By Peter Sinkamba
Every government of the day has a right to run state-owned enterprises according to party manifesto. And every government of the day has a right to choose which countries and institutions to partner or work with. We see this happen everywhere in the world. The on-going trade war between the Trump administration and China, including institutions like Huawei is just one example. That is fair enough.
While it is granted that a government of the day has a right to run state-owned enterprises according to the party manifesto, and party relationships, however, there must be rationality and constitutionality in doing so. This is so because Article 90 of the Constitution of Zambia Amendment 2016 provides that the Executive authority derives from the people of Zambia, and should be exercised in a manner compatible with the principles of social justice and for the people’s well-being and benefit. In exercise of the executive authority of the State, a government of the day is obliged to promote the rule of law, among other values and principles.
In relation to the matter on hand, Government had several lawful options to divorce from Vedanta. Some options were direct while others were fronting.
One direct option was invoking the Golden Share power in vesting agreements. In that instance, Government would have taken over operations of KCM in line provisions of the Shareholders’ Agreement. The Agreement stipulates steps that need to be taken to do so.
The next direct option was invoking the Mines Development Act 2015 Licencing provisions. In this instance, the Ministry of Mines would have revoked KCM mining licence if there any breaches committed by KCM which violated the license conditions. The Mines Act stipulates steps that need to be taken to do so.
The trouble with the case in hand is that instead of adopting a direct option, it instead adopted by a fronting option. In my view, the direct options were better in many ways than fronting option.
For example, through the ZCCM-IH fronting arrangement, though publicly Government claims to be taking court action, nonetheless, it is not represented by State Chambers in the action. Constitutionally, where does this omission leave State advisability when the Attorney General and Solicitor General are missing in a Government court action?
It is no wonder a lot of issues surrounding the ZCCM-IH front are not adding up. Take for instance compliance with the Securities Act No. 41 of 2016 and the Listing Rules of the Lusaka Securities Exchange (LuSE). Before court action for liquidation of KCM was commenced, I strongly believe that the Board of ZCCM Investments Holdings Plc was obliged to publicly announce the liquidation of KCM.
The Securities Act and LuSE Rules provide necessary steps that must be taken by a listed company which is in severe financial difficulty and finds itself in a situation where it has no alternative but to dispose of a substantial part of its business or issue shares for cash to meet its ongoing working capital requirements or to reduce its liabilities. The ZCCM-IH 20% shareholding in KCM is a substantial part of the ZCCM-IH business. Disposing that share through liquidation is a drastic measure requiring notice to public shareholders. This was not done by ZCCM-IH. It appears to me that ZCCM-IH did not comply with the Securities and LuSE precautionary rules. Or have disclosure rules changed?
My second point of departure on ZCCM-IH omissions is compliance with Section 134 of the Securities Act. Government officials are making statements to the effect that Government intends to “liquidate” KCM with a view sell it as a “going-concern”. Forget about the contradiction in terms. But rationally and legally, what this whole thing means is that since ZCCM-IH is the front, then practically, ZCCM-IH has embarked on the exercise to take-over KCM.
According to the Section 134, a listed company or company whose securities are registered with the Commission that proposes a takeover or merger, or is being taken over by another company, is obliged to apply to the Commission to approve the takeover or merger, in the prescribed manner and form, and accompanied by a prescribed fee. Did ZCCM-IH do so in its current bid to takeover KCM?
I once again strongly believe that Government should rethink its strategy on the KCM liquidation/takeover. Rationality and rule of law should be cornerstones of such grand decisions in the interest of social justice and for the people’s well-being and benefit.