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.
No comments:
Post a Comment