By Elias Chipimo
There appears to be no end to the intrigue surrounding KCM. In the most recent development, a South African High Court has determined (the so-called “Johannesburg ruling”) that the decision by ZCCM-IH to petition the Zambian High Court for the winding-up of KCM constitutes a breach of the Shareholders Agreement between Vedanta and ZCCM-IH (among others) and should be immediately withdrawn. This decision has certainly exposed some of the limitations and weaknesses that seem inherent in our local judiciary. However, before looking at the merits and implications of the Johannesburg ruling, it will be useful to briefly review how we arrived at this point.
The Zambian government had been facing pressure to respond to various matters concerning KCM, including: the long-standing crisis of its poor payment history to Copperbelt mine suppliers; the general perception of a lack of regulatory compliance in respect of its mining operations; and the publicly stated allegations by ZCCM-IH that Vedanta was not fulfilling its obligations under the KCM Shareholders Agreement, such as payment of dividends and ensuring that the company was operating in a way that would improve productivity and profitability for all stakeholders including ZCCM-IH as a minority shareholder.
No doubt after years of frustration and with a general election looming (in 2021), something had to be done. In essence, the Government had four main options to address these challenges (although it is important to note that these options are not necessarily mutually exclusive):
(a) begin a process of compulsory acquisition of KCM’s assets and find a new owner to develop the mining opportunity (Option 1);
(b) cancel KCM’s mining licence citing breach of the Mines and Minerals Act with a view to identifying a new entity to develop the mines (Option 2);
(c) seek to wind-up KCM and identify an investor to take over the mining operations (Option 3); or
(d) enter into negotiations with Vedanta for the sale and handover of KCM’s mining assets to government or a third party buyer (Option 4).
When these options are examined closely, it becomes clear that they all have their limitations. Compulsory acquisition is a long drawn out process and requires compensation to be paid, apart from the fact that the acquisition process can be delayed by court action challenging its implementation. Cancellation of a mining licence requires strict adherence to the procedures laid down in the Mines and Minerals Act and is open to being legally challenged, potentially delaying a concluded outcome. Winding-up sends the wrong signal to investors about the stability of the investment climate and the commitment of government to its contractual obligations. Negotiations with Vedanta would not have amounted to anything constructive in addressing the main concerns of the Government: that they were dealing with an investor who had outlived their welcome in the eyes of the people in the one critical location that would probably determine the outcome of the next general election – the Copperbelt.
The Government probably chose Option 3 because: (i) it presented the quickest route to removing Vedanta from day-to-day control of KCM’s mining operations (something that would cheer the Copperbelt residents and make the government look like it cared about their plight and was taking decisive action to resolve their grievances); (ii) it would avoid payment of compensation to Vedanta (which, as already stated, would be applicable on a compulsory acquisition); (iii) it would put the government in the driving seat of negotiations for the transfer and sale of KCM’s assets – especially if the liquidator to be appointed was a connected person. This would in turn allow the government to more directly determine who would eventually acquire KCM’s unencumbered mining assets (although the danger of this is that it also creates the opportunity for the serruptitious syphoning of funds out of KCM – depending on the integrity of the person appointed as liquidator).
The difficulty with the approach that the Government and ZCCM-IH (who were clearly working in tandem) eventually settled upon is that they chose the wrong entity to lodge the winding-up application. As a party to the Shareholders Agreement, ZCCM-IH is bound by the provisions relating to arbitration of any dispute between the parties, meaning taking the matter to court (by lodging a winding-up petition) as opposed to commencing arbitration proceedings in Johannesburg would constitute a breach of the Shareholders Agreement, which is essentially what the Johannesburg Court ruling is stating. Had a different creditor or applicant (i.e. anyone other than a party to the Shareholders Agreement) lodged the winding-up petition, the issue of arbitration would not have arisen. There seems to have been a belated realisation of this with certain relatively minor creditors now being paraded to make the winding-up petition appear more credible – an action that will do little, if anything, to rectify the ZCCM-IH position.
The judge in the South African Court reasoned that:
(a) the issues complained about by ZCCM-IH in the winding-up petition before the Zambian High Court amount to matters that can properly be defined as a “dispute” under the Shareholders Agreement;
(b) according to the Shareholders Agreement, any dispute between the Shareholders is to be determined by arbitration in Johannesburg;
(c) the arbitration clause within the Shareholders Agreement is a contractual agreement between the parties that grants exclusive responsibility for determining any dispute to an arbitrator and not a court; and
(d) in order to protect this contractual right to arbitration of any dispute, it was necessary to issue an order compelling ZCCM-IH to withdraw the winding-up application before the Zambian High Court.
