be wrong or completely irrelevant. Anyone who can clarify any of it is very welcome to add something to comments, or to write a guest entry for the blog to replace this one.
1) When the mining sector was first developed on the Copperbelt, it was developed by private companies, including Anglo-American who developed the mines at Konkola.
2) When the mines were nationalised Anglo's assets were taken over by the state (and eventually consolidated with other companies into a massive parastatal - ZCCM).
3) But, even in the ZCCM era, Anglo maintined a minority share in the Konkola division, and pre-emptive rights. In other words, if the state chose to privatise, Anglo would have first refusal to buy back their old assets.
3) When privatisation happened in 2000, Anglo-American did indeed buy back KCM, under the terms of the then-secret Development Agreement, now published on this website. They did so through a newly developed investment vehicle in which they were the majority shareholder - namely Zambia Copper Investments (ZCI). ZCI was a majority shareholder but other shares were also held by the Zambian Government in a rump company ZCCM-IH, the Commonwealth Development Corporation and by the World Bank's investment arm IFC. Anglo was also not the only shareholder in ZCI - they controlled 50%, while 33% was held by Sicovam, another South African-listed company.
4) Anglo soon concluded they could not make money in Zambian copper mining - a horrendous miscalculation on their part, the copper price was about to explode again - and in 2002 KCM passed back to the Zambian Government in the form of ZCCM and to a new foundation, the Copperbelt Development Corporation, set up according to Anglo, to meet its corporate social responsibilities. IFC and CDC also exited the scene.
5) Vedanta then took over the holding in 2004, buying 51% of shares for what Andrew Sardanis reports was $44million. 20.6% of the shares were still held by ZCCM-IH, and 28.4% by ZCI. Anglo are not a significant shareholder in ZCI any longer. The biggest shareholders are the Copperbelt Development Foundation (44%) and Sicovam who still hold 33%, and seem to have a base of French activist shareholders who are highly opposed to the sale of ZCI's to Vedanta. They have occassionally emailed me since this blog was set up, but language and translation problems have made our conversations rather difficult.
6) Vedanta seem to have had (possibly written into their Development Agreement (do they have one or did they just inherit Anglo's terms and conditions?) we don't have a copy for this website, but this is another reason why we need more transparency) a similar pre-emptive right to take on the remaining ZCI shares under certain conditions. I don't know what they are.
7) Since 2005 it seems Vedanta have wanted to take up this 'right', but had disagreed with the ZCI board and shareholders over the valuation of the company. Over the past few months an independent evaluator seemed to have smoothed over the disagreement. Mineweb quote Tom Kamwendo, ZCI chairman: "ZCI's shares in KCM are being offered to Vedanta rather than being sold via the Lusaka Stock Exchange or sold in any other way because that is the provision of the legal agreement that was reached at the time Vedanta was acquiring its current 51% shareholding in KCM." Mineweb continues: "Kamwendo's comments followed an announcement a fortnight ago from Vedanta chairman Anil Agarwal that the two parties had resolved their differences over the valuation of ZCI's shares in KCM and that an independent valuation was in progress. And with a willing buyer, willing seller situation apparently prevailing, the deal was as good as done."
8) Last week it seemed that Vedanta would go ahead and take on ZCI’s 28.4 percent interest in KCM as per an earlier agreement, giving them a 79.4% stake in the company.
9) The announcement caused strife in the Zambian Parliament, with various MPs suggesting that ZCI should be sold on the Lusaka Stocke Exchange (LuSE)
10) The Zambian government then wrote to Vedanta advising that it should waive its 'call option'. Mineweb reports: "Zambia's mines minister Kalombo Mwansa says the government would be comfortable if the Indian-controlled diversified miner maintained its current 51% stake. He added that Vedanta has not yet responded to the state's letter. "We have written them [Vedanta] over the matter of taking over the ZCI shares. As government, we are of the view that they stick to what they have [in KCM] and we are urging them not to exercise the call option. Our understanding is that the ZCI shares should be listed on the Lusaka Stock Exchange [the local bourse] or any other alternative measure that will benefit and empower Zambians."
What I don't understand is what we should make of all this. Is ZCI, or the Copperbelt Development Corporation worth defending? Why? What does it do to secure the interests of workers and communities on the Copperbelt? Will it keep doing so if sold on the LuSE? If not, should we object to the sale of the company to anyone?
I confess my ignorance, but can imagine three possible rationales, both for concerns expressed by MPs, and the Government's stance:
1) as a company that has caused a degree of embarrasment to the Zambian Government, the state simply doesn't want Vedanta to hold an even higher share in the country's biggest single company.
2) the state and opposition MPs like Sakwiba Sikota (quoted here in The Post last week) want to play up the 'citizen's empowerment' theme which has marked some of Government's response to concerns about foreign investment. Basically this means businesses will be owned by rich Zambians, not rich foreigners. If we are worried about workers and communities, is there any reason to think rich Zambians will have their interests at heart more than rich Indians and Brits? Saki seems to think so.
3) the LuSE is a struggling entity with few companies listed on it. It would be good for LuSE as an institution to deal with such a big sale.
4) there is some other economic reason, like the current independent valuations do not offer as high a price as might be acheived on the open market. I am not clear what difference this would make to the Zambian state as it seems to be a transaction between private companies.
Apologies for a long, rambling entry full, quite possibly of inaccuracies. Views, explanations etc. are, perhaps more than ever, very welcome.
Thursday 6 December 2007
Vedanta responds to 'Undermining Development'
Reflecting the momentum that the campaign around mining in Zambia has gained over the last few months, Vedanta has been forced to respond to Undermining Development?, a report from SCIAF, Christian Aid and ACTSA, which we released on this website after its recent launch. You can read Vedanta's response here, and a reply to the company can be read here.
Wednesday 5 December 2007
New KCM procurement system
A Times of Zambia editorial on 30 November welcomes a new procurement policy at Konkola Copper Mines (KCM), Zambia's biggest mining company.
The Times reports that KCM has shortlisted 30 local firms to supply spares and other consumables. All the privatised mining companies have been subject to significant criticism for ignoring the supply arrangements in place when they took over and favouring suppliers from outside Zambia, often from their home countries instead. Much economic activity in the Copperbelt region depended on ‘forwards and backwards linkages’ to the mines. As reported in this blog some months ago, a new system adopted by Mopani Copper Mines (MCM) apparently in an attempt to temper criticism was not welcomed by local suppliers as it was seen as introducing complex and expensive registration conditions that disadvantaged local producers.
In KCM’s case the editorial notes: “The example shown by KCM is one that in its variation could be replicated by various corporates doing business in Zambia.” It goes on, “The refrain in the past has been that local suppliers and manufacturers have not been up to scratch in meeting the volumes, let alone the standards, to supply firms that have international status. This is undoubtedly true, technically speaking. However, as is in every situation where hurdles are encountered, there are always ways to surmount such obstacles. One way would be to offer some of the local suppliers scaled down ranges of goods to be supplied at reduced volumes. They would then have to graduate slowly as they build up capacities. On the part of the suppliers themselves they could pool resources to enable them set up bigger manufacturing bases to achieve volumes.”
KCM's 'Doing Business With Us' section of their website doesn't seem to include any information on the new process, and if / when I hear any more about it, I will post again her.
Let’s hope the project works well. Comments, as always, welcome.
The Times reports that KCM has shortlisted 30 local firms to supply spares and other consumables. All the privatised mining companies have been subject to significant criticism for ignoring the supply arrangements in place when they took over and favouring suppliers from outside Zambia, often from their home countries instead. Much economic activity in the Copperbelt region depended on ‘forwards and backwards linkages’ to the mines. As reported in this blog some months ago, a new system adopted by Mopani Copper Mines (MCM) apparently in an attempt to temper criticism was not welcomed by local suppliers as it was seen as introducing complex and expensive registration conditions that disadvantaged local producers.
In KCM’s case the editorial notes: “The example shown by KCM is one that in its variation could be replicated by various corporates doing business in Zambia.” It goes on, “The refrain in the past has been that local suppliers and manufacturers have not been up to scratch in meeting the volumes, let alone the standards, to supply firms that have international status. This is undoubtedly true, technically speaking. However, as is in every situation where hurdles are encountered, there are always ways to surmount such obstacles. One way would be to offer some of the local suppliers scaled down ranges of goods to be supplied at reduced volumes. They would then have to graduate slowly as they build up capacities. On the part of the suppliers themselves they could pool resources to enable them set up bigger manufacturing bases to achieve volumes.”
KCM's 'Doing Business With Us' section of their website doesn't seem to include any information on the new process, and if / when I hear any more about it, I will post again her.
Let’s hope the project works well. Comments, as always, welcome.
Magande to scrap Development Agreements in 2008?
The Zambian Government claimed today that negotiations with multinational copper mining companies are making significant progress and should be completed in 2008. A resolution of the long-running row may involve a comprehensive deal covering not only the question of mineral royalties but also the wider fiscal and regulatory environment in which the companies operate. A complete reworking of these deals could even result in the scrapping of Development Agreements, such that the companies are brought fully within the Zambian legal framework.
The Times of Zambia (a state-sponsored paper) reports today that Finance Minister Magande has announced a new tax regime will be contained in his 2008 national budget statement. Public pressure and opposition party criticism about the speed of the process, the scope of the talks, and the composition of the negotiating team all appear to have had an impact.
The Times reports that Magande:
Magande is quoted as saying that the team involved have discovered that the Zambian fiscal regime had the lowest effective tax rate in the mining sector in the world with a total of 31.8 per cent followed by Peru with 39.7 per cent. "Through this work that the team has undertaken, it has become apparent that there is need for further reform for both the fiscal and regulatory regime if the people of Zambia have to equitably benefit from their natural resources… I can comfortably state that a lot of work has already been done by the team towards developing an optimal fiscal and regulatory regime for the sector. I should therefore be able to give a comprehensive statement in the 2008 budget address on the outcome of the work of the team," he said.
