University of Zambia lecturer Dr Sishuwa Sishuwa says the Zambian Government has a very good case against Vedanta Resources that owns majority stake in Konkola Copper Mine, but it is messing up and will instead pay a heavy price for failing to “follow the legal procedure”.
Dr Sishuwa warned that the country risks paying hefty dollars in damages if the KCM issue was not resolved properly.
He was responding to a press query on the ruling from South Africa’s High Court ordering ZCCM-Investment Holdings and Provisional Liquidator Milingo Lungu to halt the liquidation of KCM, pending the resolution of the dispute through arbitration.
“I advise the Government to consider going for an out of court settlement such as mediation or negotiation. The route they have taken will most likely cost the country heavily in damages. I urge President Edgar Lungu and the Minister of Mines Richard Musukwa to listen to other voices, including those of critics. Ordinarily, I should not plead with my elected leaders in Government to listen to me as a concerned citizen. We all do not have to line up outside State House or any ministry to convey our concerns to the Government. We can communicate with our leaders through any medium including by way of sharing our views in national newspapers. Please do not dismiss us as prophets of doom. I mean well and am motivated only by the defence for public interest because this issue affects me as a citizen and a taxpayer. We the taxpayers will be the ones to bear the burden of paying for the hefty liabilities or damages that would arise from a poorly handled process or resolution of the KCM problem”, complained Dr Sishuwa.
“Like many Zambians, I want Vedanta out of KCM. It is public knowledge what a terrible investor Vedanta has been and that its presence in areas where it operates from, such as Chingola, Chililabombwe and Nampundwe, has not improved let alone had any positive impact on our brothers and sisters in those areas. Many Zambians have suffered terribly at the hands of this cruel and horrible investor, Vedanta. Suppliers went for months without pay, very little investment has actually taken place at KCM in recent years despite Vedanta’s repeated verbal pledges of massive investments, and we know how it became more profitable for Vedanta to play with “transfer pricing” by shifting profits and importing most of its copper concentrates for processing rather than actually mining it. Vedanta has been awful and I totally support the government’s position that the company must go. In kicking Vedanta out of KCM, however, let us follow the legal procedure provided in the shareholders’ agreement. That way, we will minimise the costs of getting rid of this appalling company from KCM so that we do not end up paying more. Procedural impropriety may water down the strong case that the government has against Vedanta, and risks exposing the already burdened taxpayers to hefty and unnecessary financial penalties” he said.
Dr Sishuwa disagreed with Musukwa’s argument that the verdict from South Africa has no bearing on the ongoing liquidation of KCM in Zambia.
“I think that the Zambian Government is making matters worse by issuing statements. The judgement that was delivered by the South African High Court is against ZCCM-Investment Holdings. It is ZCCM-IH that petitioned for liquidation of KCM in the Lusaka High Court, so how does the Minister of Mines and the Minister of Justice come into this case? The actions of the Government show that this is an indirect nationalisation of assets, or what is generally referred to as ‘constructive nationalisation’ under international law. You cannot sale someone’s assets. The Minister of Mines will very quickly find that the ruling of the South African High Court is binding when they move to arbitration. Musukwa’s argument on jurisdictional sovereignty is weakened by the fact that the shareholders’ agreement relating to the sale of KCM provides for the mode of dispute resolution and the place where disputes arising out of the agreement would be resolved. Section 26.1 of the original shareholders’ agreement between Vedanta and ZCCM-IH explicitly provides for Johannesburg as the place of arbitration. Now, it is normal in arbitration for parties to choose places that are neutral to both of them, or one where neither has affiliation. I imagine that at the time of the signing of the shareholders’ agreement, Vedanta had no presence in South Africa, as KCM was their first acquisition in Africa, so Johannesburg may have seemed like a suitable neutral place. What this means is that since the parties to the agreement chose Johannesburg as the place where disputes arising out of the agreement would be resolved, they are bound to submit to that jurisdiction. 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. I hope we will learn from this experience”, stated the UNZA researcher.
He said the South African High Court’s ruling relates to the fact that the parties to KCM agreed to the use of arbitration rather than litigation as the mode of dispute resolution.
“I do not understand why the Government did not go for arbitration in the first place. They have a very good case against Vedanta, but now find themselves in a position where they risk paying more money, both in damages and legal costs, to a company that should have instead paid Zambia more. Clause 26.1 of the Shareholders Agreement, which deals with arbitration, provides that ‘Subject to the provisions of Clauses 24 and 25 above, the parties hereby consent to submit any Dispute to be resolved by arbitration in accordance with the UNCITRAL Arbitration Rules (“the Rules”) as in force and effect on the date of service of Notice of Dispute under Clause 23 above, save as modified by the provisions of this Clause 26. The tribunal shall consist of a sole arbitrator (the “Tribunal”) and the appointing authority shall be the Secretary General of the Permanent Court of Arbitration at the Hague. The place of arbitration shall be Johannesburg and the language of the arbitration shall be English’, he said quoting the arbitration clause.
The UNZA academic wondered why the Government did not invoke the procedure provided for in the arbitration clause.
“My reading of this clause is that the High Court in Johannesburg is within its rights to grant such an order. ZCCM-IH is therefore bound by the shareholders’ agreement to submit to the arbitral process in South Africa. By deliberately ignoring the obligations under the shareholders’ agreement and court orders related to it, we will only aggravate the extent of the liability or end up paying more damages and legal costs. The argument of sovereignty would be persuasive if this was an issue of deciding on which court presides over the matter. My reading of the issue however is that this is not about a litigation procedure, but an arbitration process coming out of a shareholders’ agreement between the two parties on how disputes would be resolved and that the arbitration resolution would be final. In other words, the court order is a result of what is contained in the shareholders’ agreement on how to deal with conflicts or disputes. In this case, Vedanta and ZCCM-IH agreed that this process would be through arbitration and would take place in Johannesburg, hence the interim injunction that has arisen from the question of respecting the arbitration clause”,explained Dr Sishuwa.
He argued that the Government’s announced plan to appeal against the order suggests an acknowledgement of the validity of the judgement.
“I have read that Attorney General Likando Kalaluka will travel to South Africa to appeal against the judgement and defend the integrity of the Zambian courts. It would appear to me that this is merely a delaying tactic since the order cannot be enforced if there is an appeal pending against it in South Africa. The Attorney General, more than anyone else, should know that jurisdiction in this instance flows from the arbitral clause in the shareholders’ agreement, and the Zambian Government is appealing the judgement precisely because they know it is valid. Otherwise why would anyone appeal against a judgement they do not recognise as valid?” he asked.
“I wish the Lusaka High Court had declined to hear this matter when it was taken to court for the first time on the ground that, according to the shareholders’ agreement, they have no jurisdiction to entertain it. That would have enhanced the integrity of our Judiciary. The failure to do so, alongside a series of other questionable actions from the Government and the Judiciary, have brought us to this situation, where we the taxpayers would now have to finance the Attorney General’s travel to and from South Africa, which could have been avoided, and his stay there. We, the taxpayers, are already paying for the continued running of KCM. In addition, the Provisional Liquidator, Milingo Lungu, flies in and out of Chingola using a ZAF plane or a chartered one. Do you see how costly this route is already turning out to be, even before more expensive losses in court occur?” Dr Sishuwa asked.