Govt removes ZCI case from Competition Commission, sale goes through

Mining Weekly report that the sale of ZCI's shares in Konkola Copper Mines (KCM) to Vedanta Resources has finally gone through. Vedanta have also issued a press release. So have ZCI.

The story is slightly strangely worded, "The Government of the Republic of Zambia had removed this transaction from the jurisdiction of the Zambian Competition Commission, ZCI said." Odd. The ZCI press release contains the same concept, "the Government of the Republic of Zambia invoked section 3f of the Zambian Competition and Fair Trading Act, which effectively removes this transaction from the jurisdiction of the ZCC." Does that mean the competition commission never completed its investigation and was politically interefered with?

Conspiracy theorisist (I don't necesarilly include myself, but there are plenty buzzing around this issue) will no doubt note the 'good news' of Vedanta's acceptance of the new tax regime in the last couple of days, and the Government's very welcoming response.

The story continues: "ZCI has, in turn, provided Vedanta with the requisite documentation to effect transfer of the remaining 28,4% of Konkola Copper Mines," it stated in a note to the Johannesburg bourse."As the transaction has now been completed, caution is no longer required to be exercised by shareholders when dealing in their securities," said ZCI. "The directors are currently examining the options for the future of the company and will shortly present shareholders with these proposals in order to involve all stakeholders in this process."

Vedanta "We shall not go to court nor renegotiate the new tax measures"

The Daily Mail reports that Konkola Copper Mines (KCM), owned by Vedanta Resources, will accept unconditionally Zambia's new mine tax regime.

KCM resident director, Deb Bandyopadhyay told the Daily Mail in an exclusive interview that there was no point in taking Government to court because the new mineral and royalty taxes were justified by the favourable copper prices on the global market.“The new taxes are an act of Parliament. We cannot fight with Government over something that is law. We shall not go to court nor renegotiate the new tax measures,” Mr Bandyopadhyay said.

He said the rationale behind Government’s decision to increase the mineral taxes was clear and that the matter would not be contested in anyway because KCM, the country’s largest integrated natural resources firm, was ready to pay. Mineral royalty tax has risen from 0.6 per cent to three per cent and company tax from 25 to 30 per cent with effect from April 1 this year. Some mine owners have threatened to take Government to court if it implemented the new tax regime, which they argue contradicts the legally binding development agreements they signed when they bought the mines. But Mr Bandyopadhyay said KCM would not waste time taking Government to court because it was obvious that it could not stick to the development agreements when a lot of things had changed in the mining industry.

KCM also has no plans to reduce its activities in view of the new taxes, but instead invest more. “We shall continue to increase our investments despite the new mineral taxes. Our US$1 billion investment in the KDMP and the smelter project are on track,” he said. He said while other mining companies were planning to cut their workforce to save for the new taxes, KCM would keep its workforce intact in view of the expansion programmes. Mr Bandyopadhyay said the company’s operations would go on smoothly and that there was no need to reduce on the workforce because that would send people on the streets.

In contrast, Mopani Copper Mines (MCM) last week announced that it would prune some workers to cut costs in order to meet the new tax obligations. So far, 40 expatriates have had their contracts terminated and the chop would be extend to some unionised workers. Government expects U$415 million additional tax revenue this year from the mining sector.

The documents keep leaking - Vedanta's Call Option Deed now online

I love the readership of this blog. You put out a request for someone to post a confidential document and moments later it appears in your inbox from an anonymous email address!

So I am grateful to our anonymous mole and proud to present again for the first time for public inspection, Vedanta's Call Option Deed on ZCI shares. It is now on this website at http://www.minewatchzambia.com/reports/vedantacalldeed.pdf

As discussed, Vedanta's attempt to exercise its claimed option on the shares is currently the subject of a heated debate and subject to an incomplete investigation by the Zambian Competition Commission. Do readers think this document helps clear anything up?

MinewatchZambia publishes Vedanta Resources secret contract to buy Konkola Copper Mines

MineWatchZambia, the website that brought the Zambian public access to previously secret Development Agreements between the state and international mining houses, is proud to announce another coup. We have received from an anonymous contact what we believe to be a genuine copy of one of the contracts we did not previously have access to. Unlike some of the other contracts previously leaked to us, these contracts are not signed so they should be treated with mild scepticism. On the other hand, they look pretty convincing to me!

The documents appear to be the Development Agreement between the Zambian state and Vedanta Resources, which took on a 51% stake in Konkola Copper Mines (KCM), and was signed in 2004.

The document is posted at http://www.minewatchzambia.com/reports/KCM2004.pdf .

Readers' analysis and discussion of the document would be extremely welcome. This site works best when readers get stuck into discussion.

