Copper – Charity for Multinationals

Khadija Sharife

2 June 2011

analysis

Despite the apparent ‘success’ of the privatisation of the Zambian copper industry, the true picture is one of systemic multinational exploitation, national assets sold ‘for a song’ and persistent tax dodging, writes Khadija Sharife.

During the 1970s, Zambia was one of the world’s leading copper producers, extracting over 700,000 tonnes per annum. These days, Zambia leads the ranks as a top copper producer at more than 800,000 tonnes (2010). Much of the success has been credited to the privatisation of the copper industry. It has been almost two decades since Zambia’s ailing copper industry, beset by low commodity prices and skyrocketing debt, was privatised. The process was described by the New York Times in 1996 as, ‘Westerniz[ing] the economy with a combination of help and arm-twisting from the World Bank and the International Monetary Fund, the lead lenders for the $6.3 billion in external debt the country is carrying.’

The article went on to describe how, ‘All exchange controls, tariff barriers and food subsidies have been dropped in the shock-treatment switch-over to rampant capitalism… Virtually everything the state owned is for sale, from the national concrete industry to corner grocery stores to antique steam trains to leases on camps in the national parks.’ Within two years, over 140 entities had been sold, eventually expanding to 282 entities.

The World Bank credited the privatisation of Zambia as the most successful in the region largely due to the ‘limited interference’ of the government. The article further noted, crucially, the process through which the ‘crown jewel’, the Zambia Consolidated Copper Mines (ZCCM) was auctioned. ‘The privatization agency has five Wall Street investment bankers on staff, their salaries paid by the United States Agency for International Development. The copper deal is so big that the World Bank brought in the investment bank N. M. Rothschild & Sons and the London law firm Clifford Chance as consultants.’

The ZCCM was split into seven units and cumulatively sold for just US$627 million, accompanied, according to Professor Mpanda, by bribes. Until 2006, the ‘development agreements’ privatising Zambian copper were accorded a legal confidential status equivalent to the Zambian constitution. Even relevant ministries and members of parliament were not allowed access until a copy of the agreements were leaked: the agreement disclosed that multinationals were exempt from most of ZCCM liabilities. The Investment Law and the Mines and Minerals Law of 1995 created a 3 per cent royalty fee that companies evaded (demanding and achieving a 0.6 per cent royalty structure instead). But this in itself is vastly differed from royalties rates in other copper-producing countries: 5-14 per cent in Chile and 5-10 per cent in developing countries all over the world.

According to an official in the Department of Mining, ‘The private sector wanted concessions … so in the Mining Act you find provisions for these concessions.’ The legislation deliberately included vacuums that shifted articulation to individual development agreements. Royalties were reduced to 0.6 per cent as opposed to the 3 per cent established. Provisions granted to multinationals included stability periods extending for up to 20 years, rendering multinationals exempt from legislation implemented by parliament and other national and legal alterations; the right to carry over losses throughout the ‘stability periods’; 100 per cent foreign currency retention, remittance and provision for capital investment deductions; zero withholding tax; and various other fiscal and para-fiscal exemptions ranging from customs duty to environmental pollution and penalties; pension schemes, and contracting of casual workers – accounting for 45 per cent of the workforce, amongst others.

Companies were exempt from paying pensions to employees, from many laws (including environmental pollution, etc). Stated former finance minister Edith Nawakwi: ‘We were told by advisers, who included the International Monetary Fund and the World Bank that … for the next 20 years, Zambian copper would not make a profit. [Conversely, if we privatised] we would be able to access debt relief, and this was a huge carrot in front of us – like waving medicine in front of a dying woman. We had no option [but to go ahead].’

