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Sunday, May 22, 2022

The cost implications of the Konkola Copper Mines Debacle

Columns The cost implications of the Konkola Copper Mines Debacle

KCM Nchanga Open Pit
KCM Nchanga Open Pit

Judge Bobo’s decision to dismiss Vedanta’s application on August 8, 2019 to halt the liquidation process of Konkola Copper Mines (KCM) and refer the matter to arbitration has declared the legal battle between the two stakeholders official. As per the shareholders agreement signed in 2004, the government has gone against its contractual obligation to settle any matter of dispute through arbitration in a South African High Court. At this point, what remains of critical importance is to acknowledge the implications of this decision in order to establish a mechanism to mitigate the impact that will soon arise from this verdict. I would argue that there are likely to be two major problems that the government will encounter as they battle with Vedanta Resources Limited and seek its replacement.

The first stumbling block will involve raising the legal fees to fight Vedanta in an international court coupled with the compensation that will ultimately accrue. The current state of affairs in Zambia shows that our economy is strained and choked of finances with debt in excess of US$ 10 billion. The President confirmed this when he spoke at Kansanshi Hotel in Solwezi last week. Moreover, the first US$ 750 million Eurobond matures in 2022. Can the Mines Minister, Mr. Richard Musukwa, please explain to us where the money to service these liabilities will come from?

The second and perhaps even more contentious issue will arise from the implicit cost of the government’s decision to erroneously liquidate KCM in the process of finding a new investor. Any investor worth their money will demand that due diligence of KCM is undertaken before buying the mine. In this process, they will evaluate the assets of the company versus its liabilities. The investors will want to know the size of the of the copper ore body, the grade of the copper, etc. in order to determine the commercial viability of the asset. After this is done the investor may ask to conduct an independent assessment of the mine in order to determine its true value and establish a counter-offer to the government’s asking price. Now, while it remains true that KCM sits on one of the country’s richest copper ore bodies, through the due diligence process the potential buyers will learn about the encumbrances surrounding the mine, the pending legal liabilities, and a compensation that would need to be paid-out. The process will further assist the potential new mine owner to understand how much they need to invest in exploring new ore bodies, given that Vedanta exhausted most of the existing bodies. When this is coupled with the legal liabilities and compensation, it further weakens the government’s negotiating power. So, what strategy is the government using when negotiating with a new investor?

For an economy that has been struggling to find ways to maximise on the gains from its natural resources in order to end abject poverty and build an inclusive economy, we must be more astute and aware of the decisions that condemn us to this status quo. Our leadership must avoid making decisions, such as this decision that have the potential to implicate us in costly battles. The experiences of the last three decades must also provide us with critical lessons explaining why we must shun the continued overdependence on external investment as the means of driving our economy.

The experiences of the last three decades must also provide us with critical lessons explaining why we must shun the continued overdependence on external investment as the means of driving our economy.

Our economy is still characterised by dire poverty, skills underdevelopment, and poor public services—problems that we were told are naturally fixed by the laws of free market economics. In our case, these challenges are amplified by the very laws that are supposed to be pulling us up. They have a deleterious effect on our economic situation through illicit financial flows where we have lost up to the tune of US$ 1542 million as of 2015. Fiscal indiscipline by the state is yet another problem that undermines our struggles. To fix our problems we must begin to think anew. As Rwandan President Paul Kagame expressed, “…in Africa we have everything we need, in real terms. Whatever is lacking, we have the means to acquire. And yet, we remain mentally married to the idea that nothing can get moving without external finance. Our quest towards building a developed country in the contemporary world demands that we change our mindset and cease to think that for our country to develop, we must solely depend on foreign direct investment. It does also demand transparency, accountability and a genuine commitment to a national cause. I fear what will be of beloved Zambia when all the natural wealth is sold off and depleted.

