Zambia has more to gain from mines’ sale
Published On May 18, 2022 » 2826 Views» By Times Reporter » Business, Columns
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EVERY time the issue of privatising a mining unit comes up, it reminds me of what could now terms as a ‘prophetic statement’ by then leading televangelist-cum-politician, Nevers Mumba, around 2000.
Yes about 22 years or so ago, Dr Mumba commenting on the need for the Government to expeditiously offload the mining units to the private sector warned that failure to do so would lead the sale of the units ‘not even for a song but for a chorus’.
That was because, as we were told then, the government through the then Zambia Consolidated Copper Mines (ZCCM) was losing millions of dollars in mere maintenance cost for the mines whose operations had become highly costly.
I describe Dr Mumba’s statement as having been prophetic because more than one-and-half-decade later, then Mines minister Christopher Yaluma used the same expression in describing the sale of Konkola Copper Mine (KCM) to the globally-diversified natural resources company, Vedanta Resources Limited.
Admitting that the US$25 million that Vedanta paid for KCM was insufficient, Mr Yaluma said in May 2014 during a Press conference in
Lusaka that: “It is true that they bought the mine for a song. We didn’t do our homework as a nation then and our audit of KCM operations has revealed that KCM did not bring in any fresh investment as promised…,” Mr Yaluma said.
As Zambia considers the way forward on both KCM and Mopani Copper Mine (MCM) this time around, therefore, most factors on the ground are better.
Truly, the ‘New Dawn’ government administration has an opportunity to do a better job in terms of coming up with the most suitable investor (s) and at prices most beneficial to Zambia.
This is because there is a myriad of reasons for the seemingly give-away prices at which KCM and other mines were sold starting with what has already been alluded to in terms of the mines having become a drain on national coffers.
Sam Kangwa, a Zambian scholar wrote in his case study in 2001, on ‘Privatisation of ZCCM’ that: “The problems, which led to decline in performance, were operational within ZCCM. After 1985, ZCCM started facing financial constraints.
The financial problem became so severe that the company was failing to procure essential implements to use for copper production.”
According to Mr Kangwa, the workers were forced to improvise, made short cuts to working procedures and got low salaries late.
As a result, they were demoralised and developed bad working habits.
Further, reduced injection of capital entailed that the sector could not grow while employment creation and revenue accruals to Government were hampered.
This led to low production which was worsened by the rise in the cost of production.
For example, in the 12 months leading to March 1993, Mr Kangwa indicates, the net cash expenditure per pound (lb) of finished copper after byproduct credits was 83.1 UScents/lb at ZCCM.
That was as compared to Chile where the cost for Codelco was 73.7 UScents/lb during the same period.
Amid dwindling copper production, according to Mr Kangwa who was based at Copperbelt University then, the overheads remained more or less the same at about 39.5 cents/lb.
That resulted in the general high cost of copper production.
Then Dr John Lungu and Alastair Fraser in their joint paper on impact of privatisation on the Zambian economy, indicate that a large share of the blame for this disaster in Zambia can be put at the feet of the collapse of the world price of copper which will be looked later.
Now for instance, Mopani, one of the candidates for sale, was poised to record a $52-million profit at the end of the 2021 financial year according to Mines Minister Paul Kabuswe.
That indicates the mine’s viability which is critical in determining its selling price and favours the seller.
Then there is also the prevailing copper prices on the international market which seem to be further favouring the hosts of the mining companies.
Unlike the prices at the time of the sale of some of these units around 2000 and before, when the prices hovered around $4,000 per tonne they are now well above $9,000 per tonne and experts project more increase.
That, buoyed by the fact that the government is not in a hurry to offload these national assets, gives the leaders a chance to do a better job when negotiating for the sale.
The government will not be on the receiving end where it would seemingly accept adverse clauses like those reported in the Development Agreements (DAs) during the previous privatisation of these units.
Obviously, Zambia learnt a lot from those DAs which most experts say account for the seemingly low benefits from the mining sector in the country.
This time around, it should be a win-win situation and the potential investors currently jostling for some Zambian mining units should know that.
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