Magande also recognised that a comprehensive new deal on these topics might render the current and future development agreements irrelevant - presumably meaning that the kind of exemptions to national laws contained in the Development Agreements - exemptions that breach the OECD convention on investment - might be permanently rescinded so that the companies find themselves operating at last, under laws and standards established by the sovereign parliament of Zambia.
Hooray! Am I missing something in the small print? Does anyone know when the 2008 budget address might occur? Comments welcome.
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The Times of Zambia (a state-sponsored paper) reports today that Finance Minister Magande has announced a new tax regime will be contained in his 2008 national budget statement. Public pressure and opposition party criticism about the speed of the process, the scope of the talks, and the composition of the negotiating team all appear to have had an impact.
The Times reports that Magande:
- Emphasised that the team was wholly composed of Zambian top civil servants, rather than being out-sourced to international consultants. This directly contradicts a report of 24 October 2007 when The Times reported, “Government has established a team of seven international mining experts and senior Government officials to study how best the negotiations of development agreements with the mining sector can be done, Finance and National Planning Minister, Ng'andu Magande has said.” Given the disastrous role of foreign advisors in the original privatisation negotiations, that announcement brought strong criticism inside and outside parliament.
- Confirmed that the discussion will go well beyond just mineral royalties, to consider the wider tax regime within which the companies operate. This would be a significant victory for campaigners since both companies and the Government have in the recent past said the only thing on the table was the level of mineral royalties paid. Mineral royalties are just amongst a range of taxes paid, and evaded, by the companies.
- Suggested that it is not just finance that is under discussion, but the wider regulatory environment in which the companies operate that needs to be considered.This is a major breakthrough and could mean that the core demands of the 'For Whom the Windfalls?' report are on the table. The report noted, "The Government seems to believe that the local population will come on board if the companies pay a little more tax and engage in a few more charitable activities. No doubt both of these things should happen, and probably will as government and companies attempt to respond to the 2006 election. However, evidence gathered for this report suggests that well-founded popular complaints about the mining industry are based on bread and butter issues: poverty wages, insecure terms and conditions, resistance to the legal right of trade unions to organise, inadequate support for retrenched and retired workers and a failure of attention to safety measures and environmental protection by the mining companies. The companies have shown little interest in solving these problems since each of them results from purposeful cost-cutting policies undertaken to maximise profits and dividends to shareholders. This implies that, alongside collecting more tax and encouraging more corporate social responsibility, the Government may need to break free of an obsession with ‘investor-friendly policies’ and use their regulatory and legal powers to prioritise the need and rights of workers and communities."
Magande is quoted as saying that the team involved have discovered that the Zambian fiscal regime had the lowest effective tax rate in the mining sector in the world with a total of 31.8 per cent followed by Peru with 39.7 per cent. "Through this work that the team has undertaken, it has become apparent that there is need for further reform for both the fiscal and regulatory regime if the people of Zambia have to equitably benefit from their natural resources… I can comfortably state that a lot of work has already been done by the team towards developing an optimal fiscal and regulatory regime for the sector. I should therefore be able to give a comprehensive statement in the 2008 budget address on the outcome of the work of the team," he said.
Magande also recognised that a comprehensive new deal on these topics might render the current and future development agreements irrelevant - presumably meaning that the kind of exemptions to national laws contained in the Development Agreements - exemptions that breach the OECD convention on investment - might be permanently rescinded so that the companies find themselves operating at last, under laws and standards established by the sovereign parliament of Zambia.
Hooray! Am I missing something in the small print? Does anyone know when the 2008 budget address might occur? Comments welcome.
______________
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Wednesday 28 November 2007
Talks, delays and the prospect of unilateral action
The slow pace of talks between the Zambian Government and multinational mining companies to review tax concessions granted to the companies is fueling public and political debate on alternatives.
Zambian opposition politicians, academics and the independent media are evidently losing patience with the absence of progress in discussions that are expected to result in the over-riding of 'stability clauses' written into the Development Agreements signed between Government and companies at privatisation. On November 16 an angry editorial in The Post newspaper was entitled 'Mismanaging our mineral resources'. The article's analysis of the Government's recently announced Medium Term Expenditure Framework (MTEF) will deepen concerns raised by an interview with Finance Minister Magande in a recent BBC radio documentary that the Government is not expecting increases in mineral royalties to kick in until 2010 (or not for another ten years, depending on how you read Magande's comments - see 'comments' after the last blog for a discussion). As The Post reports, "In 2007, royalties were budgeted for at K77.34 billion and projected by end of December 2007 at K72.76 billion. In 2008, royalties have been projected at K72 billion while K79 billion is for 2009 and K86 billion is the projection for 2010. Looking at the MTEF projections, it is obvious that the government is not expecting much more royalties even with the expected re-negotiations with the mining companies."
Expressions of concern about the slow pace of negotiations also emanated from University of Zambia (UNZA) Professor Oliver Saasa who told The Post, “Government should give regular updates on the re-negotiation process. We want to know what is happening.”
Opposition FFD President and former Finance Minister Edith Nawakwi has proposed (and again here) that the Government's negotiating team be wound up and that increased mineral royalties should be unilaterally imposed by passing legislation in Parliament. Nawakwi won support fromother opposition figures. UPND Copperbelt Province
University of Zambia Chile
As discussed in the 'For Whom the Windfalls?' report, unilateral action by Government is a clear red line for most of the companies. Even those mine managers who recognised negotiation was inevitable also threatened legal action if the Government attempted to act unilaterally. Doing so would also upset Zambia's donors. While the World Bank and IMF have both recognised the need for a renegotiation of the contracts they facilitated in the first place, imposing change on the companies remains a big no-no. Quite what kind of legal action companies would be able to take in the face of Zambia's sovereign Parliament legislating to override contracts is perhaps unclear - I would welcome comments. Zambia is a member of the World Bank's International Centre for the Settlement of Investment disputes. Other countries, including Bolivia who are currently trying to renegotiate resource extraction contracts in a rather more radical manner than is being proposed in Zambia have left the mechanism.
Zambian opposition politicians, academics and the independent media are evidently losing patience with the absence of progress in discussions that are expected to result in the over-riding of 'stability clauses' written into the Development Agreements signed between Government and companies at privatisation. On November 16 an angry editorial in The Post newspaper was entitled 'Mismanaging our mineral resources'. The article's analysis of the Government's recently announced Medium Term Expenditure Framework (MTEF) will deepen concerns raised by an interview with Finance Minister Magande in a recent BBC radio documentary that the Government is not expecting increases in mineral royalties to kick in until 2010 (or not for another ten years, depending on how you read Magande's comments - see 'comments' after the last blog for a discussion). As The Post reports, "In 2007, royalties were budgeted for at K77.34 billion and projected by end of December 2007 at K72.76 billion. In 2008, royalties have been projected at K72 billion while K79 billion is for 2009 and K86 billion is the projection for 2010. Looking at the MTEF projections, it is obvious that the government is not expecting much more royalties even with the expected re-negotiations with the mining companies."
Expressions of concern about the slow pace of negotiations also emanated from University of Zambia (UNZA) Professor Oliver Saasa who told The Post, “Government should give regular updates on the re-negotiation process. We want to know what is happening.”
Opposition FFD President and former Finance Minister Edith Nawakwi has proposed (and again here) that the Government's negotiating team be wound up and that increased mineral royalties should be unilaterally imposed by passing legislation in Parliament. Nawakwi won support from
As discussed in the 'For Whom the Windfalls?' report, unilateral action by Government is a clear red line for most of the companies. Even those mine managers who recognised negotiation was inevitable also threatened legal action if the Government attempted to act unilaterally. Doing so would also upset Zambia's donors. While the World Bank and IMF have both recognised the need for a renegotiation of the contracts they facilitated in the first place, imposing change on the companies remains a big no-no. Quite what kind of legal action companies would be able to take in the face of Zambia's sovereign Parliament legislating to override contracts is perhaps unclear - I would welcome comments. Zambia is a member of the World Bank's International Centre for the Settlement of Investment disputes. Other countries, including Bolivia who are currently trying to renegotiate resource extraction contracts in a rather more radical manner than is being proposed in Zambia have left the mechanism.
Saturday 24 November 2007
Privatisation, resistance and party politics
I have an article published in the current edition of British academic journal, African Affairs. 'Of Cabbages and King Cobra: Populist Politics and Zambia's 2006 election' by Miles Larmer and Alastair Fraser can be downloaded free in academic institutions that hold a license for the journal. Otherwise, I am afraid people will have to pay. It is here: http://afraf.oxfordjournals.org/cgi/content/abstract/106/425/611
The article is not all about mining, but it argues that recent relief of 92 percent of Zambia's international debt, along with the renewed profitability of the copper mining industry, have created conditions for the re-emergence of a nationalist-developmental political framework. This, and the political impact of the rise of the Patriotic Front are considered.
I would be interested in people's reactions, criticisms and comments.
The article is not all about mining, but it argues that recent relief of 92 percent of Zambia's international debt, along with the renewed profitability of the copper mining industry, have created conditions for the re-emergence of a nationalist-developmental political framework. This, and the political impact of the rise of the Patriotic Front are considered.
I would be interested in people's reactions, criticisms and comments.
Wednesday 21 November 2007
Magande to BBC - tax in ten years time!
An excellent 23 minute BBC World Service radio documentary on the Zambian copper mining industry is now available online. It can be downloaded as an MP3 here:
http://downloads.bbc.co.uk/podcasts/worldservice/docarchive/docarchive_20071116-1224.mp3
or listened to directly here:
http://www.bbc.co.uk/worldservice/programmes/documentary_2.shtml
It features interviews with For Whom the Windfalls? co-author Professor John Lungu, former Finance Minister Edith Nawakwi, current Finance Minister N'gandu Magande, IMF Country Director Birgir Arneson, anonymous mineworkers, the Chief Financial Officer of Luanshya Copper Mines and Professor Paul Collier from Oxford University.
