Sun, 17 Sep 2017 08:19:25 +0000
Professor Mwiine Lubemba
(Not Paramount Chief Chitimukulu)
I WRITE in response to Copperbelt Trade and Development Forum (CTDF) Executive Director Vincent Lengwe who said that the corporate conduct by some of the major mining companies on the Copperbelt in undermining the national development process was extremely alarming. I guess he had a point by saying that the recent move by Vedanta’s Konkola Copper Mines (KCM) to handover more than 4,000 mineworkers to JHX and other contractors was a direct contradiction of the government’s labour reforms and the national decent work agenda which must be probed extensively, and rescinded if the current political leadership is in charge of prudently managing economic affairs in the best interest of its citizens.
However, it is worth noting that greedy multinationals, are in general, exploiting the ignorant mineworkers as far as the copper mining industry is concerned in Zambia. But I would like to remind the CTDF Executive Director that multinationals are not charitable organisations, including Vedanta Mining Resources, the owners of KCM. They are set up to exploit and accumulate wealth for their owners, using whatever means they come across, including outsourcing of over 4,000 mineworkers. It is common knowledge that multinationals are naturally greedy and out to maximize profits in Zambia.
The more ignorant the affected mineworkers are at KCM, the better for Vedanta Mining Resources. Since the CTDF Executive Director is aware and seemingly so concerned about the impending job losses the outsourcing of over 4,000 mineworkers could bring to the local mining community, may I suggest that he becomes a campaigner together with the mineworkers union leaders to educate the affected local mineworkers on how to block and survive the planned outsourcing by KCM top management.
The checkered operational history of KCM begs answers to the questions of how and why a London listed Indian company Vedanta Mining Resources found itself at the mining company in Zambia. Following the general elections of 2001, the then UPND presidential candidate late Anderson Mazoka, who was overtly backed by the deep pockets of the Oppenheimer family, founders of Anglo American Corporation (AAC) lost the bid to be Zambia’s third president, KCM major shareholders, AAC pulled out of KCM reducing its shareholding from 65 percent to 28 percent.
AAC minority shareholding was held by a Zambian registered firm – Zambia Copper Investments ((ZCI)). World Bank’s International Finance Corporation (IFC) and British Commonwealth Development Corporation (CDC) also pulled out their 15 percent shareholding.
The coordinated pull out was a disaster in the Zambian copper mining industry as a whole. The KCM assets reverted to the State. Fear gripped the nation that production at the largest copper company in Zambia would suffer. Strange as it may appear, Anglo American have been trying to come back to Zambia through election campaign funding and backing of the current UPND leader Hakainde Hichilema. But, when late President Levy Mwanawasa announced on 21st August 2003, that a London listed Indian company Vedanta Mining Resources had bought KCM, there was genuine jubilation and relief to the country that a disaster was averted until the details emerged later.
In 2004, UK-based corporation Vedanta Resources acquired 51 per cent of shares in KCM, known as the largest copper mine in the world, for $48 million cash. In the three-month period that followed, the company registered profits of US$26 million from KCM. A call option secretly negotiated in 2004 also allowed the company to exercise the right to buy ZCI’s 28.4 per cent shares, effectively granting Vedanta a 79.4 per cent monopoly.
The Zambian government aided in the process, by removing the Zambia Competition Commission (ZCC) to enable Vedanta to become the majority shareholder. According to the then opposition MP Given Lubinda, “The decision Government took to invoke section 3 of the Competition and Fair Trading declared the ZCC totally irrelevant in the governance of Zambia which was really sad.” The World Bank’s IFC reported that, thanks to corporate incentives, effective tax rate for mining companies was “effectively zero.” Although the shares were valued at US$650 million as evaluated by the investment bank N. M. Rothschild & Sons and the London law firm Clifford Chance as consultants – both outfits were brought in by the World Bank – apparently the low world copper prices at the time were blamed for the low KCM purchase price.
