Reader comments: Chile's success - Value of ZCCM-IH

A note below from reader Bert Manders:

Dear Mr. Fraser and Lungu,

Great to find the 'Windfalls' report. First of all my congratulations that you guys got hold of the Development Agreements (DA's) and released them on the web. A very good initiative to look at the windfall issue. The report has a good balance and we must be happy that you did not propose to re-nationalise the mines.
I am happy to accept your invitation to comment, but let me introduce myself. My name is Bert Manders and I worked as a geologist in the 1980's in the Copperbelt and Kansanshi. Since a few years I contribute mining news to a low key periodical for Dutch Expats who have lived in Zambia (Zambia Nieuwsbrief). For the issue which covered the republic's 40th birthday I prepared "Ups & Downs in Zambian Copper Mining". This resulted in a paper that I presented at a NHRZ (History Research Zambia) conference in August 2005 in Lusaka. Then, I also re-visited the mines at Chingola and Kansanshi. Below a few poorly arranged but brief comments on the Windfall report:
WHY DID CHILE SO MUCH BETTER: The Windfall report has stated somewhere that the Zambian mining industry went down because copper prices fell between 1970 and 2000. But how come that is the same period, Chile doubled its output? The prime reason for Zambia's dramatic decline was a lack in political will to invest in the mines and the inability to attract capital and expertise. ZCCM was GRZ's Milk-Cow. So, let the new companies do what they do best: making profits from copper mining and supply tax to GRZ.

PREDICT TAXES: The amount of past and future tax to GRZ should be quantified by all means. Why not ask an accountant or economist with mining experience in Oxford or the Copperbelt to predict the tax income from copper mining for the next five years. Variables like investments, costs, amortisation, carry-overs and production may be easy to find in public sources. Combine this with a variable copper price, and the mining income for GRZ can be modelled. As Dag Haglund in this blog hoped, mining companies may be willing to co-operate on tax predictions. First-Quantum makes good annual reports, but the Swiss, Indians and Chinese may seem to prefer secrecy.
VALUE OF ZCCM-IH: This 85% state company (with a 10 to 20% share in most mines) didn't contribute in the investments, but it should receive hard cash dividends some day. Can anybody predict what income ZCCM-IH will generate in a few years ? Michael Coulson made interesting remarks about the company at http://finance.google.com/finance?q=LUS:ZCCM
TOP LAWYERS: Negotiating the changes in the Development Agreements is healthier on the long term than a government decree. Kaunda's nationalisation and removal of managers in the 70's was not a great success after all. GRZ must find top-quality lawyers and accountants to negotiate on its behalf. Such top specialists should come from outside Zambia, but not be related to IMF or other money lenders. Expensive experts, but the extra tax income later will be worth it.
WHO SHOULD BLOW THE WINDFALL ? I am afraid that the tax will disappear in the GRZ budget and very little will return to the Copperbelt. Involvements by a mining company in the Copperbelt social infra-structure has its risks as well. It will start feeding with a copper spoon finger, followed by loosing the hand and before you know the arm has been consumed (all symbolic of course !). The Kansanshi Foundation (Times of Zambia, March 21) is a good start, but where does it end ? Politicians like Sata will always shout that the mining companies do too little. But do state enterprises like ZESCO and Maamba treat their workers any better?
CHINESE TAKE-AWAYS: What surprises me is not only the behaviour of the Chinese firms in Zambia, but also how soft politicians react. No measures by the government after the explosion and shooting in Chambishi. No measures when Chinese managers at Column Coal insulted the Minister of Southern Province, Mrs Simango. The Windfall report also proves that Zambians in Chinese-operated mines are very poorly paid and treated. On the medium term, the Chinese could very well purchase mines like Konkola, Mopani and Kansanshi for hard cash. After that the Zambian workers will really suffer and can only dream of those good old days at the start of the 21st century.
Bert Manders