Saturday 22 December 2007

Chingola residents sue KCM over pollution

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."

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.

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).

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.


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 f
or 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.

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.

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:
  • 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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