Vedanta also won the right of first refusal for the share options held by ZCI. As fate would have it, within three months, Vedanta announced profits of US$26 million and informed its shareholders that the company had raked in incomes of over US$100 million in the short period. Vedanta also announced that the company would proceed to develop the Konkola Deep Mining Project (KDMP) at a cost of US$600 million. Vedanta also projected that they would expand the Nchanga Smelter at a cost of US$92 million.
In April 2008, Anglo American sold its 28 percent shares in KCM to Vedanta. The shares held by ZCI were sold for US$231 million! Just imagine, Vedanta now owned KCM to the tune of 76 percent with ZCCM-IH holding down the residue shares on behalf of the government. Following the death of late President Levy Mwanawasa, unconfirmed reports emerged that this sale was not a naturally bungled affair but a secret and deep scandal.
How could government sell KCM shares worth US$650 million for US$25 million? The value of these shares could be augmented by Vedanta’s own willingness to buy AAC shares held by ZCI – shares of 28.4 percent bought for US$231 million? What a slap in the Zambian face? Vedanta proceeded to recoup their investments in KCM within three months!
The protestations from NGOs, opposition parties, industry experts, commentators and other citizens were roundly ignored and as things are usually in Zambia, the matter died a natural death and the nefarious and venal atmosphere surrounding the sale cleared. Or did it? Could those that orchestrated the giving away of Zambia’s major assets to Vedanta be also fingered as part beneficial owners of the entity? Not likely. But more is being revealed due to KCM’s own poor labour and tax practices. And not forgetting the marginalisation of local suppliers and local mineworkers.
For instance, KCM earned US$301 million in profits in 2006-2007, yet allegedly paid only US$6.1 million in taxes. A review found that between 2005 and 2009, a total of 500,000 copper mine workers were paying a higher rate of tax than major multinational mining firms. Albeit, the government aimed to increase the share of government revenues from 5 percent to 20 percent over the next few years.
Besides, the current levels of casualisation in the mining industry is already alarming at about 70 percent with an estimated workforce of 85, 000 which only represents a paltry 0.8 percent of the total labour force in Zambia against a poverty rate of 54.4 percent and an estimated population of 15 million people supported by 10 percent formal sector jobs.
In 2010, the Zambian government launched an investigation into labour outsourcing by the country’s largest copper miner, KCM, in a bid to calm miner unrest, the mines department asked KCM to provide detailed information on the specific projects they were outsourcing, the type of jobs and the number of workers on the project. In fact, KCM was also embroiled in a labour dispute with Zambia’s two main mining unions over plans to outsource labour at its Nchanga unit, which was expected to render at least 170 miners jobless.
According to Rahul Kharkar, then KCM’s spokesman, in the past couple of years the company had been implementing a number of strategies, including outsourcing key activities across its mining and processing operations to improve efficiency, reduce costs and boost output. However, the miners’ unions opposed the company’s plans to outsource labour, saying the practice would render miners jobless and threatened to deprive the remaining workers of permanent and pensionable jobs.
The unions also said that labour outsourcing and employment of expatriates would threaten to weaken labour movements and employee voice in the country. KCM local miners attacked their expatriate counterparts during a wage dispute previously. The miners were even planning to hold protests on the Copperbelt, according to union representatives. However, the Zambian government officials met with KCM management and union representatives, and government officials promised to come up with a position on the matter after reviewing projects and activities to be outsourced by KCM. Sadly, Zambia’s state mining company, Zambia Consolidated Copper Mines Investment Holdings (ZCCM-IH), which has a minority stake in KCM appeared to be comatose on the matter. KCM went ahead with outsourcing but to date the Nchanga unit has not recovered from the effects and causes of the previous outsourcing. Why did ZCCM-IH seem to be hopeless, helpless and voiceless on these issues? Was it because KCM had invested at least $1.5 billion since 2004 in its operations in Zambia and was on course to produce 500,000 metric tonnes of copper by 2012, up from the recorded 305,000 tonnes? The answers are not as simple as the questions, and the questions are not as simple as the answers.
