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Wednesday, 16 December 2009

How the copper mines won (Update : 15/12/09)

Another peak at the global copper prices reveals a clear upward trend. We have now reached the copper price level at which President Mwanawasa introduced the windfall tax (in January 2008). Meanwhile, pressure continues to grow on the Banda government. The people want to see the Mwanawasa fiscal regime restored - the latest to join the rally call is Dr Mbita Chitala. Either we see change in this area or we all concede the mining companies have dribbled the people through state machinery.

Update (13 December 2009) :

A defence of the current mining taxation regime from Finance Minister Musokotwane : "If we impose tax on revenue on old mines they will end up closing and we don't want to head in that direction. We don't want to create job losses".

Update (15 December 2009) :

New voices calling for the reintroduction of the windfall taxes :

Professor Venkatesh Seshamani (UNZA):
“Government should reconsider the decision they made on windfall tax, the same way they changed their minds concerning the mineral royalty"
Roman Kambone (Investment Analyst):
“The people of Zambia need to benefit from their resources, and the best way this can be done is to find a taxation system that is going to work....“Let’s assume that government collects about 15 per cent of all sales per metric tonne that mining companies are making through out the year, the mining companies would remain with 85 per cent of their cash to meet their daily expenses. And government would have more cash than they would have collected if they had implemented the corporate tax system. Moreover, it is difficult to say that government will tax profits from mining companies...profit is not always in cash....Profits are not real, even when a company has profits, they may not have cash....”


  1. Cho,

    Either we see change in this area or we all concede the mining companies have dribbled the people through state machinery...

    This is not the end of it. Somewhere, there has to be a brave prosecutor who will dig into the corruption that surrounds the Development Agreements, the funding of the MMD, the mining industry's illegal tax evasion and tax avoidance tactics.

    If necessary with international help. There already exist Transparency International Zambia, the ACC, the DEC.

    There must be a lot of lawfirms that work with the anti-globalisation movement that can shed a light on the method of operations of the mining industry.

    And let's not forget. Stealing money from the Zambian people is a criminal act. People are dying in hospitals because of lack of medication - that is murder. Children are spilling out into the street because the government claims it does not have enough money to pay teachers salaries or build new schools.

    There have to be a million things that can be done. The mining companies are not the brightest lights in the universe, and they must have left a huge trail to follow.

    Who have they bribed? If one of them can roll, they can bring the entire house of cards down.

    Natural Resources Defense Council
    They could work on the pollution/externalities aspect of exploitation by mining companies. They could create such a stink, that the goverment would become scared enough to start getting serious about taxing pollution. Check out their Environmental Justice page

    Oddly enough, the account has been suspended.


    The Alliance has three main activities:

    · Monitoring and exposing corporate partnerships and undue corporate influence at the UN.

    · Taking action to pressure the UN to avoid such partnerships and influence.

    · Promoting and supporting UN-related measures to hold corporations accountable.

    Steering Committee

    Brazilian Institute for Social and Economic Analysis (Brazil)

    Center For Applied Legal Studies of Witwatersrand University

    Indymedia South Africa

    Tax Justice Network Why Tax Havens Cause Poverty

    World Bank corruption

  2. Odious Debats Probe International's Odious Debts Web site: The Internet source for information about the global odious debt movement.

    Corporate Europe Observatory (The Netherlands)
    Exposing the power of corporate lobbying in the EU

    CorpWatch (US) - Secretariat
    Holding corporations accountable

    Crocodyl - Collaborative research on corporations

    Council on International and Public Affairs (US)

    Focus on the Global South (Thailand)

    CorpWatch Holding corporations accountable, corporate power and the United Nations.

    Via Campesina The global alliance of peasant and family farm organizations

    Socialist Outlook : SO/06 - May 2005
    G8: Africa and Climate Change
    Pumping Poverty
    Britain’s Department for International Development and the Oil Industry

    DFID and multilateral development banks – public risk insures private profit

    DFID, representing the UK government as a major shareholder in the World Bank, has been consistently supportive of Bank financing for oil projects, which amounts to $5 billion since 1992. Eighty-two per cent of this financing was for projects that primarily export oil to developed countries and has therefore not helped meet the energy needs of developing countries. [2] The World Bank’s own Extractives Industry Review (EIR) also detailed the disappointing poverty alleviation record of Bank-funded extractives projects stating that, ‘project funding in the extractive industries has not had poverty reduction as its main goal or outcome’. [3]

    DIFD has also supported loans from the European Bank for Reconstruction and Development (EBRD) for oil projects in the Former Soviet Union and Eastern European states, totalling over $1 billion since 1991. The World Bank Group, EBRD, and oil companies have all acknowledged that a primary role of this public finance is to reduce project risk for private investors. Effectively, by transferring risk from private onto public institutions, these projects are being subsidised with taxpayers’ money.

