NDC’s Comprehensive Position on KCM Liquidation

Following the PF government’s decision to place Konkola Copper Mines in liquidation, we as the NDC have strongly and unequivocally rejected and condemned the approach taken by the PF government to employ this extreme measure to resolve the issues surrounding KCM.

To make it very clear, we as NDC want Vedanta Resources to leave, we want them to go for good and they should never be allowed to return to Zambia. This has been our position from inception, even when PF was still in bed with Vedanta as things were deteriorating at KCM, we as NDC were calling for Vedanta’s mining licence to revoked. Vedanta has never been known to be a good mining company the world over.

Vedanta has effectively become wealthy through the exploitation of Zambia’s people and natural resources with impunity. Vedanta has failed to run the mines, they evade taxes, they externalise all profits, they mistreat Zambian contractors and suppliers and they have not invested anything to enhance mining operations and employment on the Copperbelt. Therefore, their departure is welcome by all well-meaning Zambians and we want them to leave as soon as is practically possible.

With that being said, as NDC, our difference with the PF is with the approach that they have taken, to place KCM in Liquidation. We believe that the negative social and economic consequences of placing KCM in liquidation will be severe and will affect hundreds of thousands of people in Chingola, Chililabombwe, Kitwe and Nampundwe where KCM has operations.

We strongly oppose the approach taken by the PF and we will break it down here, we will give you all the reasons why we reject the liquidation approach, and we will provide alternative means by which this issue can be resolved to have Vedanta removed from KCM and have them replaced with a more responsible investor to take over the management of the mines.

It is very important and critical for Zambians to understand that Vedanta is not KCM, and KCM is not Vedanta. These two are distinct companies and institutions that are separate from each other. They are separate legal entities so they can be legally separated without going through a process of liquidation, just like Anglo America was separated from KCM without liquidating KCM. KCM existed before Vedanta came to Zambia, Vedanta did not form KCM. KCM as a company can therefore continue to exist after Vedanta is gone. Vedanta is just a shareholder in KCM just like ZCCM IH is an investor in KCM.
We will now break it down step by step in simple terms;

WHAT IS LIQUIDATION?

Liquidation is the process of bringing a business to an end and distributing its assets to claimants. It is an event that usually occurs when a company is insolvent, meaning it cannot pay its obligations when they are due. As company operations end, the remaining assets are used to pay creditors and shareholders, based on the priority of their claims.
When a company goes into liquidation, it’s assets are sold to repay creditors, the business closes down and its name is removed from the register of companies.

WHAT IS INSOLVENCY?

As stated above, insolvency happens when a business or company cannot raise enough cash to meet its financial obligations when they become due for payment.

IS KCM INSOLVENT?

No, as NDC we believe that KCM is not insolvent, KCM as a company still has the ability to raise cash quickly to pay its creditors, employees, suppliers and contractors and also to make a healthy profit. The financial problems at KCM have been caused by gross mismanagement and greed by the majority shareholder Vedanta.

What has been happening at KCM is that all profits from copper and cobalt sales have been externalised to Vedanta bank accounts in England and India. This company has been raking in profits in excess of $500 million every year. The problem is that they do not return some of those profits back to Zambia to finance the company’s operations. They have been relying on VAT refunds to finance their operations.

In the absence of VAT refunds being made, Vedanta has been transferring funds from their London bank accounts only to pay employee salaries and to keep the company afloat by a bare minimum. The Vedanta financial reports show that they have in excess of $5.4 Billion in hard cash stashed away in their foreign bank accounts. They can easily extinguish KCM’s debts with just one bank transfer, but they are unlikely to do that at the moment. Therefore, the financial problems at KCM are due to cash flow mismanagement by the parent company Vedanta and not due to the company becoming insolvent, KCM is still a very profitable and viable company.

WHAT WILL THE LIQUIDATION OF KCM MEAN?

Liquidation of KCM means that the company will cease to exist, below are the events that will follow the start of the liquidation process;

1: The company’s assets will be auctioned, this includes everything that KCM owns, the mine shafts, concentrator, smelter, ore, cathodes, vehicles, hospitals, schools, office buildings, sports clubs, houses, land etc. KCM has thousands and thousands of assets of real estate, movable and immovable assets. All of these will be sold in hundreds of auctions. During an auction, assets are sold to the highest bidder rather than on the fair value of the assets. This means that the assets of KCM will be sold at heavily discounted prices.

To make it very clear, in a liquidation, KCM will not be sold as a single unit, the company will be broken into thousands of pieces and sold in pieces. This means that hundreds of buyers will come in and buy individual assets that they want, it’s a very long process which takes several years and in a Zambian context is normally mired by corruption. KCM will totally be destroyed through this process.

2: After the auction is complete, the liquidator will pay out the company’s creditors in a specific order prescribed by law. The first one to get paid will be the liquidator himself, then the government institutions such as ZRA, NAPSA, Workers Compensation and others will lay claim.