Meanwhile, Chililabombwe Member of Parliament Richard Musukwa said that the handover of KCM operations to a new Chinese investor in the process of outsourcing would result in job losses. To this effect, KCM started handing over more than 4,000 miners to a new Chinese investor JHX. All the miners at Konkola Shaft three in Chililabombwe were handed over to JHX under the outsourcing business development model the mine is implementing.The concerned Chililabombwe MP described the process of outsourcing as KCM selling a mine within a mine. He said that outsourcing was a cosmetic process which was not sustainable. He further said that Chingola has not recovered from the effects of the 2010 outsourcing, adding that the same thing was likely to happen in Chililabombwe. He added that besides, KCM management has a good survival plan which they have failed to implement but are now shifting responsibility to another company.
In addition, Mines Minister, Christopher Yaluma cautioned: “As government, we will not allow KCM to transfer its employees to another company where their future is uncertain. I am therefore, redirecting and instructing KCM to stop whatever transfers they are making or those which they have made so far. I am requesting them to stop so that we can talk. We run an open door policy with them where dialogue is the main thing and if KCM is doing something like that they are going against what we have talked about.” But KCM insisted, saying that there were NO planned job losses as a result of its decision to outsource operations in Chililabombwe. The KCM General Manager of Corporate Affairs Eugene Chungu said that the mining firm remained committed to ensuring continuity of employment. The KCM General Manager of Corporate Affairs said that 280 employees at Konkola Deep, Chililabombwe and 600 employees at Nchanga Open Pit Mine in Chingola would be seconded to the contracted companies. And KCM still maintained that outsourcing specific areas of operations was standard practice in the mining industry.
But the affected KCM employees should not get mad with their employer due to anxiety that has gripped them: they should just get even with their employer using capable union leaders. Nothing would change without public opinion demanding that KCM does not proceed with outsourcing. Either they do nothing and stop complaining, or do something and shape the future they want to see.
What hope is there that the new kids on the block, JHX and other contractors would be any kinder than Vedanta to local mineworkers? Were independent valuations made of what was being outsourced? Do they stand up to scrutiny by relevant government authorities? Were they even made public to allow such scrutiny? But going from recommendations to policy would be challenging, perhaps?
There are many questions than answers. Would it be prudent to request ZCCM-IH in the meantime, to take over the operations of the embattled KCM temporarily like it did with Collum Coal Mine of Sinazongwe in Southern Province, while it canvasses for a strong strategic equity partner? Besides, efforts such as those in Tanzania, Guinea, Zimbabwe and elsewhere to take meaningful equity stakes and thus share dividends, certainly offer advantages over taxes and royalties.
It is anticipated that ZCCM-IH may within its powers and in the shortest possible time, appoint or select a small group of local Zambian mining experts to manage the facility going forward and bring it to profitable levels with the right framework of employee engagement and sustained visible philanthropic support to the local community. As a nation, we have the capacity to identify local or internationally based professional Zambians with credible credentials to manage the mine and the new managers could go to the local and international finance markets for operational capital for KCM going forward. Needless to say, the appointed team should first identify a revival strategy for the operations and enable sustainable operations with minimal government support. Thereafter look for equity partners in addition to working with ZCCM-IH. It is not a secret that foreign run mining companies like KCM, go for syndicated finance options or to international capital or financial institutions like the World Bank’s International Financial Corporation (IFC), African Development Bank (AfDB) and many others to finance huge projects that are capital intensive. Therefore, the team of Zambian managers could put up a bankable document and obtain finance from either local or foreign financial institutions so as not to place any burden on the government. The same team could, just like foreign mining operators based in Zambia or elsewhere do, go to the international or local capital markets to raise operational capital or indeed invite in reliable equity partners from China or elsewhere. Alternatively, ZCCM-IH could call for expressions of interest (EOI) or request for proposals (RFP) as a matter of urgency for KCM’s buyout by other interested parties. The EOI or RFP would open the playing field and guarantee strong partners. Truly, these measures would in a way guarantee a stop to the ceaseless outsourcing strategies being championed and implemented by the current KCM owners that cannot rationally be justified. So, why is outsourcing of over 4,000 mineworkers happening at Konkola Copper Mines?
Just a thought
