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Thursday, 21 October 2010

The government's case for low mining taxation

The Minister of Mines and Minerals Development recently delivered a response on all the mining issues raised. Nothing new here but government's strategy appears to be that give people the jobs and they'll keep quiet :
Mr Speaker, I thank you for allowing me to contribute to the debate on the President’s Speech which was delivered on the occasion of the Official Opening of the Fifth Session of the Tenth National Assembly....Sir, as mentioned in the President’s Speech to this House, mining will continue to contribute to the stability of our economy, job security of workers and for all Zambians to enjoy the prosperity this sector brings. In this regard, the mining sector still remains the main driver of the country’s economic development. The sector’s contribution to Gross Domestic Product (GDP) has been on the increase. It stood at 11 per cent in 2009 compared with 8.2 per cent in 2008 and 8.5 per cent in 2007 and contributes about 80 per cent to the country’s foreign exchange earnings. The target is for the mining sector to contribute in excess of 20 per cent to GDP. How will this be achieved?

The House may wish to know that currently, there are many companies undertaking mineral exploration in Zambia. Notable among these are First Quantum Minerals that is exploring for copper, uranium and nickel, over the Kalumbila area in the North-Western Province. BHP Billiton are exploring for copper and gold in Mumbwa, Central Province, and Kaoma in the Western Province. Era Power Infrastructure Limited Company is exploring for coal in the Gwembe Valley in the Southern Province.

My ministry is confident that the new mines will come on stream in the near future, following increased investment in exploration. Regarding the on-going development of new mine projects, I wish to report the following:

(i) the Muliashi Mine Development Project in Luanshya is progressing well. The mine is expected to start production by the end of 2011. Once in operation, the mine will create 1,200 jobs. I hope that the hon. Member for Chililabombwe is listening;

(ii) the first phase of the Konkola Deep Mining Project was commissioned in April this year. The project has created 500 new jobs;

(iii) Chambishi Metals which was placed under care and maintenance has been recapitalised and is now operational. It has re-engaged a total of 690 employees out of the 1,040 who were employed before the plant closed in 2008.

The plant is currently treating material from the Democratic Republic of Congo (DRC) and is investigating manganese processing in its smelter with a view to processing ore being produced in Zambia, thus adding value to our manganese, which, I believe, will be to the delight of Hon. Chimbaka of Bahati Constituency. This will result in more people in Chambishi returning to work, notwithstanding the multiplier effect;

(iv) Denison Mine Limited has defined a mineable uranium ore resource at Mutanga and Dimbwe Deposits in Siavonga. It is estimated at 13.7 million pounds. The company was granted a mining licence and mining is expected to commence in 2012. The project will create approximately 300 jobs.

African Energy Resource Limited also owns uranium resources estimated at 9.5 million pounds of uranium oxide at Njame and Gwabe in Chirundu. The company has been granted a mining licence and mining is expected to commence in 2012. Considering that the ore resources are not adequate to sustain individual mine processing plants, the two companies are exploring the possibility of setting up a central processing plant to carter for the two mines; and

(v) the Konkola North Copper Project is being developed as a joint venture by the African Rainbow Minerals of South Africa and Vale of Brazil. The House may wish to know that African Rainbow Minerals is a black economic empowerment company while Vale is the second largest mining house in the world, which cannot be ignored. The mine development has already commenced and this project will create 1,500 jobs, promising vibrancy to the community of Konkola. The hon. Member for Chililabombwe should acknowledge the Government’s efforts.

Mr Speaker, as further alluded to by the President in his speech to this House, the performance of the mining sector has improved, in the past one year, indicating full recovery from the effect of the global economic crisis of 2008. All the mines that were once under care and maintenance during the crisis have resumed operations.

Furthermore, the mines that were threatened with closure such as Nkana and Mufulira continued to operate due to the Government’s strong intervention. This clearly shows that the Government took the right and timely decision in finding investors for the mines that were threatened with closure at the onset of the global economic crisis. Our people are back to work and many more have started work. As clearly stated by the President in his speech to this House, in particular, with reference to Luanshya Copper Mines, production has increased by 3.6 per cent and 2,523 jobs have been created, well above the pre-closure employment levels. In addition, Munali Nickel Mine in Mazabuka has produced 14,434 tonnes of nickel concentrates since resuming operations.

Mr Speaker, I am pleased to report that due to the positive performance of the mining sector, copper production is on the increase. Copper production in 2009 was 667,173 tonnes and production is projected to reach 740,000 tonnes this year. This is due to the conducive investment climate created by this Government of President Rupiah Bwezani Banda, as well as the positive outlook of metal prices on the market.

Mr Speaker, allow me to respond to some issues raised by hon. Members of this House in their debates. From the outset, it should be acknowledged that the ministry will continue to implement measures in line with the provisions of the Mines and Minerals Development Act of 2008 and its subsequent amendments so as to safeguard the interests of Zambians in general, employees in particular and the investors.