Much of it covers territory well-trodden in the report and in this blog, and most of it needs no additional commentary - Maurice Walsh asks the right questions and where the answers get evasive, well, draw your own conclusions. For me, the highlights:
1) Nawakwi discussing the atmosphere surrounding the original negotiation without providing any new evidence of how the negotiations actually proceded:
"Whatever has happened to this country, I think the 1990s were the worst. Zambia was really negotiating these agreements with a gun to our head."
2) Arneson trying unconvincingly to distance the IMF from any responsibility for the negotiations (he wasn't in post when the deals were negotiated):
Arneson: "It is clear that, by the late 1990s, the mining sector in Zambia was in a very, very sorry state. Clearly the authorities felt that they had to provide very generous terms in order to attract the investment. Whether the terms were exactly the right ones, that is of course debatable. There was no provision for example in the Development Agreements that allowed the Government to share in conditions like we have now where copper prices are many fold what they used to be. But I think that is sort of beating a dead horse to belabour that point too much."
Walsh: "But it's worth reflecting on that point because isn't it extraordinary that nobody thought of that at the time."
Arneson: "It would be best practice. It is best practice to put such provisions and we would strongly recommend that the Government puts such provisions into all new development agreements."
Walsh: "You weren't here but the institution you represent advised the Government in one way ten years ago and is suggesting that it does the opposite now. Isn't this the kind of thing that gives the IMF a bad name."
Arneson: "I don't think the IMF was involved in the design of the Development Agreements."
Walsh: "It was very heavily involved with the Zambian Government at the time and was very much pushing the privatisation. In fact the Government would have relied on the IMF for advice."
Arneson: "Well, we certainly supported the privatisation process. There was no alternative. The mines would have closed had they not been privatised."
Walsh: "Granted. But it surely must have occurred to somebody at the time, what if the copper price rises - it seems very straightforward."
Arneson: "What you are saying makes eminent sense and I simply cannot speak for what happened in the late 1990s."
3) Magande making a fairly bizarre argument for delaying re-negotiation.
Walsh: "Under pressure during the (election) campaign, the Government committed itself to renegotiating the deals. But it has taken a year for the Finance Ministry to get a team together to talk to the mining companies... despite the public outcry, the Minister for Finance N'gandu Magande is still councelling patience."
Magande: "Copper investors have been investing in the last three or four years. Investing means now sinking new shafts, buying new equipment, to make sure that they start producing copper. While the price has been going up we have not achieved the production levels that we actually had in the 1980s. So while people might say that the copper price has been going up the production levels have not increased as much as the price. Because the investors are still investing to make the mines productive."
Walsh: "People feel though that you've been too accomodating to the mining companies..."
Magande: "...We have not been lenient to the mines."
Walsh: "But nobody we've spoken to thinks that the mining companies are getting a hard deal. Everybody thinks that they've got a license to print money."
Magande: "Everybody excluding those that know the facts. Out of the mining companies that are now saying they might be able to produce 1 million tonnes of copper by 2010, many of them are the ones that are investing their money, borrowed from outside, or made from other operations outside. When they are investing the money you don't expect that they are making the maximum profit. Maximum profit for most of these companies could be made 10 years from now. That is when we should be saying, look, these people have already recovered their investment, that is when they will be making full profits. That is when we can get worried about that."
Walsh: So your messagge to the people on the Copperbelt is "wait, and your money will arrive, some time in the future?"
Magande: The people on the Copperbelt I am not saying wait, because out of the money that the mines are investing, the mining companies need people to drill the shafts, they need people to put up the shafts, they need people to do all sorts of contracts. So the people on the Copperbelt, they should be involved right now. So the people don't have to wait like Government is waiting."
How should we respond to Magande? Well, firstly a basic factual criticism. Many companies have already recouped their full investments - most mines are already highly profitable.
Secondly, what is this notion of 'maximum profits', and what is the basis of delaying taxation until the mines are achieving it? We know that Vedanta, for one are already making massive profits, if not maximum ones. First Quantum Minerals have just reported third quarter operating profits at Kansanshi Mine in Solwezi are up 19% to $546 million!
But the big conceptual question: what is the link between production levels and taxation? Magande's view appears to me a purely ideological one that puts all faith in a deregulated market to deliver the best outcomes. He seems to believe that taxing companies would lead them to re-invest less of their profits, and thus in the long-term create fewer jobs. The other way of looking at it is that companies will stay in Zambia, and will borrow to cover investments if they expect to benefit in the future, so long as they expect the price to show some stability - taxing will reduce their profits, but have marginal effects on their investment decisions - it is a royalty rate, remember of just 3.0% that is being discussed. Price variations massively outweigh such a consideration in calculating profits. Another way of thinking about it is that 'production' in mining describes the pace of removal of a non-renewable resource from the nation's stock of natural capital - the longer you wait to tax production, the less there is in the end to tax. As Paul Collier puts it: "I think the argument of patience during a commodity boom is actually misplaced. There is no guarantee that copper prices will stay at their present levels. So it may well be now or never. The taxation has to be now.... very clearly in the last few years the big international story has been the world commodity booms. Handling those commodity booms to make sure that history does not repeat itself is the big international development story. If history repeats itself, the biggest opportunity that we've ever had for these countries to transform themselves out of poverty will be missed."
What if you don’t pass your IT certification exam? Microsoft offers you a second chance if you do not pass your mcse 70-284 or mcse 70-296 in your first attempt, Microsoft gives you chance to retake your mcp 70-290 and all other exams in the second intake without paying more. Microsoft mcp 70-271 and CompTIA A+ Essentials a+ 220-601 can also be retaken in the second attempt.
http://downloads.bbc.co.uk/podcasts/worldservice/docarchive/docarchive_20071116-1224.mp3
or listened to directly here:
http://www.bbc.co.uk/worldservice/programmes/documentary_2.shtml
It features interviews with For Whom the Windfalls? co-author Professor John Lungu, former Finance Minister Edith Nawakwi, current Finance Minister N'gandu Magande, IMF Country Director Birgir Arneson, anonymous mineworkers, the Chief Financial Officer of Luanshya Copper Mines and Professor Paul Collier from Oxford University.
Much of it covers territory well-trodden in the report and in this blog, and most of it needs no additional commentary - Maurice Walsh asks the right questions and where the answers get evasive, well, draw your own conclusions. For me, the highlights:
1) Nawakwi discussing the atmosphere surrounding the original negotiation without providing any new evidence of how the negotiations actually proceded:
"Whatever has happened to this country, I think the 1990s were the worst. Zambia was really negotiating these agreements with a gun to our head."
2) Arneson trying unconvincingly to distance the IMF from any responsibility for the negotiations (he wasn't in post when the deals were negotiated):
Arneson: "It is clear that, by the late 1990s, the mining sector in Zambia was in a very, very sorry state. Clearly the authorities felt that they had to provide very generous terms in order to attract the investment. Whether the terms were exactly the right ones, that is of course debatable. There was no provision for example in the Development Agreements that allowed the Government to share in conditions like we have now where copper prices are many fold what they used to be. But I think that is sort of beating a dead horse to belabour that point too much."
Walsh: "But it's worth reflecting on that point because isn't it extraordinary that nobody thought of that at the time."
Arneson: "It would be best practice. It is best practice to put such provisions and we would strongly recommend that the Government puts such provisions into all new development agreements."
Walsh: "You weren't here but the institution you represent advised the Government in one way ten years ago and is suggesting that it does the opposite now. Isn't this the kind of thing that gives the IMF a bad name."
Arneson: "I don't think the IMF was involved in the design of the Development Agreements."
Walsh: "It was very heavily involved with the Zambian Government at the time and was very much pushing the privatisation. In fact the Government would have relied on the IMF for advice."
Arneson: "Well, we certainly supported the privatisation process. There was no alternative. The mines would have closed had they not been privatised."
Walsh: "Granted. But it surely must have occurred to somebody at the time, what if the copper price rises - it seems very straightforward."
Arneson: "What you are saying makes eminent sense and I simply cannot speak for what happened in the late 1990s."
3) Magande making a fairly bizarre argument for delaying re-negotiation.
Walsh: "Under pressure during the (election) campaign, the Government committed itself to renegotiating the deals. But it has taken a year for the Finance Ministry to get a team together to talk to the mining companies... despite the public outcry, the Minister for Finance N'gandu Magande is still councelling patience."
Magande: "Copper investors have been investing in the last three or four years. Investing means now sinking new shafts, buying new equipment, to make sure that they start producing copper. While the price has been going up we have not achieved the production levels that we actually had in the 1980s. So while people might say that the copper price has been going up the production levels have not increased as much as the price. Because the investors are still investing to make the mines productive."
Walsh: "People feel though that you've been too accomodating to the mining companies..."
Magande: "...We have not been lenient to the mines."
Walsh: "But nobody we've spoken to thinks that the mining companies are getting a hard deal. Everybody thinks that they've got a license to print money."
Magande: "Everybody excluding those that know the facts. Out of the mining companies that are now saying they might be able to produce 1 million tonnes of copper by 2010, many of them are the ones that are investing their money, borrowed from outside, or made from other operations outside. When they are investing the money you don't expect that they are making the maximum profit. Maximum profit for most of these companies could be made 10 years from now. That is when we should be saying, look, these people have already recovered their investment, that is when they will be making full profits. That is when we can get worried about that."
Walsh: So your messagge to the people on the Copperbelt is "wait, and your money will arrive, some time in the future?"
Magande: The people on the Copperbelt I am not saying wait, because out of the money that the mines are investing, the mining companies need people to drill the shafts, they need people to put up the shafts, they need people to do all sorts of contracts. So the people on the Copperbelt, they should be involved right now. So the people don't have to wait like Government is waiting."
