Andrew Sardanis says Zambia received nothing from sale of KCM

ANDREW SARDANIS

CHAMINUKA LODGE, Tel: 0965 790579

PRESS RELEASE

 

In view of the controversy that followed the arrogant and insolent boasts of Anil Agarwal, in Bangalore last March over Vedanta’s acquisition of Konkola Mine, I set out below details of the deal.

Konkola was sold to Vedanta at the end of 2004 on the following terms:

  1. Subscription of $ 25 million dollars to the capital of Konkola Copper Mines Ltd that gave Vedanta 51% controlling interest.
  2. As this diluted the shareholding of the Zambia Copper Investments (ZCI) from 58% to 28.4% Vedanta paid ZCI the amount of $23.2 million by instalments over a period of four years, in compensation.
  3. It should have also paid $16.8 million to ZCCM-IH as compensation for the dilution of its shareholding in Konkola from 42% to 20.6%, but it did not. The ministry of finance, under Mr. Magande at the time, issued a credit note to ZCCM-IH, against its government debt.

Agarwal in his Chairman’s Statement for the financial year ended 31 March 2005 reported the purchase of Konkola as follows:

“In November 2004 we completed our acquisition of Konkola Copper Mines at the gross cost of $49.2 million.

This confirms items (1) and (2) above, which total $48.2 million. The additional one million covers a contribution to the feasibility study for the Konkola Deep project. Agarwal made no mention of the $16.8 million to ZCCM-IH, so I assume that Vedanta did not officially pay it.

The Mwanawasa government had been very secretive about the deal. I tried to obtain the details for my book “A Venture in Africa,” but I struck a wall of silence. I never managed to obtain information as to whether the ministry of finance had actually received the $16.8 million from Vedanta or whether it waived it and on whose instructions.

But Mwanawasa’s generosity to Vedanta knew no bounds. He proceeded to give it an additional present of some $ 2.5 billion by allowing KCM to carry forward all the tax losses “incurred up to and including 31 December 2003.” These, according to the published accounts amounted to $635,897,000. As the income tax rate for KCM was set at 25% unchangeable for 20 years KCM will not start paying income tax until after it made profits in excess of $2,543,588,000, which means that we gave Vedanta a present of two and a half billion dollars(!), in tax foregone.

In short, the Nation received NOTHING from the sale of Konkola. Agarwal received Konkola shares against his $25 million, ZCI got its $23.2 in instalments, but the only money that would have come to the Nation, the $16.8 million dollars that should have been paid to ZCCM-IH, disappeared. And in addition Vedanta received a tax concession equal to $2.5 billion dollars.

Perhaps Mr. Magande who was the minister of finance at the time can explain to the Nation:

  • What actually happened to ZCCM-IH’s $16.8 million dollars
  • And why he agreed to allow Konkola to carry forward the assessed tax loss thus giving it a $2.5 billion tax bonanza.

I understand that Mr. Magande is an economist and a banker. Surely he knew that in commercial transactions tax losses carried forward have present day value calculated and paid for. Why did he give them to Vedanta for nothing?

And now the boss of Vedanta is mocking us and laughing at us.

(The Konkola deal has been summarised from my forthcoming book: ‘Zambia: The First Fifty years’)

 

Andrew Sardanis

19 May 2014

 

 

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