The first consortium to approach the ZPA (Zambia Privatisation Agency) was the ‘Kafue’ consortium, composed of the Commonwealth Development Corporation – Noranda, Phelps and Anglo-Vaal Mining Ltd (USA) offering US$131 million in addition to an investment package of US$1.1 billion. Zambian president Frederick Chiluba refused, claiming ZCCM should not be ‘sold for a song’. After transferring the responsibility of privatisation to the former executive director of ZCCM (1973-91), Anglo-American, present in Zambia since the early 1930s, emerged the winner and exercised the company’s pre-emptive rights by purchasing 65 per cent of the Konkola Copper Mines (KCM) – Zambia’s best untapped reserve – via Zambia Copper Investments (ZCI) at a cash price of US$90 million, with promised investment of just US$300 million.

Peter Sinkamba of NGO groups Citizens for a Better Environment claimed that Anglo used their position on the board of ZCCM to sabotage negotiations with the Kafue consortium. ‘Anglo’s package included a bundle of mines such as Nkana and Nchanga, producing over 50 per cent of Zambia’s copper, and ZCCM’s glory – the Konkola mine. Previously, Paris Club donors refused to release US$530 million balance of payments until the sale of Nkana and Nchanga mines. Two years after acquiring KCM for ‘a song’, Anglo sold the mine.’

‘The coming of Anglo to Konkola Deep was like a sinking man clasping at a serpent … not that Anglo is a serpent,’ said Anderson Mazoka, former Anglo head in Zambia. ‘Prior, the Mineworkers’ Union of Zambia, previously holding a representative position on the board via head Ernest Mutale was removed and no longer privy to the bidding process. The move by Anglo to acquire the mine was allegedly to lock up resources in Zambia, given Konkola’s status as the largest copper mine in Zambia. Anglo’s move was described by Abel Mkandawire then-chairman of Zambia’s Chamber of Commerce, [as] “as good as closing Zambia”.’

In 2004, UK-based corporation Vedanta Resources acquired 51 per cent of shares in KCM, known as the largest copper mine in the world, for $48 million cash. In the three-month period that followed, the company registered profits of $26 million from KCM. A call option secretly negotiated in 2004 also allowed the company to exercise the right to purchase ZCI’s 28.4 per cent shares, effectively granting Vedanta a 79.4 per cent monopoly. The Zambian government aided in the process, by removing the Competition Commission (ZCC) to enable Vedanta to become the majority shareholder. According to MP Given Lubinda, ‘The decision government took to invoke section 3 of the Competition and Fair Trading declared the ZCC totally irrelevant in the governance of Zambia which is really sad.’ The World Bank’s IFC (International Finance Corporation) reported that, thanks to corporate incentives, effective tax rate for mining companies was ‘effectively zero’.

Despite being the world’s copper powerhouse, Zambia is now one of the world’s 25 poorest nations. Though copper provides about 80 per cent of foreign exchange earnings, mining employs just 10 per cent of salaried workers, contributes just 2.2 per cent of revenue to the government’s tax agency (ZRA – Zambia Revenue Authority) and 9.7 per cent to GDP (gross domestic product). The drastic increase in price was primarily due to China’s increased copper needs, rising to US$10,000 per tonne. The bulk of copper in Zambia is exported to Switzerland – on paper, that is.

Glencore International AG, based in Baar, Switzerland (the world’s leading secrecy jurisdiction), controls over 50 per cent of the world’s global copper market. In Zambia, the company owns Mopani Copper Mines encompassing mining sites of Mufulira and Nkana, one of the main producers of copper and cobalt in Zambia. MCM, incorporated under Zambian law, is owned by the British Virgin Islands-based company called Carlisa Investments Corporations (73.1 per cent), which itself is owned by the Bermuda-based Glencore Finance Ltd (81.2 per cent), which is a fully owned by Glencore Switzerland. First Quantum constitutes an owner alongside Glencore indirectly via Skyblue Enterprise Incorporated (18.8 per cent), 100 per cent owned by First Quantum Minerals Limited; the company also directly owns 16.9 per cent of MCM. The ZCCM owns 10 per cent.

AllAfrica – All the Time