    Eva Joly

    One to watch - 28/05/2009
    Eva Joly, France
    By Caroline Bodin/RFI

    Eva Joly, the Norwegian-born campaigning magistrate, famous for uncovering corruption in France is standing alongside another fearless crusader, the 1968 student leader Daniel Cohn-Bendit on the green ticket.

    June 28/2005

    Eva Joly to intensify Norway's efforts to combat corruption in developing countries by The Norwegian Ministry of Foreign Affairs

    Reporters Uncensored Africa Correspondent Mwenya Mukuka talks with Dr. Guy Scott, opposition leader in Parliament on government corruption in Zambia. Also here.

    Colonial Origins of Government Corruption?
    Evidence from Tax Collection in Kenya and Zambia
    Leigh A Gardner
    University of Oxford
    leigh.gardner ***

  3. About corruption who increase between GRS and Mining groups (foreign groups), i took a contact with eva joly two weeks ago, and with the Dominique stauss kan's team too.

    GRZ can't erase taxe and in the same time accept that zccm-ih not receive dividend while the foreign groups use this cash to developp their business in other countries

    zambia is poor, and will be the more and more if there is no radical change

    there is a big problem, credibility of zambia is very low now and the investors are afraid about GRZ, only

    corruption is the principal problem

    with levy, it was diferent, bad people are in place now !

  4. A defence of the current mining taxation regime from Finance Minister Musokotwane : "If we impose tax on revenue on old mines they will end up closing and we don't want to head in that direction. We don't want to create job losses".

    What a moron. He thinks the only way to create jobs is to pay foreign mining companies $41,000 per job in profits.

    (Do the math: $2.4 billion a year (more with higher copper prices), to create 58,000 jobs in the mining industry (according to President Rupiah Banda's speech) - that is $41,000 in profits paid to the mining companies for every job created.)

    The argument that we need to give away our copper to create jobs is the sickest argument of all.

  5. Clearly, all statements made are either political views or driven by emotion.

    How is it that none of the statements would have had no room prior to current mine operations.

    Jumping to condemn at a time others have taken initiative to run the mines is so whimpish, so pathetic excuse my language.

    Windfall taxes you must know are not as a result of increased production, if not carefully handled, you could derail and bring a terrible imbalance.

    Thankfully, we have a very able team in government who see the problem for what it is.

  6. Mr K

    D you have an idea of what overheads the mines incur in their operations?

    Mr Cho in his propositions goes as far as comparing open pit diamond mining (DEBSWANA) to copper mining!

    D you have an idea of how much energy consumption a single copper mine involves?

    The equipment of the mines are basically leased and not owned by the mines, I guess you know why.

    About low wages, surely ye must understand that it s either very high wages and low e
    employment levels, not both at the same time.

    There was so much time for local companies to run the mines, why didn't they take up the mines to run them?

    Now that investors are running them, thereis I justice! Where were the patriotic locals to take up the mines and protect and offer high wages to the locals?

    Read your history well and learn why the 1972 reforms came about and the failure out of those reforms.

    The same arguments Cho is raising are the reasons why the current govt has chosen to take the route embarked.

    We can't be retrogressing, no! Thankfully we have a very capable economist to read the situation.

    If you need my full position on this ......

  7. Helping the people of Zambia can be done through private investment on the Zambian assets. These assets are in the "claws" of large mining companies who welcome the further decline of GRZ on tax collection.
    The GRZ Will there be the courage to demand that mining companies finally pay benefits that are due to ZCCM-IH? .
    Good governance 's also evaluates the transparency. If the accounts of ZCCM-IH are not published, probably because until now the GRZ and the board have been unable to develop this holding. So What's to hide?
    What are the prospects?
    No accounts, no explanations, no prospects = no investment

  8. Anonymous,

    You seem at pains to justify the reaping off your country. Please can you tell me why it is alright for Australia to charge 8.5% in mineral royalties.In countries like the USA and Canada some states and provinces they even charge upto 15% in mineral royalties.
    The copper that is dug out of the Zambian soil is the same copper as in Chile, Canada or Australia that is sold on the international market at the same price. Why then are Zambian miners being paid peanuts while their counterparts in these countries are getting over $2000 per month? The argument about high production costs in Zambia, therefore, is balooney. By the way even electricity in Zambia is far way cheaper compared to these countries. The country is been raped! We have gullible and clueless leaders! Unfortunately there are "Anonymous" people like yourself cheering them on.

