Late Mwanawasa’s advisor explains KCM 2004 sale to Vedanta

Late Mwanawasa’s advisor explains KCM 2004 sale to Vedanta

SALE OF KCM TO VEDANTA -2004

Incidentally some videos and write-ups are, all of a sudden, making rounds on social media regarding the sale of Konkola Copper Mines (KCM) to Vedanta in 2004. In one such video, a Pastor speaks with impetuous passion casting aspersion on the sale of KCM at US $25 million to Vedanta while quoting the buyer to have made US $75 million in three months after the acquisition of the mines. One would only hope that these social media circulations are not being instigated by some sections of our society to divert the attention of the citizens from the current happenings at KCM.

The purpose of this statement is to give insights of what exactly transpired before and during the sale of KCM between 1998 and 2004 unlike the half-baked information of what is being championed by people who were not even privy to the sale.

Zambia Consolidated Copper Mines (ZCCM) was sold in 1998 for a total consideration of US $627 million. The sale was divided into 7 sections of which US $25 million was paid for KCM, Kansanshi mine was US $28 million, Luanshya mine was US $35 million, Chibuluma mine was US $20 million and others. The privatization of ZCCM commenced in 1996 after the Chiluba Cabinet, the Board of ZCCM and the Zambia Privatization Agency (ZPA) approved the privatization report and plan presented by the UK based Financial and Legal Advisors, NM Rothschild & Sons and Clifford Chance. At the time of the privatization of the mines, Government was spending US $1million per day to keep the mines running and save job losses.

Specifically for KCM, it was first sold to Anglo American Corporation (AAC) in 1998 for US $25 million during the MMD Government’s privatization of parastatal companies in accordance with Government policy and privatization report and plan. Records are there at involved government institutions for anyone to verify.

President Mwanawasa, MHSRIIP, was elected as President in December 2001 and was sworn into office on 2nd January 2002. Barely a few days after President Mwanawasa was sworn in, Anglo-American Corporation, which had bought KCM decided to abandon the mines due to low prices of copper, which had slumped to lower than 80 cents per pound (lb). This sudden and unexpected move sent shock waves not only across Zambia but the world at large due to the privileged status of AAC and Zambia in the mining world. This created apprehension and uncertainty on the economic future of the country.

In the face of this unexpected crisis caused by AAC, the owners of KCM, President Mwanawasa, as a responsible and committed national leader, rose to the occasion and provided leadership. He assured the nation and the workers at KCM that the mines would continue with the operations and that there would be no job losses until a new investor was found to take over the operations of the mines. To implement this assurance an administrator and CEO, Mr. Jordan Soko, an employee of the mines, was appointed. Indeed for two years KCM continued to operate normally and there were no jobs lost.

The Government of President Mwanawasa handled the resale of KCM professionally, transparently and as provided for by the laws of Zambia. He took a lot of care and caution to protect the interests of the workers and the nation. President Mwanawasa was very cautious especially given the lessons learnt from the liquidation of Zambia Airways and Luanshya Copper Mine that resulted in lives being destroyed, families separated and dreams shattered. It was important that the Mwanawasa Administration took cognizance of the challenges of the liquidation of Zambia Airways and Luanshya Copper Mine.

As such, the Government religiously observed the legal procedures of selling public assets through an open tender. At the time, Vedanta provided the best offer. A negotiating team of experts from both the public and private sectors was appointed to negotiate the price and the terms of sale. The team was composed of Government technocrats and LAZ, among other stakeholders. To maintain the independence of the negotiating team appointed by ZPA, the President deemed it improper to include any staff from State House.

A delegation of stakeholders, among them MUZ leaders, was sent to India on a verification mission of the Sterlite companies operated by Vedanta. The delegation was fully satisfied with the findings and had no objection to selling KCM to Vedanta.

Seventy-nine point four (79.4) percent of the shares was bought, while the Government, through ZCCM-IH, retained 20.6%. The cash price was agreed at US $25 million. It was part of the agreement that Vedanta should develop Konkola Deep to extend the life span of the mine and to do further explorations. At the time of sale the life span of the KCM mine was estimated to be 8 years. The public statements made subsequently by KCM suggest that the result of this investment KCM has increased the reserves to over 200 million tons of copper ore, which would translate in many benefits not only to the company but also to the nation, the employees and other beneficiaries, such as contractors. This is a result of responsible, dedicated and visionary leadership that President Mwanawasa provided. He was more interested to develop the country than self and looked at both short term and long term benefits to the country.

