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Tuesday, 1 May 2007

Quantum leads, now Government must follow.

First Quantum Minerals recent announcement that it plans to spend K1 billion to rehabilitate roads in Ndola should be applauded. Its also good to see that FQM are looking at other roads. Last month I called for a new approach to local infrastructure funding , where new local investment should be tied to provision of local infrastructure such as schools, hospitals and local roads.

While, FQM's current plans are focused only on roads, it is still good to see that FQM are taking a leading role in the absense of a clear framework from Government. In their own words “The spending of the K1 billion was part of the FQM community social responsibility to the people of Ndola”. Its a pity that Government has not woken up to the importance of making such social responsibility a legal requirement like it is in other countries. Its my hope that FQM's actions will stir a debate on the merits of private sector led investment on local infrastructure.

10 comments:

  1. I am sure people in Zambia welcome corporate social responsibility and QM should be applauded for that. On the other, this forthcoming generosity from the beneficiaries of Africa's vast resource should be met with caution. Lets not forget that most mineral rights were sold to QM through its brokers for dare I say 3 million pounds, less than an amount diddy spends on parties in 6 months. Not being ungrateful but I want fellow bloggers and readers to see the generosity for what it is...QM and most if not all foreign companies dont pay royalties and are tax exempt. QM recouped its total investments in Zambia in the first 6 months of operation. History has shown that any institution is as knowledgeable, prudent and transparent as it policies and business associate. The generosity may as well turn out to be a mirage others may say half empty or is it half full? who is going to be awarded the contract to revamp the roads..sorry I forgot another tax exempt company...perhaps a subsidiary of QM?

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  2. And this is the problem I have with relying on mining companies for infrastructure development.

    They are never going to spend more than a pittance, compared to what they are allowed to take out of the country.

    If the mines were owned by the state, the state would be able to distribute the money to local governemnt, and they should be building local infrastructure, in cooperation with the local people.

    I don't think 'company towns' are the answer, or development. This is because the profits always go to the owners. Who, in this case, are still the mining companies.

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  3. Jay, MrK

    You both raise important points regarding the pervese nature of the existing mining agreements. FQM am sure are making vast amounts of mone, and K1 billion means nothing to them. However, we need to separate the mining contracts issue from a general framework in delivering local infrastructure.

    Yes, the Government needs to do more to ensure that the country gets a better a deal in terms of mining contracts, but that does not mean we cannot lock in corporate social responsibility. In my view, whether the mining contracts are perfect or not we should do all we can to ensure that it is the private sector that delivers local infrastructure first and foremost. The tax payer should be the last resort.

    The issue of connecting new domestic and foreign investment to local infrastructure provision goes beyond mining. Its a framework that we need to encourage before the local authorities gives the go ahead to investment. We need a national framework of some sort.

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  4. " The issue of connecting new domestic and foreign investment to local infrastructure provision goes beyond mining. Its a framework that we need to encourage before the local authorities gives the go ahead to investment. We need a national framework of some sort. "

    It could be possible to write conditions into mining contracts that would make the mining companies to spend some part of their profits on local infrastructure.

    However, we still would have to know how much profit they actually make, and it is in the mining company's interests to underestimate their profits every time. In other words, it would turn the government into a debt collector, chasing down costs, second guessing interpretations, etc.

    In business everything is about control. And it seems that control is the first thing this government is willing to give up.

    Control the money, and no one needs to go to the mining companies for anything. Or listen to them explain how they 'didn't make a profit', etc.

    This is why the contracts are so bad - they are all written for the benefit of the mining companies. They have complete control. That is why these agreements explicitly state that they won't pay any taxes of any kind (including windall taxes in case the copper price would take off). That they are allowed to choose their own suppliers. That they have no obligation to keep profits in the country, etc.

    Control, control, control.

    They understand the game, this neoliberal government does not. Or maybe it is just Levy Mwanawasa who doesn't understand, and Magande or his predecessor who took the bribe.