There has been a lot of panic and speculation about whether the decision of the South African High Court is enforceable in Zambia. The Government claims that the Johannesburg ruling amounts to an interference in our judicial system and would only be applicable if it was registered in Zambia, which was not possible because Zambia and South Africa have no reciprocal enforcement provisions in their laws. The judge in the South African Court was alive to this challenge and dismissed such reasoning on the grounds that the instruction to withdraw the winding-up application is addressing an order in personam, meaning it is directed at ZCCM-IH and not at the Zambian High Court and as such, it does not amount to an interference by a South African court in the Zambian judicial system. Put more simply, the Johannesburg ruling is intended to bind ZCCM-IH and not the Zambian High Court.
So what does this all mean for Zambia? Practically, both ZCCM-IH and the Government can continue to ignore the Johannesburg ruling and press on with the winding-up process as they appear determined to do. However, the implications for ZCCM-IH (and therefore the nation) are that when the matter eventually goes to arbitration, the damages to be paid are likely to be much higher. The Johannesburg ruling has more or less demonstrated the oddity of the reasoning behind the decision to allow the winding-up application to have seen the light of day in a any court, when the jurisprudence on matters of international arbitration seems well settled.
Once the arbitration has been finalised and assuming, as many have probably correctly concluded, that Vedanta are awarded substantial damages (which could of course be reduced by any counter-claims that ZCCM-IH may have), the award will be registered in Zambia and fully enforceable as though it was a judgement passed in Zambia. Given this position, what would be a sensible way forward?
It is only fair to acknowledge that the economic and social problems in Chingola, specifically and on the Copperbelt in general, are real and that given the central role that KCM plays in the prosperity of both the city and the province, the Government had to do something to arrest the decline. The problem is the unstructured nature of the intervention. It is not, however, too late to engage in discussions on a less chaotic way forward for KCM. The continuation of Vedanta as the main investor on KCM is clearly untenable and what is needed now is an agreed exit plan – something Vedanta would probably be less unwilling to consider now than in the past. The Government can use its considerable leverage to settle reasonable compensation to Vedanta which would take into account the claims by ZCCM-IH and any non-compliance with the Mines and Minerals Act. The Shareholders Agreement actually contemplates mediation and this approach would be broadly in line with that spirit.
The issue of compensation will no doubt be a sticking point given the bumbling nature of the winding-up and how it has helped the cause of Vedanta but whatever compensation amount would be agreed could be settled through the proceeds of the sale of the unencumbered mining assets to a new owner.
Attempting to fight the Johannesburg ruling with the argument that the Shareholders Agreement is governed by Zambian law is nothing short of folly. We are better off saving the country further loss and negotiating a managed exit of Vedanta. The sad reality though is that when all is said and done, we are back to dealing with the impact of ineptitude, greed and a lack of clarity about how to safeguard the nation’s most prized assets and indeed the somewhat deeper problem of how to competently manage the nation.
Elias C. Chipimo
President
National Restoration Party
Lawyers have messed up this country…. Too much confusing talk…..but I hear you Mr. Chipimo…some of these issues can only be understood by learned people (and i dont mean lawyers)…but people equipped with today’s Global business acumen…. A simple person like me with an MBA from a recognized institution knew there would be a high mountain to climb from the time it was prophesied that “they” are “Liquidating” KCM….its quite a shame on the Global stage how “others ” are looking upon us….why..??? With all the educated people in GRZ someone couldn’t aptly advise the uneducated PF that its not everything you can do “pamaka”…. U truly look unwise pa last….if emphasis to elect “educated” people as MPs, PS is not considered…this country will continue deteriorating…
Chipimo’s piece sounds fair and balanced. Nonetheless, I am not so sure arbitration was/is the only right path ZCCM-IH/GOVT should have taken. I am quite sure other lawyers would have different opinions on that. But since many of us are not lawyers, we will leave that part to lawyers to argue over.
Overall, I feel Chipimo sounds reasonable and measured. Also, unlike other opposition politicians who claim to be economists and businessmen, Chipimo sounds more informed and researched. He also doesn’t seem to want to politically demagogue the KCM problem in order to gain some political advantage. And quite frankly certain issues of National Interest should be above petty politics because they affect us all as citizens!
