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 from other opposition figures. UPND Copperbelt Province chairman Joe Kalusa invited the entire cabinet in place at the time of negotiations "to explain to us why they bowed down to the pressure of the International Monetary Fund and the World Bank for us to privatise the mines and later on offer unimaginable incentives to investors.” Kalusa said the government should increase royalties in the same way that domestic and other taxes are raised whenever required. “When government thinks of increasing domestic taxes, I don’t think we are consulted. All we hear is an announcement during the presentation of the budget that some taxes have been revised. Why then should mineral royalties require experts to convene and discuss this whole thing?” Kalusa asked. “Is it because it is mainly the foreign investors involved in this that they want to use the other procedures of adjusting taxes than what government uses on its people?”

University of Zambia development studies lecturer, Dr Francis Chigunta backed the calls, as reported by the Post here."Dr Chigunta suggested that a reasonable amount of pressure be put on government so that a proposal for a change in mineral royalties is presented to Parliament before the current sitting adjourns. “It doesn’t make sense for experts to be engaged for this renegotiation process when we have got a Parliament that makes laws. I totally agree with what Forum for Democracy and Development president Edith Nawakwi said with regard to taking a proposal to Parliament for an increment to royalties,” Dr Chigunta said. “Our country should learn from what other countries such as Chile did for them to get higher mineral royalties.”"

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.