If there’s any money left over, the secured creditors such as banks and multi-national suppliers will be paid. After the secured creditors it will be the local suppliers and contractors and lastly the employees. In almost all cases, the creditors at the back of the queue never get paid or will only get a small part of what they are owed. In this case the local suppliers and KCM employees are at real risk of losing their pay and benefits.

3: Once the liquidation process is complete, the company will be deregistered and it will cease to exist.

4:  All 13,000 employees of KCM will lose their jobs as the company that employed them will cease to exist. Their employment contracts will become null and void. They will have to re-apply for their jobs if the new owner of the specific units within which they worked wants to take them on. Remember, there will be hundreds of new owners, the new owner of the mine shaft will not be the same as the new owner of the hospital or school. So depending on which unit one worked in, the employer will be different.

WHAT HISTORIC EXAMPLES OF LIQUIDATION DO WE HAVE IN ZAMBIA?

For those who are old enough to remember, some very good examples of liquidation are UBZ, Meridien BIAO Bank, Zambia Airways and RAMCOZ among others. A very recent example is The Post Newspaper. In all of these cases, all the employees lost their jobs and they were never paid their retirement benefits. Most suppliers and contractors lost their money. In short, you can expect what happened to these companies to happen to KCM aswell. It doesn’t end well at all.

WHY DOES THE PF WANT TO LIQUIDATE KCM?

We can’t make sense out of the senselessness within the PF establishment, we can only speculate, but we have some plausible reasons as to why they’ve decided to go down the path of liquidation. Below are some of the reasons behind their actions;

1: Chinese Debt – The PF government owes the Chinese government in excess of $3 Billion, they may attempt to handover the key mining assets of KCM to the Chinese as part repayment of debt. The lightning speed with which the PF has moved suggests that they already have a buyer to whom they will handover of the key assets of the mine. The Chinese are waiting in the wings like vultures ready to take over the mines.

2: Corruption Commissions – If KCM is sold to a genuine investor as one single unit, it will be almost impossible for PF officials to benefit from the sale, unless they get kickback bribes behind the scenes, presumably outside the country out of the reach of the ACC, DEC and FIC.

But if they liquidate KCM, several PF officials stand to benefit from the sales of these individual assets, they will be able to sell KCM property to their friends and business partners at cheap prices. They will be able to obtain bribes and commissions locally and many of KCM’s properties will become theirs. They are targeting the prime land, buildings, lodges, houses and sporting facilities owned by KCM. This is what happened with the privatisation of ZCCM assets. A lot of ZCCM assets ended up being owned by government officials and those connected within the corridors of power, they took the farms, houses, and buildings at literally no cost at all.

The calibre of people who were sent by President Edgar Lungu to commence liquidation proceedings at KCM tells it all. The Liquidator Milingo Lungu is a PF official and closely connected to the President. His name has also come up in the Ronald Chitotela corruption trial as one of the lawyers that aided Chitotela in acquiring and concealing property suspected to be proceeds of crime. Other notables are Kaizar Zulu, Amos Chanda and the State House crew that were at the high table. What were they doing there? What is their role in this process? What are they looking to benefit from the process?

WHAT WILL HAPPEN IF KCM MINING ASSETS ARE SOLD TO THE CHINESE?

We strongly suspect that the PF plans to handover key KCM mining assets to the Chinese. Other non-essential mining assets like the land, buildings and sports clubs may end up being owned by other people connected to those in power.

Chinese are terrible investors; they believe is slave labour. They cannot manage the mines in Chingola and Chililabombwe properly.
Just look at how they’ve run down the mines in Luanshya.

Look at what the Chinese did in Chambishi where over 50 Zambians were killed in the 2005 BGRIMM mining explosives disaster because the Chinese did not follow simple precautionary measures to safely store explosives?

Look at how the Chinese managed Maamba coal mine where employees were going underground without protective clothing, employees were being beaten and shot with guns by Chinese supervisors.

The Chinese do not abide by Zambian labour laws and norms, under Chinese you can expect mine employees to be mistreated, more jobs would be lost, low wages and the cutting off of local suppliers and contractors.

Under Chinese management you can expect the KCM hospitals and clinics to be destroyed and dilapidated. Institutions such as the golf clubs, sports clubs, Nchanga Rangers, Konkola Blades, rugby clubs, bowling clubs, tennis clubs, theatre clubs, conference halls, mine clubs and libraries to be run down and destroyed. They will plant Chinese vegetables in the fields of play, those who have lived in the mining towns know what we are talking about, that’s what Chinese do when they take over land, they remove what was there and plant Chinese vegetables. Thousands of Chinese labourers and prisoners will be brought into Zambia to work in the mines at the expense of Zambians.

The Chinese will turn Chingola and Chililabombwe into a Chinese labour camp outpost as they do wherever they have been given such mining rights. These towns will become ravaged ghost towns under Chinese control.

With that being said, we are sounding a very strong warning to the PF that the Chinese should not be considered to take over the mines. That should be off the table and should not even be an option.
We urge KCM employees and residents of Chingola and Chililabombwe to totally reject the Chinese should PF offer to give them the mines.

The social and economic consequences will be very severe if the Chinese take charge of mining operations in Chingola and Chililabombwe.