I don’t know why you are all worried! Vendetta will have to be paid but we have counter claims. Damage to environment will over weigh the 5 billion. Also ask them to clean up Kafue river before any cent is paid They will run. Just like the western world we are people. Fines are in billions. So they charge five we get scientists to determine damage will be 8billion.
Am telling you if we got rid of corrupt elements the country would flourish.
Thanks
Good Job Mr. Chipimo to try to bring clarity to the Zambians especially on definition of an arbitration case, that its a legal and contractual agreement between the parties to resolve disputes outside the court via an arbitrator based in SA. And that the ruling by the SA is directed to ZCCM-IH.
Again, no question from the beginning almost all Zambians have supported the government on this decision. The problem has been with those appointed to run the show. People like Kaizer, etc. This decision has reduced confidence in people wondering if at all the GRZ knows what it’s doing, the perception is that there a few selected one who will benefit from this while causing more damage to taxpayers in terms arbitration costs that are expected to come.
Spot on Cat Power and Chipuimo
“Had a different creditor or applicant (i.e. anyone other than a party to the Shareholders Agreement) lodged the winding-up petition, the issue of arbitration would not have arisen.”
You are 100% correct Mr Chipimo.
This is a clear indication that the PF governments actions are malicious and they are acting out of desperation.
They want to hand over the mine the Chinese at all costs.The EUROBOND nkongole and 2021 elections is driving them into madness.
What Chipimo is stating is simply what everyone been saying; we want and have always wanted Vandanta kicked out…Lazy Lungu and ZCCM had a tight case but they messed up from day one in the procedure now they need to save face and get back in line instead of politicking.
Great job Elias … very proud of your analysis here but two things remain true and here they are.
1. Zambia and ZCCM-IH do not have to validate this RSA arbitration ruling by citing lack of jurisdiction and reciprocity. This technicality works all the time and thus unenforceable even if by nature all arbitrations are final.
Think of it in terms of the USA and Russia. The two have no extradition treaty and therefore criminals held in either country can go scot free because neither country is compelled by law to extradite them for prosecution for crimes committed in their country of jurisprudence. Thus the Zambian High Court through the Attorney General can refuse to register a ruling from RSA.
2. The premise for liquidation based on the original exparte was two-fold. Firstly it…
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2. The premise for liquidation based on the original exparte was two-fold. Firstly it addressed Vedanta’s insolvency and lack of capacity to pay outstanding obligations; taxes included – Going Concern.
Second, it addressed breaches in the Mines and Minerals Act – Regulatory. So, let’s start with the Going Concern issues. From an Investment Banking stand point, lack of capacity to meet financial obligations is a serious issue especially that in this case even a tax authority such as ZRA is owed $Billions.
ZRA can statutorily immediately impose daily compounding interest on all taxes owed by simply issuing a statutory instrument (SI) enforceable on demand backdated to 2003 the same way the IRS does in the USA. Vedanta would immediately owe over $100 Billion…
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Vedanta would immediately owe over $100 Billion.
That’s apart from what all creditors can impose on their own such that the new buyer can then buy the outstanding debt on pennies on the dollar after Vedanta fails to pay and new investors/MBO possible buy out is concluded.
On the issue of Regulations, I am not an expert there but environmental damage due to Vedanta’s negligence is worth billions.
Add that to taxes and other creditors such as suppliers including ZCCM-IH which can claim unpaid dividends due to transfer pricing and other financial evasions, Vedanta as a holding company even with all its world wide assets can easily be forced to file for bankruptcy.
In fact, a different counter suit needs to placed in London where the UK Courts awarded Zambia…
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In fact, a different counter suit needs to placed in London where the UK Courts awarded Zambia costs for environmental damage. Vedanta has not paid that bill yet, Zambia can now enforced it by filing claims in the UK with compound interest.
On top of that, adjoin all unpaid taxes to ZRA with compounding interest and any other similar reasonable claims and Vedanta will be forced to wind down both in India and the UK.
The smart people of the Zambian Enterprise have a great case here and whichever way you look at we can outsmart and out play these Indians.
All that is needed is collective patriotic brain such as what we have seen this week starting with Hakainde and now Elias here.