Looking ahead, our redemption lies in knowing how to pivot our national development agenda in a manner that leverages international interest in our natural resources. It must be clear to us by now that China and the West compete for our land and what lies beneath it. They have no common strategy for dealing with developing country markets and their governments but a massive appetite for our minerals. And therein lies an opportunity for us to exploit. But for us to be able to capitalise on this opportunity, we need disciplined and visionary leadership that will pull together the best of Zambian talent and coalesce them towards a common purpose. What would be an even greater achievement would be to mobilise this talent in the direction of increased participation in major economic activities such as mining. To do this will require putting aside partisan politics, crony capitalism and the indiscipline that comes with it but opting to genuinely support local private sector players with a strong commitment to nation building. We have this one Zambia and whatever we do with it, posterity will judge us, dead or alive.

By Luipa Mondoka


    • If this read is BS ..then Zambia needs more of such BS. Excellent read.Nice to know we actually have Zambians with brains and not just cadres

  1. I keep wondering why our various contributors cannot grasp the simple difference between a liquidation precipitated by a failed business operation and or a dispute arising from say fundamental strategic policy disagreement. In the case of Kcm at a primary level its about business failure as visibly demonstrated by its faiure to meet its obligations to third party interests such as taxman, creditors, declared distributable dividends ect. Put bluntly these are not policy direction disputes for arbitration. This is a failed business and nothing stops any financially affected stakeholder individually, collectively from acting to protect their interest therein. Liquidation of an insolvent business is an unpleasant but reality of entrepreneurship. Zccm Ih as substantial equity holder soley or…

    • Very PRUDENT! Mr Mondoka should re-read Judge Bobo’s ruling. Unfortunately some people are blind to the simple fact that this saga is between creditors and KCM where the latter has failed to meet it’s obligations to the contractors and suppliers. What tripe, this read is!

  2. Representing Other interest groups has lawful right to protect their interest therein. Perhaps the question needing to be answered is whether thisz a dispute that arises from policy variances or even say a legitimacy of computations amenable to arbitration? No, thisz a fundamentally and structurally failed business operation whose main owners have failed to save over many yrs. ItS insolvent no question and insolvent businrsses are a candidate for liquidation.

  3. Another Misinformed fool trying to comment on matters he does not understand,please go back to school and study business Law,the writer does not understand the law concerning insolvency,failure to pay tax,creditors and suppliers was not in the share holders agreement. Vendatta had a mandate/obligation to follow all the laws of the land and run the business efficiently,which they deliberately failed to do despite numerous remainders

  4. The main owners are cunningly pushing the arbitration narrative simply as an attempt to confuse and save not their irredeemable operation but their ego and international profile as a credible multi state players. It wud seem some of our compatriots fell for this hook, line and sinker except of course the Zambian court that competently saw thru kcms little camourflage and bravely called their bluff.

  5. I keep on wondering why is it so difficult to love our own country, I suspect the author of an is a foreigner who is just a descendants of our motherland (Zambia). Do you really know the sufferings people of Chingola and Chilabombwe went for so long because of that cruckad Indian and his entire Management? If you are a Lusaka resident Please stay out of this because the matter at hand does not concern you, please stay out this. If you are being used by the opposition tell them, they are the reason why we are going this and they pretend to be sympathetic. Please relay the Message to them, we know where their riches came from, thru their wicked Pravitisation of the same Mine that has landed us into your so called Debacle.

  6. As I have always mentioned, there are serious cost implications in this fight between our government and vendetta and it is we the grass that will suffer and pay for the cost. A politician can say anything when in power and can leave us in a mess that does not affect his household
    in any way after he has lost his job.

  7. Luipa you are not a zambian,am very sure .That crooked indian has been claiming kcm of making losses ,failling to pay suppliers,salaries,
    taxes non recaptalisation etc for the 13 years .For gods sake we dont need you and your indian pay master here in zambia.If no buyer is found for kcm, as zambians will run it.We dont mind the out come of any litigation ,as long as that crooked indian is gone the better.Fo sake wena ,*****.

  8. Lesson to all concerned – do not entrust national assets to cowboys; they will sell to the first Kangaroo on the scene.

  9. Luipa Mondoka, I like the article for it’s attempt to exhibit a correlation between investment and leadership. President Lungu found this rot but let’s support him for his present efforts. These crooked Indians should not be allowed to invest in our mines. By the way where is my friend Njimbu?

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