How should we respond to Magande? Well, firstly a basic factual criticism. Many companies have already recouped their full investments - most mines are already highly profitable.
Secondly, what is this notion of 'maximum profits', and what is the basis of delaying taxation until the mines are achieving it? We know that Vedanta, for one are already making massive profits, if not maximum ones. First Quantum Minerals have just reported third quarter operating profits at Kansanshi Mine in Solwezi are up 19% to $546 million!
But the big conceptual question: what is the link between production levels and taxation? Magande's view appears to me a purely ideological one that puts all faith in a deregulated market to deliver the best outcomes. He seems to believe that taxing companies would lead them to re-invest less of their profits, and thus in the long-term create fewer jobs. The other way of looking at it is that companies will stay in Zambia, and will borrow to cover investments if they expect to benefit in the future, so long as they expect the price to show some stability - taxing will reduce their profits, but have marginal effects on their investment decisions - it is a royalty rate, remember of just 3.0% that is being discussed. Price variations massively outweigh such a consideration in calculating profits. Another way of thinking about it is that 'production' in mining describes the pace of removal of a non-renewable resource from the nation's stock of natural capital - the longer you wait to tax production, the less there is in the end to tax. As Paul Collier puts it: "I think the argument of patience during a commodity boom is actually misplaced. There is no guarantee that copper prices will stay at their present levels. So it may well be now or never. The taxation has to be now.... very clearly in the last few years the big international story has been the world commodity booms. Handling those commodity booms to make sure that history does not repeat itself is the big international development story. If history repeats itself, the biggest opportunity that we've ever had for these countries to transform themselves out of poverty will be missed."
________
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What if you don’t pass your IT certification exam? Microsoft offers you a second chance if you do not pass your mcse 70-284 or mcse 70-296 in your first attempt, Microsoft gives you chance to retake your mcp 70-290 and all other exams in the second intake without paying more. Microsoft mcp 70-271 and CompTIA A+ Essentials a+ 220-601 can also be retaken in the second attempt.
Wednesday 7 November 2007
Debating Undermining Development?
The Post again reported on the new Undermining Development? report on Friday.
The article, “IMF, World Bank pressured govt to privatise mines – Nawakwi” quotes extensively from the interview prepared for the research with former Finance Minister Edith Nawakwi. Nawakwi, who is now leader of the opposition Forum for Democracy and Development told the authors, “We were told by advisers, who included the International Monetary Fund and the World Bank, that not in my life time would the price of copper change. They put production models on the table and told us that there (was) no copper in Nchanga Mine, Mufulira was supposed to have five years life left and all the production models that could be employed were showing that for the next 20 years, Zambian copper would not make a profit… Conversely, if we privatised we would be able to access debt relief, and this was a huge carrot in front of us – like waving medicine in front of a dying woman. We had no option (but to go ahead).”
This article, and the report itself have provoked very interesting discussions on the excellent ‘Zambian economist’ blog, – read particularly the comments at the end of the post. Cho, the blog’s author, criticizes Nawakwi for not resisting more aggressively donor pressures on Zambia, “The 'devil made me do it' has never got anyone off a crime. For indeed it appears that we came under pressure from young graduates at the IMF and World Bank who spent one week in Zambia and flashed a few models on the table and we crumbled.” The discussion raises important questions about the degree of dependence of Zambia on foreign aid donors, the relationship between dependence and ‘post-colonial’ mentalities, the competence of the civil service, and the potential role of corruption in the signing of the Development Agreements. It doesn’t reach many conclusions, but the contributors are asking some interesting questions. Should we say that the World Bank ‘forced’ Zambia to sell the mines? Or is the relationship between donors and aid recipient Governments more complex than that? What is or was the relationship between the World Bank and IMF and particular mining houses? Did they (do they) actively collaborate? Why? Were the Bank and Fund ‘on Zambia’s side’, trying to get the best deal for the country from the sale? Or were they so ideologically committed to the need to sell that their interests and those of the companies co-incided? What difference does Government part-ownership of the mines (through ZCCM-IH) make? And what about the role of the World Bank, whose ‘finance arm’ IFC is also a shareholder in some of the privatised entities? One discussant adds a link to a Post article on a March 2006 exchange in Parliament between current Finance Minister Magande and Nawakwi - “Nawakwi had no choice over mines tax incentives – Magande”. Nawakwi is quoted as saying, "The conditions were near to blackmail. Mining houses demanded blood out of the Zambian people."
I am not sure anyone has really written a convincing account of those negotiations. As a number of commentators in the discussion note, official secrecy about the negotiations and the contracts has hardly been helpful in this field. The same blog includes a lengthy discussion on the original Undermining Development? report with a discussion amongst a range of Zambian economists about how best to move forward. The many points would take too long to summarise. Read it yourself here.
The article, “IMF, World Bank pressured govt to privatise mines – Nawakwi” quotes extensively from the interview prepared for the research with former Finance Minister Edith Nawakwi. Nawakwi, who is now leader of the opposition Forum for Democracy and Development told the authors, “We were told by advisers, who included the International Monetary Fund and the World Bank, that not in my life time would the price of copper change. They put production models on the table and told us that there (was) no copper in Nchanga Mine, Mufulira was supposed to have five years life left and all the production models that could be employed were showing that for the next 20 years, Zambian copper would not make a profit… Conversely, if we privatised we would be able to access debt relief, and this was a huge carrot in front of us – like waving medicine in front of a dying woman. We had no option (but to go ahead).”
This article, and the report itself have provoked very interesting discussions on the excellent ‘Zambian economist’ blog, – read particularly the comments at the end of the post. Cho, the blog’s author, criticizes Nawakwi for not resisting more aggressively donor pressures on Zambia, “The 'devil made me do it' has never got anyone off a crime. For indeed it appears that we came under pressure from young graduates at the IMF and World Bank who spent one week in Zambia and flashed a few models on the table and we crumbled.” The discussion raises important questions about the degree of dependence of Zambia on foreign aid donors, the relationship between dependence and ‘post-colonial’ mentalities, the competence of the civil service, and the potential role of corruption in the signing of the Development Agreements. It doesn’t reach many conclusions, but the contributors are asking some interesting questions. Should we say that the World Bank ‘forced’ Zambia to sell the mines? Or is the relationship between donors and aid recipient Governments more complex than that? What is or was the relationship between the World Bank and IMF and particular mining houses? Did they (do they) actively collaborate? Why? Were the Bank and Fund ‘on Zambia’s side’, trying to get the best deal for the country from the sale? Or were they so ideologically committed to the need to sell that their interests and those of the companies co-incided? What difference does Government part-ownership of the mines (through ZCCM-IH) make? And what about the role of the World Bank, whose ‘finance arm’ IFC is also a shareholder in some of the privatised entities? One discussant adds a link to a Post article on a March 2006 exchange in Parliament between current Finance Minister Magande and Nawakwi - “Nawakwi had no choice over mines tax incentives – Magande”. Nawakwi is quoted as saying, "The conditions were near to blackmail. Mining houses demanded blood out of the Zambian people."
I am not sure anyone has really written a convincing account of those negotiations. As a number of commentators in the discussion note, official secrecy about the negotiations and the contracts has hardly been helpful in this field. The same blog includes a lengthy discussion on the original Undermining Development? report with a discussion amongst a range of Zambian economists about how best to move forward. The many points would take too long to summarise. Read it yourself here.
What’s Magande reading?
The Post reports that Finance and National Planning Minister Ng’andu Magande said government had only received K300 billion from mineral royalties and company tax as of August this year. “Questions have been raised as to whether the concessions are still justifiable. We have seen an unprecedented increase in the international metal prices. Therefore, the basis on which these concessions were given no longer exist which is why our renegotiating team is retreating to find the best way in arriving at a status that benefits both the mining companies and the people of Zambia.”
Well, we have heard something similar from Magande before. What would be really appreciated would be an open discussion of the negotiating objectives of the Government’s team. Why not make this a national debate (or join the debate on Minewatch!) about what Zambia should be aiming to get out of copper-mining contracts, rather than simply claiming the team will ‘retreat’ to discuss it themselves?
Well, we have heard something similar from Magande before. What would be really appreciated would be an open discussion of the negotiating objectives of the Government’s team. Why not make this a national debate (or join the debate on Minewatch!) about what Zambia should be aiming to get out of copper-mining contracts, rather than simply claiming the team will ‘retreat’ to discuss it themselves?
Lubinda reads Minewatch?
The Post reports that outspoken Patriotic Front MP Given Lubinda, Chairman of the Parliamentary Committee on Economic Affairs and Labour, has asked the government to revise taxation of the mines immediately. Lubinda said recent admissions by Paul Collier, a former director of the Development Research Group at the World Bank, that the development agreements signed by Zambia with copper mining companies were a disgrace should give the government impetus to demand a better deal. Collier’s comments were recently reported by Minewatcher. Given, are you reading? Welcome!
Lubinda complained about an invasion by unscrupulous investors. “Some of these sham investors operate in all other activities than the ones for which they applied investment and immigration permits." He called for the establishment of regulations that stimulate backward and forward linkages between foreign and local enterprises. “There is no reason why the government should give lucrative investment terms to foreign investors than to local investors,” Lubinda said. “This is one of the reasons why foreign investors import overalls that are manufactured locally even by our women in their backyards. It is worth noting that quite a number of the consumer products that we import from China are actually manufactured by small entrepreneurs in the backyards of their homes.” Lubinda said his committee was impressed with the rapid investments being made at Konkola Deep Mining Project in Chingola. “With the new developments, KCM will require additional labour,” he said. “Your committee urges the government to insist that KCM and any other investors who import skills put in place a deliberate programme for locals to take over these positions.”