This is the kind of discourse we have been advocating for. Where Zambia wins, not…
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This is the kind of discourse we have been advocating for. Where Zambia wins, not where citizens root for Zambia’s demise. When Zambia wins, we all win.
Politics aside, I would like to express great and real satisfaction with positive contributions we have seen this week from both Hichilema and Chipimo here … Let’s roll.
Zambia Is Greater Than Any Single One Of Us ~ B R Mumba, Sr
Original Content; No Copyrights Reserved
Epo mpelele,
BRM
@B R Mumba, Sr
Sense.
I have problems with lawyers’ arguments always. If other lawyers would put up write-ups to counter Chipimo’s point of view, they too would sound great.
I almost always state that I hate games lawyers play. I hate the legal jargon. At least I am not a fun of lawyers until I need their services.
One thing is clear for me despite all these Chipimo’s yada yada which is that Zambia has laws and Vedanta should abide by our laws. Our laws are superior to any other country. Jurisdiction is key here.
Look at JUNIOR hallucinating, remember that LT posting on the 4th July – Vedanta sues Zambian Government in a South African Court over KCM. We told you to do the right thing…what did you say?
“South Africa has no jurisdiction over Zambia … we are a sovereign state. Vedanta and South Africa can go hang. Epo mpelele … let’s roll”
When I tell PF cadres to think do not be led by these educated foooooooools …they do not mean good for the country.
Thorn in the a$$ – This topic is beyond you please g to Kaputa and just campaign or throw stones
Elias Chipimo has mentioned something that we can debate, unlike the empty statement that was recently made by the Chief Liquidator Mwene Mutapa Life President of that opposition sabotage Party. Was this what you used to advise him when he was busy getting shares in the companies that he sold? In the days of Fonko Fonko we could’ve locked you up without charge. Sata saw something in you and that’s why he started taking on his visits to the US. Unfortunately Zambian politics are for buffoons like Kambwili. If this country ends up in the hands of Mwene Mutapa we’ll be much more trouble
You have written this article with a clear vision for the country Mr Chipimo. Even I a grade 12 drop out can understand your point very well.
So why could a student who is said to be a lawyer and was the best in their class not be able to know all these things! Where was our AG in this matter? Political decisions have spoiled and impoverished this country.
@Thorn in the flesh … the legal premise articulated by Chipimo is sound but the only issue he missed in his analysis was that due to lack of jurisprudential reciprocity between RSA and GRZ, the Zambian Attorney General is under no obligation to enforce the verdict of that arbitration issue at hand.
That’s a technicality in our favor as the smart people of the Zambian Enterprise and that legal framework can withstand international review and purview.
@Gay Gay … how come you are ejaculating prematurely all of the place??? Oh, my bad I forgot that you still suffer from the low libido, low IQ, low self-esteem, low energy, etc syndrome.
I started thinking you were getting healed, alas I was wrong.
Epo mpelele,
BRM
Chipimo, u have no moral authority to talk about KCM issues coz u one of those who profited from the mines at expense of Zambians. Even to this date, your law firm Corpse Legal is one representing Vedanta. Dont think we fools. Just make your money quietly while u struggle with political career
No solution just talking bra bra bra bra ,bring the solution baba you guys you are good at talking that is why it will difficult for you to rule bra bra bra bra bra every day haaaaaa to hell.since
@2Since..PLEASE READ THE ARTICLE ATTENTIVELY,Chipimo has advised Government and ZCCM-IH to take a mediation route as a face saver and safer way to settle the dispute bcoz according his analysis the shareholders’ Agreement has provision for mediation!!
I hope some dull cadres wont just rush to comment like this one …read the whole thing and critically examine the four options. If you can not read why comment on things you hardly understand!!
@1shaa, YOU ARE SPOT ON! One lawyer gave the mine to Vendata crooks,and looked the other way as they violated the sale agreement,he even failed to give us a better constitution he promised upon taking office,forced himself to stay in power against medical advice till..another has given us flawed constitution with highest levels of corruption since our independence and has now created a huge mess for us building where another lawyer left us off with these Vendata crooks!
So this was a Mwanawasa fiasco I n the first place?
You have had 8 years to kick them out but you failed as you are too corrupt…
Unpleasant truth; this agreement was done under the Mwanawasa regime. Like it or not that is when things were messed up and messed up for real.