    That is why I would insist that the state owns all the mines. It is not some communist nationalisation, but basic good business sense.

    And look at all the countries in the world that own their own natural resources. The Norwegian state owns all their offshore gas fields. In a million years, they would not dream of letting Equinox Corporation, or Vedanta International own their natural gas fields.

    It is only poor Third World governments that can be manipulated and bribed into handing over billions and billions of dollars.

    It is not progress or capitalism. Capitalist countries own their own resources.

    Saudi Arabia. They own Saudi ARAMCO outright, and benefit from all their oil sales. And they have gone into refinery, cleanups, etc. As a result, their per capita income is huge, compared to Zambia's.

    We need ownership of our resources, not utopian neoliberal economic theories about a world without governments, run by corporations.

    I think the history of Saudi ARAMCO is interesting.

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  5. "This is why the contracts are so bad"

    Its the age old problem of contracts. Its usually said firms merge with other firms when the cost of specifying a contract are greater than the costs of running the thing yourself (assuming the benefits remain the same under either scenario).

    As you say we just don't know whether we are getting the best deal or not! lol!

    Actually in my view to deliver infrastructure you need to avoid the contract issue and simply enshrine it into law. For example you can say...if you invest X% and results in employment of X amount, you will trigger Y traffic in the area, and therefore you are required to upgrade the local junction or the local road. Also if you create X jobs, you will need to create houses along with it or make a school. This would apply to mines and all other areas of foreign and domestic investment.

    We don't want to discourage investors, but we want the whole package for the local areas. It is all about the investors doing their bit for some of the negative impacts they generate. For example a new company in an area is most likely going to encourage migration to that area, and this will put stress on the local schools and the roads. Why not get them to fund for them? All countries do this.

    Now on the mining issue, as I said, I think you are probably right. The contracts are difficult to write. But actually, the issue really is setting the correct tax. One that encourages the companies to continue mining but ensures we get enough cash. Zambia has always historically been behind in setting appropriate levels of mineral royalties. I can accross a paper on this a while back.

    In terms of ownership - I agree that ownership eliminates the "contractual" problems, in the same way that mergers do! But we have to make sure that in solving one problem (contractual problem) we don't create others like inefficiency. But of course ownership is not the same as management. The Government could own the mines and hand over management to someone else. So all the money goes to them and then they pay the management companies.
    This however, does create other types of problems!!

    For all the criticism of the current approach, we have to conceed that the mines are back up and running. Yes we may not be getting back much money but we now have an industry that is providing a jobs and in the future will grow even bigger.

    The Magande / Mwanawasa point is that we haven't the resources to develop new mines and run exist mines. So why not get these guys to develop and explore these things for us and then down the line we'll get it back. Not sure I agree with them fully, but Chavez has nationalised the oil industry, so am sure down the line if we felt our mining industry had sufficiently developed we can do the same.
    Assuming we do it right. I need to look at these mining contracts and see what they say about ownership.

    Do you know?

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  7. We don't want to discourage investors, but we want the whole package for the local areas. It is all about the investors doing their bit for some of the negative impacts they generate. For example a new company in an area is most likely going to encourage migration to that area, and this will put stress on the local schools and the roads. Why not get them to fund for them? All countries do this.

    I don't think investors are that easily scared. Mwanawasa and Magande keep saying that they shouldn't scare away investors (mining companies), but where else are they going to go? Zambia owns (or owned, at one point, with all the new mine discoveries after the huge increase in price) a quarter of the world's known copper reserves.

    What the problem is, is the structure of these deals. The way they are, is:

    - the company owns the mine (through buying a concession/claim)
    - the state signs off on a production agreement, guaranteeing no taxation, few if any restrictions on employment, no obligation to use local suppliers, etc.

    I don't see how this is in the interest of the country, the state or the economy.