  9. FRANK,

    Things are not as simple as you want to put them. Why is an Engineer in Zambia getting far less than his counter parts in Australia, Canada and Chile?

    In the first place, we cannot compete in econonomic terms with those countries you mention, they have larger and more stable growths which bring in a whole lot of factors to enable them negotiate terms at a better footing. Understandably, we are not getting as much as we could but we need to be appreciate the deficiencies we face and as such must realise that unless we handle issues more sensibly than comparing our case to others.

  10. Frank,

    A lot of the posters who just lurk, except when taxing the mines is discussed in earnest. Then they all of a sudden jump into action.

    Would it be a leap to suggest that they have an interest in the mines not being taxed?

  11. What is not mentioned is that when Anglo American decided to exit copper mining in Zambia due to low copper prices, the government was faced with huge job losses and a substantial drop in foreign exchange needed for imports such as fuel and medicines.

    To prevent this happening they therefore had to increase incentives to attract new investors. These incentives are what we are living with today in the form of development agreements. They made the right decisions at that time to prevent potential job losses and losses in foreign exchange. Any legal agreements made that will stand up in court should be honored. New agreements could be according to current market conditions unless there are valid reasons otherwise. And I do not work for the mines.

    Following International norms in observing the rule of law and business practices will attract investment to Zambia. Fortunately Zambia now has a large diaspora and people experienced in International business and economic practices that it utilizes for this. The government is doing an excellent job in attracting investment to Zambia. Keep up the good work! And I am not a MMD member (nor any other party member for that matter).

  12. Kafue,

    I am totally puzzled by your statement :

    "These incentives are what we are living with today in the form of development agreements"

    Zambia abolished developed agreements in 2008.

    The DAs no longer apply.

    The incentives at present are those granted through the Mines and Development Act 2008.

    There's a question of the Lumwana DA. The picture there is complicated but I think it's simply the case of ZRA acting contrary to the Laws of Zambia.

    We have discussed all these issues before.

  13. Chola,

    "Zambia abolished development agreements in 2008"

    I don't believe that one can arbitrarily abolish existing development agreements with mines. The courts can decide on that. This article mentions that development agreements have international legal status:

  14. Kafue,

    I am not making it up.

    Go and read the Act.

    It's there plain and simple. It says all development agreements are null and void.

    The government makes laws.

    We spent a long time on this blog discussing how the mining companies threatened to challenge the 2008 Act through international law.

    Nothing happened.

    This is really not an issue of debate. I was merely correcting your FACTUAL error.

    DAs don't exist under Zambian Law.

  15. by the way your article is out of date.

    The DAs were abolished on 1 April 2008.

    Your article came out in January.

    Please read the legislation and all the posts titled :

    "Mining Companies versus The State".

  16. the big problem is that in the futur, if the copper price go down, the foreign groups will do the same than anglo american 10 years ago...
    after taken some billion of US$ and didn't give no taxes to GRZ they will go home...

    The problem too is that now, the privatization provided that zccm-ih take between 10 and 20 % in all mining groups, so zambia could profit about a possible increae in the price of copper.

    The result is that now, while all investisments are amortiz last four years, zccm-ih no received dividends from mining company ! the foreign groups come with privatization but no take their responsability, that is the pricipal problem.

    The last four years ZCCM-IH had to receive 700 M US$... but received only 3 M from all mines...

    GRZ doesn't care for 700 M US$ ?

    this is not a scandalous, it is a treason

  17. Chola,

    I understand your statement that development agreements do not exist under Zambian law. But it could be a different situation under International law.

    Whether mine owners will contest future tax law changes based on their development agreement's international legal status is up to them, and the courts will decide which law takes precedence.

  18. Anglo America did not pull out of Zambia due to issues concerning so called high taxes . At the time Anglo pulled out; the company was under pressure to develop its greenfield project in Chile. Anglo was cash strapped that is why it pulled out of KCM. Mind you Chile's mining taxes are still higher than Zambia's. Honestly ask yourself why anybody would run away from a country 0.6% mineral royalties and 25% corporate tax (Zambia pre 2008) to one with 4% mineral royalties and 30% corporate tax (Chile then and now). Anglo's move out of Zambia had nothing to do with the issue of taxation. The choice was between a greenfield in Chile and brownfield in Zambia. Anglo chose the former!

  19. FRANK

    You say Anglo left because of the green prospect in Cile as against our gloom prospect.

    By your statement you seem to have answered your own question.

  20. Mr Frank,

    As much as your ideas border on matters of injustice and fair play, the issues are much more than just about that.