@Jay Jay, you are the corrupt one for failing to see reality
Mwebe – You have stating that there is an agreement ….so you have to abide by it blaming others will not undo the agreement. You have to grow up…stop acting like kids just last month you were saying SA courts have no jurisdiction now look at how they have made our corrupt courts look stupid. If I was the Chief Justice I would be ashamed.
Mr Chipimo’s analysis is Spot on. GRZ chose a wrong Option and the only solution is to damage control with the help of the International Arbitrator. GRZ has no choice but to negotiate with Vedanta an Exit or Buy Out Package. Meanwhile no New Investor will commit to buy KCM Assets until Vedanta agrees to the sale. Vedanta will walk away from KCM and Zambia with its Reputation intact and smile all the way to the Bank. GRZ will pay heavily to Vedanta in fines,damages and Compensation. Wait and see!
“Had a different creditor or applicant (i.e. anyone other than a party to the Shareholders Agreement) lodged the winding-up petition, the issue of arbitration would not have arisen.”
You are 100% correct Mr Chipimo.
This is a clear indication that the PF governments actions are malicious and they are acting out of desperation.
They want to hand over the mine the Chinese at all costs.The EUROBOND nkongole and 2021 elections is driving them into madness.
And up to now ZCCM has no CEO as this matter is between ZCCM and KCM…its laughable that people can believe utterances of a dull Chawama lawyer on the airport tarmac like Edgar Lungu. I am sure if Kasolo was around he would have advised against this…
One would have thought that this Matter is between substantive, legal, entities, namely ZCCM-IH and Vedanta! At what stage did GRZ become a Party to this conflict? Isn’t GRZ interfering in a matter to which it is not a Party, ZCCM-IH being a separate, independent legal entity from GRZ, notwithstanding the fact GRZ owns majority shares in ZCCM-IH?
Well done Mr Chipimo , hope the guys are listening to the advise you are offering also Mr B R Mumba good points. Let us just put our heads together not finger pointing and lets not politicise this issue if we mess up now our children will not forgive us and do not forget to revise the shares 20% for ZCCMIH is to little.
An interesting synopsis of the KCM saga and the shenanigans of an inept, corrupt Govt devoid of any economic sense. The reality is Zambia is headed quite hurriedly to economic collapse of the Zimbabwe vintage unless prudent austerity measures are implemented. The sad reality which Chipimo touched on in passing is the complacency of the Zambian courts. Did the not so honorable judges not realize the implications of the arbitration agreement? Their actions impugned on the dignity of the Zambian judiciary and no self respecting investors will not see this reality.
Chipimo and company seem to think that the South African High Court Judge is infallible and unquestionable. But even from Zambian court experiences, where it comes to injunctions judges are on record to have thrown out the window their own injunctions. Remember the provisional Liquidator Milingo Lungo was himself “liquidated” in the morning by the Zambian High Court and reinstated that very afternoon by the very same court.
I am nit really worried by Vedanta, they are going one or the other out of Zambia without a penny, instead they will pay a heavy price for all their sins.
Correction: I am NOT really worried by Vedanta, they are going one WAY or the other out of Zambia without a penny, instead they will pay a heavy price for all their sins.
Even bitter Hakiende H agrees vendetta should go except he wants Anglo American back to run the mine and the entire up and under knows why. The point being missed is that once the actual figures due are worked it’s possible the next investor will pay off Vendetta and the rest will be history of course under 5 won’t or doesn’t want to stretch his bitter oblangator further
This is really going to kill us as Zambians, if Vadanta wins they will really charge the Zambian government a lot of money for compassion over the deformation of character that the government’s has caused on Vadanta. And in that been the government will have nowere to look for were to get the money that they will be charged will but by or source it from raising the price of fuel, maize-meal in Zambia and charging so very high tax on companies it really going to hurt us so very badly as Zambians, I really pray & put my hop in God that he will do something to not let it come to that.
Good thinking and repost @Cat Power. We most certainly can leverage our rights on our damaged environment and send Vendanta criminals off with a fleas in their ears.
As for Mr Chipimo, as intelligent and welll presented his arguments are; they fall short on patriotic concerns for the country he as opposition wants to represent one day. There is only one cry out for all Zambians:
MY COUNTRY, RIGHT OR WRONG. The problem with Vedanta, is that they have dirty hands and the law CANNOT fail to balance both wrongs, that’s what’s wrong with ‘Uncle Sam,’ South Africa, land of happy to remain enslaved Blacks.