Lubinda complained about an invasion by unscrupulous investors. “Some of these sham investors operate in all other activities than the ones for which they applied investment and immigration permits." He called for the establishment of regulations that stimulate backward and forward linkages between foreign and local enterprises. “There is no reason why the government should give lucrative investment terms to foreign investors than to local investors,” Lubinda said. “This is one of the reasons why foreign investors import overalls that are manufactured locally even by our women in their backyards. It is worth noting that quite a number of the consumer products that we import from China are actually manufactured by small entrepreneurs in the backyards of their homes.” Lubinda said his committee was impressed with the rapid investments being made at Konkola Deep Mining Project in Chingola. “With the new developments, KCM will require additional labour,” he said. “Your committee urges the government to insist that KCM and any other investors who import skills put in place a deliberate programme for locals to take over these positions.”
World Bank reads Undermining Development?
The new Undermining Development? report seems to be reaching the places other reports don’t. In an article titled, 'World Bank endorses revision of mining agreements, on November 2nd, The Post reports that the World Bank fully supports the Zambian government’s efforts to renegotiate the development agreements. New country manager Kapil Kapoor is quoted: “We fully support government’s efforts to revise mining agreements. Zambia should be able to benefit more from high commodity prices and use the earnings to improve other sectors of the economy,” Kapoor said. “This country should take a leaf from Botswana, which has over the last few years utilized its diamond revenues to improve other economic sectors.” The Botswana comparison comes straight from the Undermining Development? report.
Tuesday 30 October 2007
Chinese open second mine at Chambishi
Chinese state-owned mining companies officially launched a second copper mine at Chambishi on Saturday. The West Orebody Project will be run by the same company, NFC-A as runs the existing mine. Total investment for the project is US$100 million. Construction is expected to take three years, and once operational, the mine will will provide 1,500 new job opportunities for the local people.
Xinhua new agency reports that Zambian Vice President Rupiah Banda attended the opening ceremony in Kitwe, as did Chinese Ambassador Li Qiangmin, chief executive officer (CEO) of Zambia-China Economic and Trade Cooperation Zone (ZCCZ) Tao Xinghu and CEO of NFC-A Luo Xingeng. All pressed the idea of a win-win relationship between Zambia and China. However, after struggles over working conditions, and particularly over casualisation and union-busting by NFC-A, described in the For Whom the Windfalls? report, minewatchers will want to keep a close eye on whether the project uses local or Chinese labour, management, parts and suppliers, and on the terms of employment in the mine.
Xinhua new agency reports that Zambian Vice President Rupiah Banda attended the opening ceremony in Kitwe, as did Chinese Ambassador Li Qiangmin, chief executive officer (CEO) of Zambia-China Economic and Trade Cooperation Zone (ZCCZ) Tao Xinghu and CEO of NFC-A Luo Xingeng. All pressed the idea of a win-win relationship between Zambia and China. However, after struggles over working conditions, and particularly over casualisation and union-busting by NFC-A, described in the For Whom the Windfalls? report, minewatchers will want to keep a close eye on whether the project uses local or Chinese labour, management, parts and suppliers, and on the terms of employment in the mine.
More UK media coverage
An excellent article by Nick Mathiason in Sunday's Observer newspaper, reports both on social conditions in mine townships and on the new Undermining Deverlopment? report. The article, titled 'Zambia's new bid to cash in on copper' quotes For Whom the Windfalls? author Professor John Lungu amongst others. It suggests that the re-negotiation process has started, but that Government representatives feel they have nothing but moral pressure to strengthen their hand in the talks. As discussed previously in this blog, that approach appears to underestimate the degree to which the companies themselves are already in breach of their existing contracts.
A detailed story on the Undermining Development? newsletter is also featured in the Ekklesia newsletter.
A detailed story on the Undermining Development? newsletter is also featured in the Ekklesia newsletter.
Monday 29 October 2007
Zambian campaign moves up a notch
The For Whom the Windfalls? report has recently been re-published in Zambia, and the campaign re-launched, with public forums held on :
- Tuesday 23rd October at Edinburgh Hotel, Kitwe,
- Thursday 25th October at Savoy Hotel, Ndola
- Friday 26th October at Protea Hotel, Chingola
The meetings also saw the launch of a new baseline study by CCJDP-Ndola, the Zambian Congress of Trade Unions, Mineworkers Union of Zambia and DeCOP. This research was led by Dr Mitulo Silengo. I hope to post a copy of this research on the site soon. Further plans for regional and international conferences on the Copperbelt and in Lusaka are in the pipeline.
- Tuesday 23rd October at Edinburgh Hotel, Kitwe,
- Thursday 25th October at Savoy Hotel, Ndola
- Friday 26th October at Protea Hotel, Chingola
The meetings also saw the launch of a new baseline study by CCJDP-Ndola, the Zambian Congress of Trade Unions, Mineworkers Union of Zambia and DeCOP. This research was led by Dr Mitulo Silengo. I hope to post a copy of this research on the site soon. Further plans for regional and international conferences on the Copperbelt and in Lusaka are in the pipeline.
Ex-World Bank Director Paul Collier supports re-negotiation
Speaking at the Battle of Ideas last weekend, Paul Collier, former Director of the Development Research group at the World Bank and more recently senior advisor to the Blair Commission on Africa, argued that the Development Agreements signed by Zambia with copper mining companies were a disgrace, and should be re-negotiated. Collier who has recently attracted attention with his book, 'The Bottom Billion' blamed his former employers at the World Bank for posting their most junior economists as advisors on the privatisation. Collier claimed that he is actively campaigning on this issue. I will try to follow up to see what that means, and will post on this blog if I get a reply.
UK Campaign makes immediate splash
The new Undermining Development? report has made an immediate splash in the UK Zambia
Tribute to Teelo Ross, 'For Whom the Windfalls?' designer
It is with sadness that I have to report the sudden and tragic death last week of Teelo Ross, who was killed in a traffic accident in Lusaka.
Teelo designed and managed the production of the For Whom the Windfalls? report. He was a lover of life before he was an artist, and an artist before he was a graphic designer (he was one of Lusaka's finest graphic designers, as anyone who has seen his striking and cheeky billboard adverts for Chilanga Cement or The Post newspaper will know). That meant he was a perfectionist about how the report looked, and he did a beautiful job of making it come to life with his images and lay-out.
He also cared deeply about the subject of the report, having been born in Ndola. As we sat up late trying to make a ridiculously tight production deadline for the report (we failed, as anyone at the bookless book-launch in the Pamodzi will know!), Teelo shared with me his anger at the current state of the places he knew when he was younger, and the conditions in which his friends on the Copperbelt lived and worked.
I will miss him. A tribute site to Teelo on the Facebook website is here.
Alastair
Teelo designed and managed the production of the For Whom the Windfalls? report. He was a lover of life before he was an artist, and an artist before he was a graphic designer (he was one of Lusaka's finest graphic designers, as anyone who has seen his striking and cheeky billboard adverts for Chilanga Cement or The Post newspaper will know). That meant he was a perfectionist about how the report looked, and he did a beautiful job of making it come to life with his images and lay-out.
He also cared deeply about the subject of the report, having been born in Ndola. As we sat up late trying to make a ridiculously tight production deadline for the report (we failed, as anyone at the bookless book-launch in the Pamodzi will know!), Teelo shared with me his anger at the current state of the places he knew when he was younger, and the conditions in which his friends on the Copperbelt lived and worked.
I will miss him. A tribute site to Teelo on the Facebook website is here.
Alastair
Friday 26 October 2007
Undermining Development
Readers will be interested to learn that the Scottish Catholic International Aid Fund (SCIAF), Christian Aid and Action for Southern Africa (ACTSA), with the support of Zambian civil society, have just published a major report – Undermining Development? – on why Zambia fails to derive the benefits that it should from its enormous copper reserves. The focus of the report is KCM, Zambia’s biggest copper company – majority-owned by a UK-based company, Vedanta Resources. The report finds disturbing evidence of contracts signed under pressure from international donors, environmental agreements that allow multinationals to bypass local laws, and workers who receive little reward for gruelling hours of physical labour.
MineWatchZambia has made the reports available for download. The full report is available, along with an executive summary. We will let you know soon where hard copies of the report can be obtained from.
This is the beginning of a major campaign for SCIAF: click here for more information about the 'e-action' they are organising to follow up on their report.
MineWatchZambia has made the reports available for download. The full report is available, along with an executive summary. We will let you know soon where hard copies of the report can be obtained from.
This is the beginning of a major campaign for SCIAF: click here for more information about the 'e-action' they are organising to follow up on their report.
Tuesday 3 April 2007
IMF anxious about Chambishi economic zone?
The IMF yesterday released a press release reporting the conclusions of its recent staff mission lead by Mr. Francesco Caramazza. Given that the Government has closely followed the IMF’s ‘advice’ on contract renegotiations (see next entry), it is perhaps unsurprising that the statement notes, "The announced changes in the fiscal regime for the mining sector are welcome, as is the government's intention to remove fiscal terms from future development agreements. Zambia's tax system is very competitive in the region.”
At the same time the release includes an interesting warning against giving investors too many rights. “While targeted tax incentives for investment can be appropriate under special circumstances, inefficient use of tax incentives, in particular tax holidays, entail significant costs. Therefore, great care needs to be taken to ensure that such incentives associated with multi-facility economic zones do not erode the tax base over time."
This warning appears to reflect IMF concern about the blossoming Zambia-China relationship, and the investment conditions established for Chinese companies entering the recently announced ‘economic zone’ around Chambishi. The site is already a source of major conflict between workers and communities and the existing Chinese investors such as NFC-A, BGRIMM Explosives and Sinozam Hospital. The IMF's concerns may be quite genuine - after all it wants Zambian revenue streams to increase. At the same time, Western institutions have a number of reasons for fearing increasing Chinese investment and influence in Zambia, not least that it weakens their relative influence over the Government. As Dan Haglund noted in a recent entry, the terms of Chinese investment may also be fungible with other sorts of assistance to the Zambian state (and ruling party?)