    The way I would do it, is:

    - the state owns the mines
    - the privately owned company performs operations

    There would have to be an agreement on not hiring political appointments, which is one of the downfalls of state owned companies.
    However ultimately, if the state owned the mines, there would be no dispute over whether environmental law, or labour laws applied.

    The Government could own the mines and hand over management to someone else. So all the money goes to them and then they pay the management companies. This however, does create other types of problems!!

    Those problems would be miniscule compared to the fact that all the mining money is leaving Zambia. :)

    The Magande / Mwanawasa point is that we haven't the resources to develop new mines and run exist mines.

    That was always an argument that made no sense, because the mines are inherently valuable. The government could have easily borrowed against the value of the mine and hired any mining company to start operations. They could have started with the easiest (open pit) mines first, and used their profits to go on to bigger things.

    I don't think it is a coincidence that it is the IMF's/neoliberal dogma that the state should be destroyed, or in words of Grover Norquist, should be made so small it could be drowned in a bathtub. In their thinking, the utopian ideal is a global economy without governments, run by corporations.

    And if you look at it from the corporation's point of view, these deals are great. No taxes, no labour laws, no environmental laws, no profit sharing the government.

    So why not get these guys to develop and explore these things for us and then down the line we'll get it back.

    Well that's not in any contract I have seen. And how would the MMD get the mines back?

    Not sure I agree with them fully, but Chavez has nationalised the oil industry, so am sure down the line if we felt our mining industry had sufficiently developed we can do the same.

    So you're saying it is all part of a big plan? :)

    I don't see Mwanawasa and Magande as an undercover Fidel Castro and Che Guevara.

    It would be really cool though. We would all have been fooled.

    I think one problem is that you don't hear much about this from the present government - all they do is assure the safety of foreign investment.


    Assuming we do it right. I need to look at these mining contracts and see what they say about ownership.

    Do you know?


    I think ownership is already taken care of in the concession/claim they have bought.

    The mining agreements are mainly about taxation, work/employment issues and procurement.

    The mining companies own the mines outright.

    There are several 'development agreements' listed here:

    http://www.minewatchzambia.com/agreements.html

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  8. "The mining companies own the mines outright.

    Are you sure?
    I surely hope not.

    The mines must have been leased to the firms may be for 30 years or 50 years for new ones like Lumwana. But not selling!! No reasonable and intelligent Government would ever do that. You don't sell national treasures. I really hope not.

    The Channel Tunnel which connects England and France was built with Private Funds and with a little bit of aid by the two Governments. But the Governments were sensible enough to realise that no private company should own such a strategic infrastructure, so they leased it for 10 years. And in 1996 extended it to 65 years more.
    This is responsible governance.

    Now we have something more precious than underground tunnels...We have minerals. Things our ancestors were given by the Almighty, and these guys sell them away?????

    I really hope not.....

    A new leader will come into power am sure and grab them back.....if that is what they have done....A single Act of Parliament can undo the damage.

    I'll look into the contracts and dig some more on this.

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  9. we are trying to fight with a proffessional fighter,e.g mike tyson with our own woman champion.

    our friends have had practices in places in before our fore fathers where born,they have been collecting taxes since 1800's and we can even collect any. how far are we.

    i always say free things are very expensive.how much would have the mining companies been paying to the local councils in rates?

    on a different topic, how do you introduce fines of hundred thousands for being a nuisance? for some one to be a nuisance that means they come from low class.

    HIGH FINES GIVE RISE TO CORRUPTION

    i mentioned something about asian investment in our counrty and products being floored in the states.

    what would any of us do if our employee tried to compete with us?

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  10. Actually, the minerals were given to the original inhabitants of Zambia by the almighty, that would be the bushmen; but then if we are all descended from Adam and Eve they were indeed put there for us, all of us as we are all related (they only had sons, this worries me), but I have faith so it doesn't have to make sense. If we aren't all descended from Adam and Eve then it makes sense to claim them as ours but we can't use God, only the fact that we killed the previous owners and we are now occupying the land.

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