The hon. Member for Roan, Hon. Kambwili, and others, in their debates, argued for the re-introduction of the windfall tax. Sir, there are two contradictory positions from the Opposition that emerged on this subject. On one hand, they argue for the re-instatement of windfall tax and on the other, they would like to have the Development Agreements (DAs) re-introduced.

Mr Speaker, under the DA Regime, there is no allowance for introduction of windfall tax and other taxes. Hon. Members should be reminded that under the DAs, mineral royalty tax was pegged at 0.6 per cent, but is currently paid at 3 per cent, which is 500 per cent times more. Corporate tax, under the DA Regime, was at 25 per cent whilst with its abolition, it is at the rate of 30 per cent, a 5 percentage point more. From the foregoing, it is evident that Zambia is currently benefiting more from its mineral wealth than under the DAs that some Opposition Members would like re-introduced.!

Mr Speaker, I would like to emphasise that windfall tax impacts negatively on mine development and we cannot afford to deter mine development in the country at this stage. We need the jobs to empower and assure the people of their human dignity. Re-instating the 2008 mining tax regime would work against the policy of creating a favourable investment climate for the mining industry. We should always remember that we are part of the global village and are competing for the same foreign direct investment (FDI) with other countries. The Government, under the Business Reform Programme, is reviewing the various pieces of legislation in the mining sector with the view to reducing the cost of doing business in Zambia. This will enhance our competitiveness.

Mr Speaker, on the issue of segregation, this Government has provided an enabling investment climate. Whilst we appreciate that investors are our socio-economic partners, we will not tolerate any form of racial segregation at the mines. It is important that management, at all mines, encourages its employees to work as a team while recognising and respecting each other’s cultural values.

Mr Speaker, it is important to note that jobs have been created and my ministry in conjunction with the Ministry of Labour and Social Services is working to ensure that these jobs are safeguarded and conditions of service for employees are negotiated for by the unions at the mines, on the basis of ability to pay, which arises from the profitability at a particular mine.

Mr Speaker, you cannot compare the wages obtaining at the Luanshya Copper Mines to those obtaining at KCM and Mopani Copper Mine as the latter operations have been continuous and the employees have benefited, over the years, from negotiated annual increments.

As regards the allegations that the people of Luanshya are suffering, the House may wish to know that since the coming on board of CNMC Luanshya Copper Mines, there has been an upswing in the economic activities in Luanshya as is evidenced by the various construction works that are going on …the increase in the volume of trade in the markets and the number of vehicles on the road.

Mr Speaker, on the issue of contractors at Muliashi Mine, the House may wish to know that CNMC Luanshya Copper Mines made an undertaking to commission the mine by 2011. There are two Chinese Contractors who have employed Zambians. In addition, there is also one Zambian contractor.

I wish to state that Zambians compete for contracts in the mines based on performance just like any other person or company. Strangely, Sir, some hon. Members continue to negatively debate on Chinese investment in Luanshya, and yet they are beneficiaries through supply of Maheu, mine development and production drilling contracts.

Mr Speaker, from the foregoing, it is time the hon. Member for Roan started accepting that things are now different and better in Luanshya. We have reported an increase in job creation and business opportunities by supply contracts and trading. There is now a serious investor in Luanshya and the people of Luanshya cannot be told otherwise.

Sir, Hon. Musenge of Nkana Parliamentary Constituency lamented that the he had not seen change in the livelihoods of the people following the privatisation of the mines as he has not seen construction of new schools, hospitals and roads. I will not belabour the point as the other hon. Members who debated before me adequately itemized, in this House, the various developmental projects being undertaken under His Excellency, President Rupiah Bwezani Banda’ Administration. For those who insinuate that this administration is only claiming the glory, I would like to put it to them that plans are only plans until you put money on the table. Conceived ideas are only plans on the drawing board until you have some budgeted expenditure to implement them.

Mr Speaker, as regards incentives offered to investors at the privatisation of the mining industry, it was a necessary surgery to save the industry. The House may wish to be reminded that metal production had dropped from 750,000 metric tonnes in 1973 to 257,000 metric tonnes in 2000. Similarly, copper prices were on the downward trend. Consequently, the mining assets deteriorated and required massive capitalisation. With privatisation, new jobs have been created and there has been technology transfer. Mineral resources such as the Lumwana deposits that were considered uneconomical in the days of the Zambia Consolidated Copper Mines (ZCCM) have now been developed for the benefit of the people.

1 comment:

  1. "Nothing new here but government's strategy appears to be that give people the jobs and they'll keep quiet."

    Jobs are supposed to be the 'trickle down' of wealth creation in the neoliberal (libertarian) universe.

    The government seems to treat jobs the way they treat bags of fertilizer - here is one, now get on with it.

    The result is that nothing gets done. There is no plan, because they don't believe in government, just 'free markets'.


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