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At the same time the release includes an interesting warning against giving investors too many rights. “While targeted tax incentives for investment can be appropriate under special circumstances, inefficient use of tax incentives, in particular tax holidays, entail significant costs. Therefore, great care needs to be taken to ensure that such incentives associated with multi-facility economic zones do not erode the tax base over time."
This warning appears to reflect IMF concern about the blossoming Zambia-China relationship, and the investment conditions established for Chinese companies entering the recently announced ‘economic zone’ around Chambishi. The site is already a source of major conflict between workers and communities and the existing Chinese investors such as NFC-A, BGRIMM Explosives and Sinozam Hospital. The IMF's concerns may be quite genuine - after all it wants Zambian revenue streams to increase. At the same time, Western institutions have a number of reasons for fearing increasing Chinese investment and influence in Zambia, not least that it weakens their relative influence over the Government. As Dan Haglund noted in a recent entry, the terms of Chinese investment may also be fungible with other sorts of assistance to the Zambian state (and ruling party?)
__________
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IMF behind exemptions to mineral royalty hike
++Apologies for the length and technical nature of this entry, the original article is very detailed. You will need a subscription to read it in full, so for those without I quote extensively.++
As previously discussed in this blog, The Post newspaper claims to have access to IMF documents on taxation in the mining sector that have heavily influenced the Ministry of Finance’s approach to mineral royalties and the renegotiation of Development Agreements (DAs). Another report today contains further details, as well as naming the documents.
The paper claims the reports were prepared by the IMF Fiscal Affairs Department at the request of Finance Minister and that they are titled, "Fiscal regime for copper mining", November 2005 and "Fiscal arrangements for the mining sector - a further review" August 2006. (I cannot find either document on the IMF’s huge website, though an eager reader might be able to hunt them down, and please forward them. It is surprising what the IMF do paste on the site – there is just do much there that it is hard to find the documents. I have also asked both the IMF mission in Lusaka and The Post to share them, and if successful, will post them here.)
The report makes a number of interesting claims.
1) The Post notes, “the IMF strongly recommended that the government increases the mineral royalty tax from 0.6 per cent to a maximum of three per cent.” The word maximum is worth noting. MPs and others have been asking the Minister of Finance where the widely discussed 3% figure came from and why it cannot be higher. Typically it is suggested that this is towards the lower end of regional and international average royalties, so it would increase revenue but keep Zambia ‘competitive’. Whether you accept this argument depends on why you believe mining firms come to Zambia: to exploit high grade copper deposits or to take advantage of tax incentives? Some regional royalties are as high as 20%. We may now have an answer as to how the 3% figure appears to have been set in stone.
2) The Post also quotes the IMF stating that, "The mission recommends that existing development agreements should be respected and appropriate legal advice taken before any initiative is contemplated that might amount to an invitation to contract parties to revise any terms of their agreements." This explains where the exemption for existing contract holders in recently announced revision of the Mines and Minerals Act comes from. It also contradicts suggestions made by mining executives and reported in ‘For Whom the Windfalls?’ that the IMF changed their position on exemptions following meetings in October 2006. It appears that defending corporate interests was already the preference of the IMF in August, and that they felt renegotiation could only proceed with the agreement of the companies. At the same time, the IMF suggests that, “If revision of terms for existing investors, by mutual agreement, becomes possible, the mission recommends that any revisions should be consistent, as far as possible, with the revised fiscal terms for new projects. In particular, royalty should not exceed three percent of netback value; and additional payments to government should take the form of a proportional tax when a specified rate of return has been achieved.” Thias raises another issue. The Government’s view that the only issue for re-negotiation would be the royalty rate is reported in ‘For Whom the Windfalls?’ What then is the ‘proportional tax’ being discussed here, and does it open up hopes for a more ambitious renegotiation? Again, comments are welcome.
3) Despite its role in demanding the legislation that allowed them to be negotiated, and its defence of their legal inviobility, the IMF implicitly recognises that the existing DAs are unfair, saying no further contracts should be signed under the same terms. The IMF argues that Zambia should wait until “the scope of the agreements has been narrowed, and the revised fiscal terms for new projects can be incorporated…. The Mines and Minerals Act (section 9) should be amended as soon as possible to provide that the minister does not have scope to vary fiscal terms, or exempt royalties, or to include fiscal matters other than fiscal stability in development agreements.” This last section is interesting (at least to historians of the negotiating process). The IMF seems to be suggesting that the problem with the DAs flows not from the original IMF-planned legislation, but from an amendment in 2000. The Post report, “The IMF noted that when the Mines and Minerals Act was enacted in 1995, it provided clear powers for the making of mining agreements. However, the mines minister had no authority to vary fiscal terms other than royalty terms in a development agreement but after enactment of the 2000 amendments to the Mines and Minerals Act, development agreements could override any existing law or regulation.” This is an odd claim given that most of the Development Agreements were negotiated and signed before 2000. Chambishi Metals, NFC, Kansanhi and Chibuluma all signed between 1997 and 1998. KCM (the first time around under Anglo-American) and Mopani signed in March 2000. Minewatcher doesn’t know anything about this amendment. However, it is my understanding that all of the Development Agreements override existing laws and regulations. Information and views from readers would be welcome.
4) The IMF reports also discuss other potential sources of revenue for Zambia – price participation and the ZCCM-IH minority holdings in the mining companies. They note that neither mechanism is as yet performing to the benefit of Zambia and suggest that the financial structure of ZCCM-IH should be reviewed. These are issues that a number of readers have picked up on and suggested are not sufficiently considered in ‘For Whom the Windfalls?’ I would welcome further discussion and clarification of the issue on this site.
5) The mission developed simulation models showing the impact on profits of the three largest mining enterprises in Zambia: KCM, Mopani, and Kansanshi in case of price fluctuations. It found that Kansanshi and KCM would yield the highest returns, with Mopani currently less profitable. The simulations suggested that KCM and Mopani would be vulnerable to sudden falls in price and proposed that the state’s share of the take from mining should be designed to respond to both high and low world copper prices.
6) Finally, The Post also claims, “officials in the Ministry of Mines and some cabinet ministers who were approached, said they never saw any such reports from IMF tabled before them for their consideration.” It seems perfectly possible the Cabinet have not seen the documents. Certainly they have never been shared with Parliament. Obviously someone in the Finance Ministry has seen them, given that they formed the basis of the 2007 budget. Perhaps what is implied is that the report is not openly available for inspection within the Ministry, or that internal procedures were not followed? This is an interesting example of how IMF influence is strong but completely untransparent. Everyone following this issue has known for some time that the Government is hiding behind (sorry, should that be ‘basing its position on’) ‘expert’ recommendations from the IMF. Unless the basis for such recommendations are open for inspection and challenge for Cabinet, Parliament and civil society, the effect of IMF interventions is to close down democratic debate.
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As previously discussed in this blog, The Post newspaper claims to have access to IMF documents on taxation in the mining sector that have heavily influenced the Ministry of Finance’s approach to mineral royalties and the renegotiation of Development Agreements (DAs). Another report today contains further details, as well as naming the documents.
The paper claims the reports were prepared by the IMF Fiscal Affairs Department at the request of Finance Minister and that they are titled, "Fiscal regime for copper mining", November 2005 and "Fiscal arrangements for the mining sector - a further review" August 2006. (I cannot find either document on the IMF’s huge website, though an eager reader might be able to hunt them down, and please forward them. It is surprising what the IMF do paste on the site – there is just do much there that it is hard to find the documents. I have also asked both the IMF mission in Lusaka and The Post to share them, and if successful, will post them here.)
The report makes a number of interesting claims.
1) The Post notes, “the IMF strongly recommended that the government increases the mineral royalty tax from 0.6 per cent to a maximum of three per cent.” The word maximum is worth noting. MPs and others have been asking the Minister of Finance where the widely discussed 3% figure came from and why it cannot be higher. Typically it is suggested that this is towards the lower end of regional and international average royalties, so it would increase revenue but keep Zambia ‘competitive’. Whether you accept this argument depends on why you believe mining firms come to Zambia: to exploit high grade copper deposits or to take advantage of tax incentives? Some regional royalties are as high as 20%. We may now have an answer as to how the 3% figure appears to have been set in stone.
2) The Post also quotes the IMF stating that, "The mission recommends that existing development agreements should be respected and appropriate legal advice taken before any initiative is contemplated that might amount to an invitation to contract parties to revise any terms of their agreements." This explains where the exemption for existing contract holders in recently announced revision of the Mines and Minerals Act comes from. It also contradicts suggestions made by mining executives and reported in ‘For Whom the Windfalls?’ that the IMF changed their position on exemptions following meetings in October 2006. It appears that defending corporate interests was already the preference of the IMF in August, and that they felt renegotiation could only proceed with the agreement of the companies. At the same time, the IMF suggests that, “If revision of terms for existing investors, by mutual agreement, becomes possible, the mission recommends that any revisions should be consistent, as far as possible, with the revised fiscal terms for new projects. In particular, royalty should not exceed three percent of netback value; and additional payments to government should take the form of a proportional tax when a specified rate of return has been achieved.” Thias raises another issue. The Government’s view that the only issue for re-negotiation would be the royalty rate is reported in ‘For Whom the Windfalls?’ What then is the ‘proportional tax’ being discussed here, and does it open up hopes for a more ambitious renegotiation? Again, comments are welcome.
