University of Zambia academic Dr Sishuwa Sishuwa has warned that Zambia risks paying billions to Vedanta Resources just like the Democratic Republic of Congo and Pakistan were ordered to compensate foreign mining investors whose operations were taken over without following the law.
Antofagasta in Pakistan has won $6 billion in damages, seven years after the Pakistani government took over its mining operations without following laid down procedure, while the Democratic Republic of Congo (DRC) has been made to pay First Quantum Minerals $1.2 billion compensation for equally flouting the law when seizing the mine.
Dr Sishuwa has said what happened to the DRC and Pakistan could happen to Zambia arising out of the legal battles the government has with Vedanta Resources that owned majority stake in Konkola Copper Mine.
He said the seizure of KCM should adhere to the arbitration clause contained in the sale agreement.
“Let the government follow the correct legal procedure. The fact that Vedanta may have breached parts of the original contract does not give the government the license to ignore legal procedure in resolving disputes with the errant party or to appropriate property without compensation. If anything, the government’s action may be taken as constructive nationalisation under international law. One lesson we can draw from what has happened to Pakistan and Congo is that Zambia will almost certainly lose international arbitration over KCM should Vedanta succeed in bringing the matter to a discussion table. I have seen the original agreement of sale on KCM and read Clause 26.1, which speaks to arbitration, and Clause 24.2, which requires a notice to be served through the Zambia Association of Arbitrators. My careful reading of these sections is that the arbitration clause is very particular about how to resolve disputes like the one that has arisen”, said the UNZA researcher.
He stressed the need for the government to pursue its “good case against Vedanta” by following the guidelines on arbitration provided in the original sale agreement.
“The problem is that we are never fully conversant with the agreements or contracts we, as a country, sign. And so we mess up and are made to pay even more. This time the blunders are so obvious that Vedanta does not even need top-notch lawyers. If anything, President Edgar Lungu and Minister of Mines Richard Musukwa are making the kind of cheap mistakes Vedanta had hoped they would make. Now that Lungu and Musukwa have fallen into this clear trap, Vedanta will easily get its money through international arbitration, cut its costs and run”, Dr Sishuwa said.
“We should note that Vedanta has already enriched itself from KCM while not maintaining the mine properly. In fact, my reading of the state of actual mining at KCM is that it became more profitable to play with “transfer pricing” by importing material for processing at KCM than actually mining copper. So we are talking about a foreign company with a nasty record here, a company that is arguably complicit in ripping off Zambia and in the massive flight of capital from the economy of this land of my umbilical cord. Why is the government so determined to give Vedanta more money through litigation-acquired damages?” he asked?
The UNZA lecturer advised President Lungu, the Minister of Mines and the Attorney General to avoid “this expensive mistake for Zambia”.
“What professional advise is Attorney General Likando Kalaluka giving to President Lungu and Musukwa because the mistakes that the two are making, including their off-the-cuff remarks, reflect poorly on the government’s chief legal advisor. It is really difficult to understand the intransigence and arrogance that is coming from our public leaders. Why is Lungu and his friends in Cabinet insisting on pursuing a route that will most likely cost the country heavily in damages? They have a very good case against a horrible and sickening investor in Vedanta, but are going about the issue the wrong way. There was an excellent write-up the other day from Elias Chipimo Jnr, the leader of the opposition NAREP, emphasising the need to follow procedure. I entirely agree with Chipimo and urge Lungu and the government to step back and seek an out of court settlement with Vedanta. It is not too late. The approach they are hell-bent-on will cost the country heavily and it won’t be Lungu and Musukwa to pay. It will be the poor and ordinary Zambians, including myself, who would be condemned to paying for this expensive mistake that can easily be avoided. Why is it so hard for Lungu and Musukwa to do the correct thing? What really motivates the decision-making of our public leaders?” he asked.
Dr Sishuwa urged President Lungu not to repeat the costly mistakes made by the government in the 1970s when mines owned by foreign companies were seized.
“If Lungu and Musukwa cannot learn from what has happened elsewhere, let them at least learn from our own historical experiences. What we are witnessing at KCM is merely the repeat of history. Zambia lost international arbitration against the foreign mining companies in the 1970s after cancellation of their mining rights and had to pay them off hefty damages in dollars. It is only that we are a people that neither values nor learns from history; otherwise we should not be repeating some of these basic mistakes. I hold President Lungu responsible for this outcome because he treats public service so casually that he thinks little about the quality of the people he appoints to key offices and works with. It is his responsibility, for instance, to choose competent, experienced and independent-minded presidential aides, and to put in place a Cabinet of individuals with admirable qualities, who should advise him. You cannot look at Lungu’s cabinet today without being struck by the calamity of the absence of such individuals”, he said.
“The likes of Freedom Sikazwe, Kaiser Zulu and many other people at State House should be nowhere near the presidency or the leadership of a country seeking to take itself anywhere serious. Yet oddly, these are the elements Mr Lungu is most drawn to. They, in many ways, reflect his outlook, I suppose, and demonstrate why he is eminently unsuitable for the highest office in the land. At this rate, there is no telling how far back we could slide. Ba Lungu, muletutwala kwisa?” he wondered.
Dr Sishuwa said few serious investors would be willing to buy KCM if the legal questions surrounding the liquidation of the mine are not resolved in a satisfactory manner.
He noted that instead of rushing to sale KCM and leaving a trail of mistakes that will cost the country in future, the government should strictly adhere to the contract of sale.
“The other lesson for Zambia from what has happened to Pakistan and Congo is that any credible new investor will worry that they will be sued successfully by Vedanta, and be liable for a similar huge pay out. The Zambian government should resist the urge to focus on short-term political benefits and instead consider the long-term implications of their actions. It took seven years, for instance, before Antofagasta won a $6bn in damages from a legal fight with the government of Pakistan. Coincidentally, Pakistan has just secured a $6bn bailout from the International Monetary Fund. Zambia is also fighting for a $1.3bn IMF bailout. There is a possibility that the package may go straight to Vedanta from the IMF! Is this what the government wants? Having delayed for years the pressing need to get a better deal from the mines, the government is making a totally incompetent decision,” Dr Sishuwa stated.
“Even if they find an incredibly dubious company to buy KCM – genuine and credible investor will be worried about becoming embroiled in years of legal battles with Vedanta – this issue is likely to drag on for years and eventually cost the country dearly. Let Lungu and his friends in Cabinet summon Zambia’s best minds to help them find a better solution to the mess they have created. What Vedanta wants primarily, in my view, is to protect its image internationally; it is not to take back KCM, so an amicable solution can be found,” stated Dr Sishuwa.
“The team that the government has constituted to help resolve the issue, which includes Francis Kaunda, Milingo Lungu and politicians like Anthony Mumba, should be nowhere near any serious discussions. I know the poor role that Francis Kaunda played in Zambia’s disastrous privatisation of the mines in the 1990s; many Zambians have little regard for Milingo insofar as his credibility and competence for the role he has been assigned is concerned; and politicians like Mumba should simply stick to making bad laws.”