    The mistakes made in the past by our Politicians can, to some extent, be excused, but to again commit the same errors after such invaluable lessons is inexcusable.

    Some people still want to believe that Government holds socialist policies. Government's position must not be mistaken for Mr. PF- SATA’s stance whose ideas are communistic, who intends to re-nationalize the mines.

  21. Do we suppose that as a country we have sufficient grounds to negotiate a 50-50 state/ mine company share settlement as have De beers’ with Government of Botswana, which Mr Cho alludes to?

  22. Frank,

    Why do I state so?

    From Mr Chos Propositions (which you seem clearly inclined)Unbelievably clear, you confirm your allegiance to the communist Party PF with its nationalistic policies centered on state ownership of enterprise. Virtually all your points thus far support this statement.

    Your ideas premise and anchor on the assumed benefits of the equal share partnership between state and enterprise citing Botswana’s Debswana as a case to support your position. On this one alone (comparison of Debswana & our copper mine operations) I will prove how entirely wrong your assumptions are:

    In the first instance, mining operations of various types of minerals differ depending on the mined mineral or gem and as such various variables apply in terms of type of investment.

  23. As such and in the case of DEBSWANA, the mere fact of having discovered the diamond deposits inevitably propped up their initial investment capital, immediately attracting needed venture capital. The Debswana mining operations are, to put it simply, ‘shove and select’. The type of mining engaged is such that, DEBSWANA has had to fence-off the entire town in order to keep people from mobbing, reason being, diamonds can literally be found almost anywhere in the town at the surface without the need to use a spade. You need a pass to enter one of such areas because of this status.

    In other words, how much initial investment do you need for such kind of mining operation? One needs only a hand held hammer as equipment to make oneself a millionaire in such a case. You don’t need a smelter to extract diamonds!

    On the other hand, Copper, even when found on the surface (open pit) will not merely be picked and packed. There is a whole range of operations to be done in order to mine it and later on make it fit for shipping. In short, an investor will not just leap with excitement at the prospect of discovered copper grades.

  24. Coming to the mining operations, unlike DEBSWANA’s mines which are open pits, our mines (copper) require drilling hundreds of miles of holes into the earth below requiring huge capital to cater for the operations. Meaning that the risks involved are astronomically higher incomparable to the operations of DEBSWANA.

    Now getting to my point, do we suppose that as a country we have sufficient grounds to negotiate a 50-50 state/ mine company share settlement as have De beers’ with Government of Botswana?

  25. To this question Mr Cho, in his prepositions, emphatically answers in the affirmative. I am old enough to remember what led to Kaunda’s 1972 economic reforms and learning from that, I can honestly state that you have under estimated the valuable lessons to be had from their.

    Our country has been progressing, learning from our mistakes, and at this stage we cannot afford to make the same mistakes we made in the past.

  26. Political expedience, more so bearing in mind the high expectations of the people of Zambia coming from the yoke of colonial rule, was the main motivator for the reforms. Admittedly, you cannot delink our copper mines from politics. The economic reforms of 1972 were shrouded in Politics to an extent that real economic growth was sacrificed at the expense of pleasing the masses.

    Unfortunately, some people advocating for your direction today were still mopping the floors by then (Sata was one of them, is it no wonder such ideas are picked by him only now). Please read the annuals of our mining history.

  27. Even then (1964-1975) there were men such as Dr Zulu - at one time heading the ZIMCO conglomerate, also one time BOZ governor- holding similar views as you do.

    The result of the 1972 reforms (nationalization of the mines): increased consumption resulting from higher mine wages behind the backdrop of reduced production coupled with reduced capital projects by govt (since more money was redirected to subsidies the ever increasing wage bills of civil servants) and reduced investment in mining (general investment as well) by mining corporations.

  28. Please refer to the 1972 Mulungushi reforms and the reasons behind those reforms. The take over of the Mines by the Kaunda regime was big headline news NOT ONLY in UK but world over. We surely must learn from the past. I have used the simplest language I could possibly find without delving into detail. I will try once more: a mouse does not often badge into a humans home in broad day light.

  29. Of course there are disparities in wages and other issues relating to workers, and social welfare but these should be looked at in retrospect. Government policy must be weighed against the overall goal to achieve stable and real growth behind liberal policies of free enterprise.

    As I stated at the beginning, I have no doubt that Mr Cho is inclined to the Political inclinations of the communist Party and their ideologies. To go that way, is to ignore the mistakes of our past.