3) Despite its role in demanding the legislation that allowed them to be negotiated, and its defence of their legal inviobility, the IMF implicitly recognises that the existing DAs are unfair, saying no further contracts should be signed under the same terms. The IMF argues that Zambia should wait until “the scope of the agreements has been narrowed, and the revised fiscal terms for new projects can be incorporated…. The Mines and Minerals Act (section 9) should be amended as soon as possible to provide that the minister does not have scope to vary fiscal terms, or exempt royalties, or to include fiscal matters other than fiscal stability in development agreements.” This last section is interesting (at least to historians of the negotiating process). The IMF seems to be suggesting that the problem with the DAs flows not from the original IMF-planned legislation, but from an amendment in 2000. The Post report, “The IMF noted that when the Mines and Minerals Act was enacted in 1995, it provided clear powers for the making of mining agreements. However, the mines minister had no authority to vary fiscal terms other than royalty terms in a development agreement but after enactment of the 2000 amendments to the Mines and Minerals Act, development agreements could override any existing law or regulation.” This is an odd claim given that most of the Development Agreements were negotiated and signed before 2000. Chambishi Metals, NFC, Kansanhi and Chibuluma all signed between 1997 and 1998. KCM (the first time around under Anglo-American) and Mopani signed in March 2000. Minewatcher doesn’t know anything about this amendment. However, it is my understanding that all of the Development Agreements override existing laws and regulations. Information and views from readers would be welcome.
4) The IMF reports also discuss other potential sources of revenue for Zambia – price participation and the ZCCM-IH minority holdings in the mining companies. They note that neither mechanism is as yet performing to the benefit of Zambia and suggest that the financial structure of ZCCM-IH should be reviewed. These are issues that a number of readers have picked up on and suggested are not sufficiently considered in ‘For Whom the Windfalls?’ I would welcome further discussion and clarification of the issue on this site.
5) The mission developed simulation models showing the impact on profits of the three largest mining enterprises in Zambia: KCM, Mopani, and Kansanshi in case of price fluctuations. It found that Kansanshi and KCM would yield the highest returns, with Mopani currently less profitable. The simulations suggested that KCM and Mopani would be vulnerable to sudden falls in price and proposed that the state’s share of the take from mining should be designed to respond to both high and low world copper prices.
6) Finally, The Post also claims, “officials in the Ministry of Mines and some cabinet ministers who were approached, said they never saw any such reports from IMF tabled before them for their consideration.” It seems perfectly possible the Cabinet have not seen the documents. Certainly they have never been shared with Parliament. Obviously someone in the Finance Ministry has seen them, given that they formed the basis of the 2007 budget. Perhaps what is implied is that the report is not openly available for inspection within the Ministry, or that internal procedures were not followed? This is an interesting example of how IMF influence is strong but completely untransparent. Everyone following this issue has known for some time that the Government is hiding behind (sorry, should that be ‘basing its position on’) ‘expert’ recommendations from the IMF. Unless the basis for such recommendations are open for inspection and challenge for Cabinet, Parliament and civil society, the effect of IMF interventions is to close down democratic debate.
_________
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Monday 2 April 2007
Mopani’s new procurement system worries local suppliers
The Post reports today that Mopani Copper Mines, owned by Swiss mining giant Glencore, has entered into an agreement with a Dutch company Quadrem to manage their procurement procedures.
Kantanshi MP Yamfwa Mukanga said the system would only help create employment and wealth for foreigners. Citizens Forum Copperbelt chairperson Mike Kabuli said Mopani should have engaged a local firm.
As reported in For Whom the Windfalls?, procurement has been a topic of significant controversy on the Copperbelt with mining companies accused of intentionally destroying the systems that operated under ZCCM in order to favour foreign suppliers of goods and services previously sourced locally.
The system will be managed via the internet. Requests for quotations will be issued electronically to suppliers who respond electronically and that orders would be delivered to them via the same system. Prospective suppliers to Mopani will now be required to pay subscription fees to Quadrem in order to register as suppliers. Fees for joining the RFQs (Request For Quotations) system have been pegged at US$3,000 for six months. Suppliers will be billed after receiving five requests. Membership fees range from US$600 for micro suppliers to US$8,000 for very large suppliers.
Mopani management told The Post that they had chosen Quadren due to their "Web Trust Certified which is an independently audited endorsement that information traded via their marketplace is secure and confidential.” Quadrem is well known globally, managing supply chains for international mining houses. They are yet to establish their Zambian operations.
Sunday 1 April 2007
Some comments on the current debate about DA renegotiation
Dear Minewatchers,
I wanted to leave a couple of comments on the recent posts about renegotiation of the development agreements (DAs). First of all, a big thank you to the MineWatchZambia blog for keeping us foreign observers up to date with what’s happening on the ground in Zambia. By making several of the key development agreements available, Professor Lungu and Mr. Fraser have indeed made a key contribution to the debate on state-investor contracts, recognised as fundamental to the end-of-the-day impact that foreign mining companies have on a host-country’s development (for an international discussion of the links between state-investor contracts and development, please see www.iied.org/pubs/pdf/full/16007IIED.pdf)
We should welcome the current attempt to clarify the positions of the mining companies by asking (via the Chamber of Mines) what companies consider to be their rights and responsibilities vis-à-vis the Zambian state and its people (as reported by Professor Lungu on the MWZ blog). In fact, a better understanding of how mining companies perceive the legitimacy of their social and environmental commitments to the Zambian government is necessary if the two parties are ever to meet half-way at the (re)negotiation table. The MWZ blog has noted that the General Manager of the Chamber of Mines will at some point appear before the Parliamentary Committee to respond to these questions on behalf of the mining industry as a whole, which should be interesting. I think a possible concern, however, relates to the internal differences among the mining companies regarding their interpretation of the DAs (as suggested by the For Whom the Windfalls report). This would suggest that explanations need to be sought also at the company level, in addition to the industry level (after all, the companies each have unique – albeit very similar – DAs). To complement public engagement with the mining industry, perhaps further research into the company-specific interpretations of the policy environment may provide useful clues as to how government and other stakeholders can target their efforts at pushing for renegotiation. I aim to explore these issues as part of my doctoral research in Zambia starting in July, any observations of relevance will of course be reported here on the MWZ blog.
My second comment concerns the need to end the culture of secrecy referred to by the For Whom the Windfalls report. Government must realise that making DAs and other reports publicly available can be a way to complement its own capacity for enforcing regulations of mining firms. As the report notes, DAs commit companies to provide certain social services, environmental management plans etc. – conditions which in many cases seem to have been ignored by the companies. It can be argued that these conditions have been ignored because firms have been able to “get away with it”, i.e. because monitoring and enforcement has not been forthcoming. It seems to me that the need to tap non-state efforts at monitoring of local regulation (by making public regulatory contracts) may be of particular importance in the context of Chinese investors: the Chinese foreign policy of non-involvement appears to translate to a stance where regulations are left entirely to the host state – for example if the host state does not ask for an environmental impact assessment, no such assessment will be undertaken. This should be contrasted with the approach of other investors: it is likely that firms financed by the World Bank/IFC, or by Western banks guided by the Equator Principles, face certain pressures external to Zambia’s policy context, requiring them to adhere to basic social, environmental and reporting standards. The recently announced Chinese $800m special economic zone to be established around Chambishi (see for example http://allafrica.com/stories/200702050690.html) points to the need of ensuring that any contracts governing the split of rights and obligations between state and investor are debated openly.
Speaking of the Chinese, Bert Manders has noted in a previous post that it is surprising to see the Zambian government being so soft on general misconduct at Chambishi and the riots and BGRIMM incident in particular. It is indeed unfortunate, but perhaps it is not so surprising – where Chinese investors are state-owned, government’s relationship with these investors become fungible with other China-Zambia agreements relating to aid, trade and other cooperation. Hence the bargaining power of Chambishi mines vis-à-vis the Zambian government is not just that they bring in a certain amount of capital to upgrade the mines, employ a certain number of people etc. Rather it may be seen as being linked to wider Chinese economic and political interests. Any attempts to challenge NFC Africa by strengthening regulation, making contracts public etc, might be seen as jeopardising much more than that one mining investment. If so these attempts can be expected to lead to some opposition from those in government who benefit from Chinese engagement.
University of Bath
d.haglund@bath.ac.uk
Friday 30 March 2007
Post editorial: "Sickening Irresponsibility on mineral royalty tax"
**As with all stories from The Post, you will require an online subscription to access the link**
Today's editorial in The Post newspaper is entitled, "Sickening irresponsibility on mineral royalty tax". It's tone reflects deepening concern that the Minister of Finance is showing little energy in following through on his commitment to renegotiate existing Development Agreements. The Post seems to have been particularly provoked by recent debates in Parliament and the Minister's cancellation of an interview with the paper on the issue (reported on the front page today).
The editorial notes, "During 2006, preceding the general elections finance minister Ng’andu Magande made several loud, but now worthless public announcements that government was going to revise the mineral royalty tax. However, as we have seen from the 2007 budget proposals, there is little to show for it. Magande must learn to walk the talk."
The Post also discusses the role of the IMF in the negotiations. "We know that the 2006 IMF mission at the invitation of government held meetings with Evans Chibiliti, the Secretary to the Treasury and chair of the technical committee examining development agreements and the fiscal regime for the mining sector. What did Chibiliti do? Did he invite all the stakeholders and existing mining houses with development agreements for a discussion? From what we have gathered, no meaningful discussions have taken place to-date either with the mining houses or stakeholders. Yet we know from reading the IMF recommendations on mineral royalty taxes, which report neither the Ministry of Mines nor Cabinet has seen or discussed, that Magande carelessly accepted the IMF recommendations and proposed those he could get away with under the 2007 budget."
As 'For Whom the Windfalls?' reports, we know that this isn't quite right. Although there haven't been any substantive discussions with individual companies about revising agreements, during the IMF mission, the Ministry of Finance attempted to use the IMF's recommendations to pressure the companies, and did indeed invite representatives of some of the mining companies, led by the Chamber of Mines, to a meeting with Ministry officials and the IMF team. At the meeting the IMF's proposals were discussed. As 'For Whom the Windfalls?' revealed, the companies were annoyed, feeling hi-jacked by the meeting. However by the end of it, they were also confident that they had seen off proposals they could not accept. It was in discussion of these meetings with mine management that the minewatchzambia researchers first heard the argument that there might be a revision of the mineral royalties, but with an exemption for existing contract holders, which is, so far, exactly what has happened. Company executives claimed that they convinced the IMF of this position.