The local economies of Chingola and Chililabombwe are 100% dependent on the mines. All the shops, marketeers, vendors, bus operators and local businesses depend on those employed by the mines to buy their produce and use their services. If the mines collapse all other industries in these districts will collapse aswell.

WHAT IS NDC’S PROPOSED ALTERNATIVE OF DEALING WITH THE VEDANTA PROBLEM?

The NDC President Dr Chishimba Kambwili has proposed that KCM be placed under Receivership.

The main objectives of Receivership would be that;

1: KCM continues to operate as a going concern and the company brought back to stability and profitability (the company will continue to exist).

2: Vedanta is removed from KCM and a more responsible equity partner or investor is sourced to take over the management of the mines.

3: All KCM employees should preserve their jobs and paid their benefits accrued to date should the new investor decide to develop a different pension plan and start their employment afresh.

4: All local contractors and suppliers are paid, and continue to get contracts from the new equity partner in the mines.

5: All social aspects of KCM such as the schools, hospitals and sports facilities continue to function under the new investor.

These are the 5 core objectives that should be achieved when dealing with the Vedanta issue, these objectives must be at the centre of every decision that is made during this process.
In order to achieve these objectives, we are proposing that KCM be placed under receivership or a rescue transitional plan be developed on an interim basis while a new investor is being sourced.

We will examine the Receivership option now;

WHAT IS RECEIVERSHIP?

Receivership is a step in which a trustee is legally appointed to act as the custodian of a company’s assets or business operations. It’s typically invoked during legal proceedings, with the goal of returning the company to a profitable state and thereby avoiding liquidation.

Typically appointed by a court, creditor, or governing body, the receiver is usually given the ultimate decision-making power over company assets, including the authority to cease dividend or applicable interest payments. The company’s directors remain as material contributors, but their authority is limited.
As NDC, we believe that this is the path that should be taken to achieve the five objectives we have outlined.

The High Court should appoint a receiver, preferably an experienced mining consultancy firm to run and manage the operations of KCM on an interim basis. The receiver will be given the important task of restructuring the operations of KCM, employing new management, paying off creditors, normalising operations and ultimately bringing the company back to profitability.

These actions by the receiver will make it more lucrative for prospective investors to consider making an investment in KCM.

With the Receiver managing KCM, the government can commence separate legal proceedings against Vedanta Resources to disengage them from KCM. Vedanta has breached several key aspects of the agreement it signed with the Government of the Republic of Zambia, conditions which they pledged to meet in order for them to get possession of KCM. Vedanta has also engaged in tax evasion so ZRA can also move in and bring tax evasion criminal charges against them in the courts of law.

Based on these breaches, the agreement with Vedanta can be terminated and Vedanta’s operating licence in Zambia can be revoked to pave way for a new investor to acquire KCM legally.

We similarly had a time when KCM was under the transitional management of Mr Jordan Soko when Anglo American Corporation pulled out of the company. Mr Soko effectively acted as a receiver and managed KCM very well until Vedanta was brought on board as a new equity partner.

WHAT QUALITY OF EQUITY PARTNER ARE WE LOOKING FOR AT KCM?

As stated before we reject and condemn any moves by the PF to impose Chinese investors as the new owners of the mines, it’s very clear that Zambians and the residents of Chingola, Chililabombwe, Nampundwe and Kitwe do not want Chinese to takeover these mines.

We expect the PF to conduct an open transparent bidding process that will lead to the best investor being selected. All companies being considered should meet very strict criteria, They should;

1: Demonstrate strong and successful mining experience and expertise.

2: They must commit to keeping the KCM workforce and adherence to Zambian labour laws.

3: The new investor must prove that they have the financial capacity and expertise to develop the Konkola Deep Mining Project (KDMP)

4: The investor must pledge to use local contractors and suppliers for ordinary mining operations. Only in situations where locals can’t provide certain expertise will they engage foreign contractors.

5: The new investor should commit to managing the social aspects of KCM such as the sports clubs, schools, hospitals and clinics. The investor should have a proven corporate social responsibility track record.

The calibre of investor that we should be looking at should be of the standard and quality of First Quantum Minerals, Barrick, Rio Tinto, BHP Billiton, Vale and Teck Resources. This is the calibre of investor we expect to have in KCM at the end of this process, anything short of that will be unacceptable. The PF should utilize their ambassadors in mining countries such as Canada and Australia to source a credible and viable investor.

CONCLUSION

To conclude our position, we believe that KCM can remain viable if the process of Receivership is taken rather than that of liquidation. It’s not too late for President Edgar Lungu to change course, we hope he heeds our advice and opts for receivership. We also believe that if a transparent, corrupt-free open bidding process is conducted for the sourcing of a new investor, KCM will get a high quality investor and that the company will be in safe hands and the employees will preserve their jobs, which is the main reason why are trying to remove Vedanta. KCM should be sold as one single unit and should not be broken up in small pieces as the liquidation process requires.

NATIONAL DEMOCRATIC CONGRESS, POLICY TEAM ON ENERGY AND NATIONAL RESOURCES