I have not attempted a close reading of the whole thing, but a couple of things interested me:
1) Page 2, paras 6-11: discusses the 'call option' for ZCI's shares, which the company is currently trying to exercise, but the contract as a whole does not clarify the detail of this deal. The document refers to the call option, "Vedanta holds an option over ZCI Holdings' shares in KCM, exercisable in certain circumstances." That's not very helpful without access to the Call Option Deed. Any readers feeeling like leaking this further document would be making an important contribution to freedom of information in Zambia! Contact me if you want postal detals - otherwise use the email address on the site.
2) Sections 21-24: As previously discussed on this blog, some of the DAs contained clauses specifying that any arbitration between the Government and companies over the new mines taxes would occur under the World Bank's ICSID. In this updated KCM agreement, a different system is proposed, the "UNCITRAL Arbitration Rules" overseen by a sole arbitrator. UNCITRAL is a UN body with a mandate similar to that of ICSID. The document continues, "The appointing authority the Secretary General of the Permanent Court of Arbitration at the Hague. The place of arbitration shall be Johannesburg and the language of the arbitration shall be English." This helps explain comments made by some commentators during the politicised discussions over possible 'legal action' relating to breaches of stability clauses. I am currently assuming the companies are going to take the new tax regime on the chin and will not pursue their previous threats of legal action. Nonetheless, if we find ourselves having to revisit the issue, this might be relevant. So might the comments under Section 23 where the Government appears to waive its own sovereignty. Mr K's previous comments on the legality or otherwise of DAs might be relevant here, particularly since the following paragraph places the whole thing under 'Zambian law'. Interestingly confusing - can we call in the lawyers!

I look forward to others' comments.

Alastair

'Thorough investigation' delays ZCI's Konkola share sale to Vedanta

The Post reports that Zambia's Competition Commission has withdrawn authorisation for Zambia Copper Investments (ZCI) to sell its stake in Konkola Copper Mines (KCM) to Vedanta Resources. While the companies continue to insist that the delay is 'simply procedural', the tone of the Competition Commission's comments could be interpreted as reflecting a more serious concern with what has always been a controversial sale.

ZCI recognised that the Competition Commission has "withdrawn an interim authorisation that was granted earlier to Vedanta.” Zambia Competition Commission (ZCC) acting executive director Thula Kaira has said there was need to undertake a thorough independent assessment to ascertain the suitability of the transfer of 28.4 per cent shares in KCM to Vedanta Resources at a cost of US $213.15 million. “It is mandatory for the two companies to seek our authorisation to carryout a transaction of that magnitude but it is too early to say we have allowed the transaction or not since they have just applied and an independent assessment team will need to study the proposal before we can make a decision," said Kaira.

Currently, the KCM share structure comprises Vedanta with 51 per cent while ZCI has 24.8 per cent with the Zambian government through ZCCM Investment Holdings having 24.2 per cent, but with this development, Vedanta would now control 75.8 per cent shares of Zambia's largest copper mines. Independent shareholders have protested (on this blog as much as anywhere else) that the price offered for the shares both disadvantages them. The sale also removes any potential benefits to Copperbelt communities that might have flowed from a development scheme built into the structure of ZCI and that was designed to redistribute the benefits of any dividends paid out by KCM. These concerns have dovetailed with an 'economic empowerment' agenda currently making waves in the Zambian political scene as the Government, which has been responsible for the sale of vast numbers of Zambian companies into foreign ownership, seeks to rebalance relations between foreign capital and local investors.

Parliamentary Committee Report to be presented tomorrow morning

++This entry is based on a note sent to the MineWatchZambia network by Peter Sinkamba, Executive Director of Citizens for a Better Environment, Kitwe: p_sinkamba@yahoo.co.uk. Peter's lobbying efforts are also reported in The Post newspaper today (as always with links to the Post, you need a subscription to access this). The Post also reports backing for MineWatchZambia's proposals for renegotiation of the Development Agreements from University of Zambia (UNZA) School of Mines Professor Imasiku Nyambe and Economics Association of Zambia (EAZ) national secretary Chibamba Kanyama.++

The Bill to amend the Mines and Mineral Act in Zambia has been tabled in parliament and presently it is at Committee Stage.

Relevant to the network is the Mineral Royalty Tax. According to the Bill, government is proposing to increase from 0.6 to 3% for base metals including copper. The proposal for gemstones and other precious metals is 5% and for other minerals is 2%.

The most frustrating thing is that government has inserted an exclusion clause. According to the draft bill mining companies which, by April 1st 2007, will be in possession of holding development agreements with government to pay less than the proposed figure will not be affected by the amendment. Fundamentally what this exemption implies is that we are just going around in circles. If all of the main existing mines are exempted from the increase then what are going to achieve by the increase in real terms?

The whole of last week our organization was busy lobbying with Copperbelt-based MPs, the Parliamentary Committee on Estimates (which is looking at the Bill), the Attorney General and the Minister of Mines, to on the one hand get the exclusion clause removed from the Bill and on the other hand introduce clauses which will govern appropriation of Royalty payments. We have made suggestions to the above mentioned to the effect that a percentage of Royalty tax need be retained in the mining areas for environmental and socio-economic mitigation. Our proposal is that 80% goes to central treasury, 10% goes towards a fund which will look at minerals development, and 10% is shared between the local councils and traditional councils in the areas where mining is taking place. The response on this aspect was quite favourable from above mentioned stakeholders and an assurance was given by the Attorney General that his office was going trigger the consulation process to integrate our proposal into the Bill. To support our call for deletion of the exclusion clause, we indicated that some NGOs were already pursuing various avenues through which to deal with the companies, so insertion of such a clause would prejudice our strategy.

The Parlimentary Committee will present its report to the full House tomorrow morning (Friday 23 March) at around 9am. I suggest that those concerned follow-up the outcome [MinewatchZambia will attend the report launch and report back on this blog]. I further suggest that our proposal be backed by all those concerned with benefit-sharing issues in the extractive sector, perhaps by way of a petition.
Sincerely,
Peter Sinkamba