The Post claims that although the Cabinet and Ministry of Mines haven't seen the IMF recommendations, The Post has read a copy itself. Minewatcher will approach The Post for its copy of the recommendations, and will put them on this site if they are forwarded. Anyone else with access should feel free to forward the documents.
The Post claims also asks: "And we have to ask; why have parliamentarians not seen the development agreements? Why is government hiding these agreements from Parliament and therefore the public?" We know that members of the Mine Watch Zambia network have distributed copies of 'For Whom the Windfalls?' to a large number of Parliamentarians, and that they should therefore be aware that some of the Development Agreements are available to them and everyone else on this website. The question seems to me to be: why does Government not lodge copies of all the Development Agreements, and the annual reports from each of the companies to the Ministry of Mines in Parliament for inspection by MPs, and online for inspection by all citizens?
Today's editorial in The Post newspaper is entitled, "Sickening irresponsibility on mineral royalty tax". It's tone reflects deepening concern that the Minister of Finance is showing little energy in following through on his commitment to renegotiate existing Development Agreements. The Post seems to have been particularly provoked by recent debates in Parliament and the Minister's cancellation of an interview with the paper on the issue (reported on the front page today).
The editorial notes, "During 2006, preceding the general elections finance minister Ng’andu Magande made several loud, but now worthless public announcements that government was going to revise the mineral royalty tax. However, as we have seen from the 2007 budget proposals, there is little to show for it. Magande must learn to walk the talk."
The Post also discusses the role of the IMF in the negotiations. "We know that the 2006 IMF mission at the invitation of government held meetings with Evans Chibiliti, the Secretary to the Treasury and chair of the technical committee examining development agreements and the fiscal regime for the mining sector. What did Chibiliti do? Did he invite all the stakeholders and existing mining houses with development agreements for a discussion? From what we have gathered, no meaningful discussions have taken place to-date either with the mining houses or stakeholders. Yet we know from reading the IMF recommendations on mineral royalty taxes, which report neither the Ministry of Mines nor Cabinet has seen or discussed, that Magande carelessly accepted the IMF recommendations and proposed those he could get away with under the 2007 budget."
As 'For Whom the Windfalls?' reports, we know that this isn't quite right. Although there haven't been any substantive discussions with individual companies about revising agreements, during the IMF mission, the Ministry of Finance attempted to use the IMF's recommendations to pressure the companies, and did indeed invite representatives of some of the mining companies, led by the Chamber of Mines, to a meeting with Ministry officials and the IMF team. At the meeting the IMF's proposals were discussed. As 'For Whom the Windfalls?' revealed, the companies were annoyed, feeling hi-jacked by the meeting. However by the end of it, they were also confident that they had seen off proposals they could not accept. It was in discussion of these meetings with mine management that the minewatchzambia researchers first heard the argument that there might be a revision of the mineral royalties, but with an exemption for existing contract holders, which is, so far, exactly what has happened. Company executives claimed that they convinced the IMF of this position.
The Post claims that although the Cabinet and Ministry of Mines haven't seen the IMF recommendations, The Post has read a copy itself. Minewatcher will approach The Post for its copy of the recommendations, and will put them on this site if they are forwarded. Anyone else with access should feel free to forward the documents.
The Post claims also asks: "And we have to ask; why have parliamentarians not seen the development agreements? Why is government hiding these agreements from Parliament and therefore the public?" We know that members of the Mine Watch Zambia network have distributed copies of 'For Whom the Windfalls?' to a large number of Parliamentarians, and that they should therefore be aware that some of the Development Agreements are available to them and everyone else on this website. The question seems to me to be: why does Government not lodge copies of all the Development Agreements, and the annual reports from each of the companies to the Ministry of Mines in Parliament for inspection by MPs, and online for inspection by all citizens?
KCM and Environmental Council reach amicable settlement
ZANIS, the Zambian Government News Agency, is reporting via Zambian radio stations this morning (I will try to find an internet link) that Konkola Copper Mines (KCM), owned by Anglo-Indian multinational Vedanta Resources have reached an 'amicable settlement' with the Environmental Council of Zambia (ECZ) over its pollution of the Kafue River.
The issue is discussed in detail in the 'For Whom the Windfalls?' report, and was an issue of significant controversy in the country late last year, due to the severity of the poisoning of one of Zambia's main water sources and the perceived failings of Government in general and regulatory authorities such as ECZ in particular to hold companies accountable for illegal activities in terms of environment, labour and health and safety.
The details of the settlement will no doubt emerge in days to come, but the terms being reported in the media seem incredibly generous to the company, especially given that immediately following the spill, ECZ were threatening legal action against the company. KCM has apparently replaced all of the corroded pipes in its pollution control dam, which were responsible for the original spill, and has provided boreholes so that residents in the local townships and villages most immediately affected by the spill can access water without recourse to the river itself.
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The issue is discussed in detail in the 'For Whom the Windfalls?' report, and was an issue of significant controversy in the country late last year, due to the severity of the poisoning of one of Zambia's main water sources and the perceived failings of Government in general and regulatory authorities such as ECZ in particular to hold companies accountable for illegal activities in terms of environment, labour and health and safety.
The details of the settlement will no doubt emerge in days to come, but the terms being reported in the media seem incredibly generous to the company, especially given that immediately following the spill, ECZ were threatening legal action against the company. KCM has apparently replaced all of the corroded pipes in its pollution control dam, which were responsible for the original spill, and has provided boreholes so that residents in the local townships and villages most immediately affected by the spill can access water without recourse to the river itself.
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Thursday 29 March 2007
Committee on Economic Affairs and Labour pressures Mining Companies
A message below from John Lungu.
"On 28 February 2007, the Clerk of the National Assembly wrote to the Chamber of Mines (the representative body for the mining companies) asking them questions on the adequacy of Zambia's Legal and Policy Framework on Investment. The critical questions asked were:
i) What the national Investment objectives are
ii) What Government responsbilities to foreign investors are
iii) What Government responsibilities to local investors are
iv) What the investors responsibilities to workers are
V) What the investors responsibilities to the communities within which they operate are; and
vi) What the responsibilities of the investors are to the economy at large. The answers the Chamber of Mine will provide to these questions will be very interesting to follow because they will either provide the defence we all await for or will agree with the findings of the report "For Whom the Windfalls?" The CSTNZ and CCJDP in Lusaka should be on the lookout when the General Manager of the Chamber of Mines finally appears before the parliamentary committee.
John Lungu"
"On 28 February 2007, the Clerk of the National Assembly wrote to the Chamber of Mines (the representative body for the mining companies) asking them questions on the adequacy of Zambia's Legal and Policy Framework on Investment. The critical questions asked were:
i) What the national Investment objectives are
ii) What Government responsbilities to foreign investors are
iii) What Government responsibilities to local investors are
iv) What the investors responsibilities to workers are
V) What the investors responsibilities to the communities within which they operate are; and
vi) What the responsibilities of the investors are to the economy at large. The answers the Chamber of Mine will provide to these questions will be very interesting to follow because they will either provide the defence we all await for or will agree with the findings of the report "For Whom the Windfalls?" The CSTNZ and CCJDP in Lusaka should be on the lookout when the General Manager of the Chamber of Mines finally appears before the parliamentary committee.
John Lungu"
Pressure for renegotiation: are DAs unconstitutional?
As noted in the last entry to this blog, revealing corruption in the process of negotiating mining companies' original contracts offers one potential source of pressure on the companies to accept a renegotiation. Still, proving corruption in the Zambian courts has historically proved an extremely drawn out process. So what other sources of pressure are there?
This blog has also previously proposed that research to demonstrate that companies are in breach of the commitments they made in the Development Agreements (DAs) could be another source of pressure.
A third course is proposed in a letter from Nkula Kaoma in The Post today. I will quote it at length since the argument is technical and complex. The letter argues that "Article 114 (3) of the Constitution provides that, “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 period and subject to such conditions as may be prescribed by Parliament:”
...These development agreements... altered the payment of royalties from 3 per cent to 0.6 per cent and that they were signed by the minister and the new mine owners.
Bearing in mind that royalties form part of taxation, were these development agreements presented in the National Assembly by the President, Vice President or Minister as “orders” seeking to alter taxation known as royalties as provided for by Article 114 (3) of the Constitution?
.... If these development agreements were not presented as “orders” in the National Assembly seeking to alter taxation, then they are in breach of the Constitution and any other law (section 9 (2) of the mines and minerals Act) which is inconsistent with the Constitution, that other law shall, to the extent of the inconsistency be void.
As such, these development agreements can be altered by government without any breach so as to impose meaningful taxation in the mining industry for the benefit of the country."
I don't have the legal knowledge to know what value this argument has. What do readers think?
This blog has also previously proposed that research to demonstrate that companies are in breach of the commitments they made in the Development Agreements (DAs) could be another source of pressure.
A third course is proposed in a letter from Nkula Kaoma in The Post today. I will quote it at length since the argument is technical and complex. The letter argues that "Article 114 (3) of the Constitution provides that, “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 period and subject to such conditions as may be prescribed by Parliament:”
...These development agreements... altered the payment of royalties from 3 per cent to 0.6 per cent and that they were signed by the minister and the new mine owners.
Bearing in mind that royalties form part of taxation, were these development agreements presented in the National Assembly by the President, Vice President or Minister as “orders” seeking to alter taxation known as royalties as provided for by Article 114 (3) of the Constitution?
.... If these development agreements were not presented as “orders” in the National Assembly seeking to alter taxation, then they are in breach of the Constitution and any other law (section 9 (2) of the mines and minerals Act) which is inconsistent with the Constitution, that other law shall, to the extent of the inconsistency be void.
As such, these development agreements can be altered by government without any breach so as to impose meaningful taxation in the mining industry for the benefit of the country."
I don't have the legal knowledge to know what value this argument has. What do readers think?
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