In terms of cash consideration, in addition to the US $25 million paid by Vedanta in 2005, Anglo-American Corporation had paid US $20 million to the Zambian Government as compensation in 2002 for abandoning the mines while the World Bank also paid US $20 million in 2005. Therefore, the total amount realized from the resale of KCM was US $65 million unlike the 1998 sale of US $25 million. Note that the sale of the mines was a pre-condition given to Zambia to reach HIPC completion point. You may wish to know that Zambia was the last country to achieve HIPC in the region, after Mozambique. So, in addition, the nation gained from the cancellation of foreign debts amounting to US $7 billion. None of the growth that Zambia has seen since 2005 could have been achieved had we not achieved HIPC. Clearly, this was a far better deal that President Mwanawasa got from the resale of KCM.

Later the Mwanawasa Government introduced the windfall tax from which it raised US $485 million, which was put in a special account at Bank Of Zambia. This dedicated account was meant to be used on special projects to develop the country as provided for in the Vision 2030, which was to make Zambia a prosperous middle class income country by the year 2030. As I was not in Government after November 2008 so I have no idea what happened to the windfall tax money. Had the course been maintained Zambia today would have been a shining star and a proud model of development in Africa.

In addition to the introduction of the windfall tax on the mines, President Mwanawasa also cancelled the Development Agreements (DA’s) that had been entered into during privatization in the 1990s. The DA’s had provided the mines a tax moratorium of not less than 20 years. President Mwanawasa offered to personally represent the country in any court of law against any litigation by the mining companies.

President Mwanawasa also worked hard and found new investors for the closed Luanshya mine. New mines were also opened in the North-Western Province. By 2008 at the time of President Mwanawasa’s death, the state of the mining industry in Zambia had changed from gloom to great optimism as Zambia produced twice the amount of copper she had produced when the President took office in 2002. It was projected that in ten years time, Zambia would produce 1 million tons of copper. That’s how hard President Mwanawasa had worked to give Zambia a new life and to put it on a positive trajectory to economic prosperity and wipe out poverty.

It is, therefore, wrong and unfair for people who are not aware of the details of how the process of sale of KCM went through. President Mwanawasa strongly believed in consultative leadership. There was no decision on the part of the President that had been made without consulting Ministers, experts and other stakeholders.

It is my considered opinion that decisions made by President Mwanawasa were in the best interest of the country. He had stated at the time he took office that between personal interests and national interests, the later would always take precedence. President Mwanawasa was in office not for personal interest or riches but rather, for Zambia’s collective interest. He considered every Zambian as an equal investor and benefactor of the country’s development effort. President Mwanawasa left office not richer than he was when he became President.

The failure of KCM now, if failure there is, cannot be attributed to the decisions that President Mwanawasa had made. Subsequent governments have been responsible for monitoring the operations and performance of KCM and they have been appointing directors to sit on the board of KCM. The question that should beg answers is: “What have these directors been doing on the board, if not to safeguard the country’s interests?” Why is it that during the time of President Mwanawasa, KCM performed to expectations?

During President Mwanawasa’s time, there was no problem of input VAT refunds because the Government allowed ZRA to ring fence the VAT collections, which were refunded when claimed.

Clearly, we can all see that fiscal discipline was rigidly observed during the time of President Mwanawasa. There was macroeconomic stability and the country was on the right trajectory to achieving the 2030 Vision of becoming a prosperous middle-income country by 2030.

Instead of making aspersion on President Mwanawasa, who selflessly and tirelessly worked so hard to restore confidence in the economy and make Zambia’s dream of becoming a prosperous middle-income country by 2030 attainable, let us, Zambians, focus on finding solutions to the current problems the country is facing.

President Mwanawasa found the country on its knees; he didn’t waste time looking for faults, or blame President Chiluba or indeed Francis Kaunda or Valentine Chitalu for the privatization of the mines and other parastatals. He worked hard to put the country back on course of development. And within the six and half years, that he served, he turned around the country’s fortunes and we can proudly say he left the country much better than he had found it as indicated in his mission statement on assumption of the Presidential Office.

I thank you for your attention and listening!

JACK N. KALALA

FORMER SPECIAL ASSISTANT TO THE PRESIDENT –
POLICY AND PROJECT IMPLEMENTATION AND MONITORING

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