  30. Anonymous,

    Please I am not interested in your political party affiliations. I do not know as to why you want to even impose a political party tag on me. Please I do not give a damn about any political party in Zambia. They are all useless.
    Second; this thread is about levels of taxation. It has nothing to do with communism nor capitalism. In every western country political debates are always centred around the appropriate levels of taxation. Currently in both the UK and US; govts are talking about imposing windfall taxes on bank bonuses. This is not a debate about capitalism nor communist but about equity! Mr Anonymous please educate yourself also about what is meant by Greenfield or Brownfield investment rather than babbling incoherently. Finally if you insist that underground mining is so risky how then do you justify the peanuts been paid to Zambian miners? This is the last time I will respond to you because, really, your analysis and name calling is beneath me.Ciao!

  31. Frank,

    You state opinions as though they are facts. Every country in Western Europe you say? The thread is about levels of Taxation void of phylosophy and goal?

    Very clever for exposing my utter I ignorance, I am ashamed.

    Lastly (possibly) thank you for choosing not to direct you comments to me, you are too high for me. I didn't ask you to be my freind. Cheeky li.... bas....d

  32. Frank,

    Finally if you insist that underground mining is so risky how then do you justify the peanuts been paid to Zambian miners?

    It always amazes me that the apologists for the mines disparage the government as inefficient, when for most of the 1980s and 1990s copper was in the $1500 per tonne range.

    However today, with copper over $7,000, somehow these efficient private sector corporations cannot turn a profit and are still busy working off their overhead.

    Don't let them get you down. My guess is that they are either paid by the mining companies or are MMD cadres trying to do justify their party's policies.

    And I do think that posting anonymously is a privilege and not a right, and that it should not be abused. In my opinion.

  33. it is very easy to see how many earn kansanshi mining for example !

    you can see on the report that kansanshi mining earn more than 2 billion of US$ in less four years !

    you can see that the minority interest, the benefit for zccm-ih is 341 M US$..but you can see too that kansanshi mining given only 3 M US$ in dividends to zccm-ih !

    on this report you can see the ridiculous taxes for more than 2 billions US$ benefits!

    poor FQM, poor company, we understand why they pay only 200 $ per month the mine workers !

    page 17 : minority interest 351 M US$ for zccm-ih

    only dividends 3 M$ Dividends paid to minority shareholders: page 20

    we understand why they don't give correct dividends to zccm-ih :

  34. If all Political Parties are useless it follows then that all their followers are useless, implicitly the whole country is useless.

    On whose behalf is a fair tax been advocated for?

  35. Anonymous,

    That is quite some leap of imagination. The majority of Zambians do not belong to political parties. Otherwise these parties would have dependend on their membership for funds. This in turn would have made them more democratic than vehicles for the political ambitions of the individuals at the top. By the way the MMD exists for the simple reason that as a party in govt it has access to the public purse. By the way isnt it the same MMD that has been in two minds about holding its convention due to lack of funds? So Mr Anonymous what is the membership of your party like,the MMD? What numbers are we talking about that you can fail to raise sufficient funds for a convention from your supposedly millions of members? No sir Frank did not say that all Zambians are useless. He said all political parties are useless. It is his right not to join any party if they do not represent his interests. It is not an insult. It is the way with democracy.The majority of Zambians do not belong to political parties. For sure there must be less than 50 000 registered party members in Zambia out of a population of 12.6 million. People like Frank are certainly in the majority that is why they blog using their names.

  36. Zambia has lost $600m in mine tax revenues – Milupi
    By Chiwoyu Sinyangwe
    Sat 06 Feb. 2010, 04:00 CAT

    According to independent MP Charles Milupi, it did not make economic sense for President Rupiah Banda to propose to borrow commercial loans from the World Bank for infrastructural development for mining activities when the country was not deriving corresponding economic benefits.

    And a response from mining minister Maxwell Mwale:

    ‘Windfall tax abolition was done to save mining sector’
    By Edwin Mbulo in Livingstone
    Sun 07 Feb. 2010, 04:00 CAT

    Apparently, the key is keeping jobs. (Never mind we pay the mining companies $41,000 for every job 'they created' - hey keep $2.4 billion in profits for creating 58,000 jobs.)

    According to mining minsiter Max Mwale, The key issue is that with windfall tax you kill exploration. So with no discoveries there would be no developments in the mining sector, we had to take a long-term view of the industry,” said Mwale in an interview on the sidelines of the 5th Africa Mining Congress at the Zambezi Sun Hotel on Saturday.

    So apparently exploration of future reserves is more important than collecting hundreds of millions of dollars while copper and commodities prices are high. Even though hospitals can't see to patients and children end out in the street instead of in school.

    And who is going to benefit from those future finds of copper?

    All that it adds up to, is that agains the Zambian people will see no national development, and foreign mining companies get to keep billions a year in profits.


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