The KCM Debacle and Taxation of the Mining Sector
In the past week we were treated to a shock revelation by Anil Agarwal the Chairman for Vedanta, how his company is making an annual average of USD500 million from its Zambian subsidiary, Konkola Copper Mines (KCM). The reaction of many Zambians to this revelation is that of shock and anger. And rightly so! It is beyond belief that such a huge amount of money can be made with little or no benefit to the country whose poverty levels stand at over 60%.
For us the scandal is not in selling KCM at USD25 million. Those charged with the responsibility of disposing of the asset may argue and even prove that, at the time that was the best price they could get. The price of copper was very low then, with copper trading at USD1,500 a ton compared to the 70’s where copper was trading at USD4,800 a ton. The copper prices remained depressed until 2005 when the world copper prices started rebounding, by 2011, Copper was selling at over USD8,000 a ton. Be mindful that average copper production costs are about USD4,900 a ton.
UPND would like to urge the PF Government to take immediate steps that will address concerns of the stake holders, if Zambia is to get any meaningful benefits from the exploitation of our country’s mineral resources. The scandal is not words coming from KCM owner, the scandal is in government’s failure to benefit from the high copper prices that have been prevailing since around 2006 despite that being a campaign promise. The Mwanawasa administration was able to bring in USD480 million in one fiscal year at the introduction of windfall tax. When Mwanawasa and Magande were collecting the USD480 million, we were producing less than 600,000 metric tons of copper per annum. The mines are projecting to hit one million tons a year by 2015, which means Zambia could easily get USD1billion if we reintroduced windfall tax from the mines.
There is need for the PF Government to increase an understanding of how best to deal with mining corporations using blackmail and deceit in covering up costs of mining projects and equipment that are brought into the country resulting in mining corporations not paying anything to government by exaggerating costs. We need to do a lot of work in strengthening the Ministry of Mines which lacks the capacity to adequately supervise the exploitation of the country’s mineral resources.
The mines need well trained and highly experienced engineers and economists who are able to interpret feasibility studies of these Mining Companies. This experience is needed to analyze and bring out issues which will benefit the country. The Zambia Revenue Authority must also monitor these mining projects and equipment brought into the country to avoid losing revenue through the so called hidden costs. Our vision as UPND is to create capacities in the local industries to ensure that local companies are able to supply quality goods and services to the mines.
We therefore, urge Government to consider the introduction of the windfall tax to address the ever rising youth unemployment in the country instead of engaging in rampart borrowing to cover for Government inadequacies of addressing the economy which is currently in I.C.U (Intensive Care Unit) going by the raising cost of living.
UNPD Deputy Spokesperson