Dr Mutesa Questions Vedanta DealPublished by MAC on 2005-03-04
Dr Mutesa Questions Vedanta Deal
The Post (Lusaka), Kelvin Chambwa And Webster Malido
March 4, 2005
The Vedanta deal has revealed that either the negotiating team was incompetent or there was collusion, University of Zambia development studies lecturer Dr Frederick Mutesa has said.
And Association of Minority Shareholders of Zambia Copper Investment (AMZCI) president Jean-Pierre Rozan has said the Indian group, Vedanta Resources Plc, bought for a few "peanuts" a company that is worth billions.
Commenting on the US$26 million profit margin in just three months by Vedanta Resources, which acquired a 51 per cent stake in KCM at a purchase price of only US$25 million in August last year, Dr Mutesa said a wider national picture should have been considered prior to selling the company.
"The deal reveals two things; either the incompetence of those who negotiated the agreements or some form of collusion or self-interest," Dr Mutesa said.
"They knew what they were doing but didn't want to look at the wider national picture such as the whole potential in the mine including assets and world market trends."
The London Stock Exchange-listed Vedanta made a profit of US$26 million from KCM for the three-month period October to December 2004.
Dr Mutesa said the making of such decisions as selling shares of companies that had strategic national interests should in future include various stakeholders such as parliament and the civil society.
He said the major problem that surrounded transactions of this nature in Zambia was some level of secrecy that surrounded the processes.
"Where there is secrecy, it becomes difficult for citizens to participate effectively. As long as a company has government interest, the public is entitled to know what is happening," he said.
Dr Mutesa said the Vedanta saga was quite common in cases of privatisation where the sale price was undervalued.
"When selling an operational mine, you need to look at its full potential. China has been buying heavily and there were signs that copper prices would hit an all-time high. That should have put us in a strong negotiation position," he said.
And responding to a Post query on the latest results by Vedanta, AMZCI president Rozan said that with copper prices currently at over US$3,000 per tonne, Vedanta would continue making a huge profit.
"My only comment is the same as I always said: Vedanta bought for a few "peanuts" a company which is worth billions. With copper at over 3,000 dollars per tonne, Vedanta will continue making a huge profit and it should then benefit the welfare of your country," Rozan said.
Zambia Copper Investments has a 28.4 per cent stake in KCM.
University of Zambia rural development studies lecturer Mufana Lipalile said it was ridiculous that a mine the size of KCM could be sold at such a meagre price that Vedanta Resources Plc could recover the purchase price in just three months.
"The value of the assets was grossly undervalued. It's like buying a house at the price of a chair," Lipalile said.
"The KCM deal could have been done better. If they can recover the purchase prices within three months, it doesn't make sense. The government should have taken into account the fact that demand for copper is high."
Lipalile said the government should have undertaken broad-based consultations involving local stakeholders, including the University of Zambia's School of Mines.
"Otherwise, it promotes loopholes for corruption," he said.
Lipalile observed that the tax holidays that most foreign investors got at the start of their operations had negative implications on the development process.
"During the period of the tax holiday, the national revenue is limited and that has negative implications on the development process in this case," he said.
On its part, Vedanta Resources has been awarded an eight-year tax relief.
Lipalile said the priority when considering foreign investors should be poverty reduction.
"It would be important or necessary for the government to ensure the interest of the local populations is protected," he said.
Professor Ferdinand Akuffo, another University of Zambia lecturer in the Department of Development Studies, said now that Vedanta Resources had recovered the US$25 million it paid for the control of the 51 per cent shares in KCM, the company could leave at any time.
"The whole process of privatisation appears not to be in our interest. Now that they have recovered the purchase price, you can't control them. They can leave at any time," Prof Akuffo said.
"We have seen it, people come, recover their money and then leave. These are the things we have been talking about.
"We must be careful with the way we dispose of these assets and they should benefit Zambians and not the reverse. Otherwise, we are going to create problems for innocent people that will come after us."
Prof. Akuffo said it must be understood that foreign investors were business people who wanted to make money in the quickest possible manner.
"They are businessmen and want to make money. What happens to countries they get profits from, they don't care," he said.
According to London's Mining Journal of February 4, 2005, Vedanta has so far made a turnover of US$100 million with a profit of US$26 million in the last quarter of 2004 from its investment in the Zambian copper mines.
"Group turnover rose to US$548.6 million (including US$100 million contribution from KCM), up from US$337.7 million in the comparable period of 2003," the report states.
The report states that the group has recorded a 28 per cent increase in profits for the three-month period, compared with the year before, boosted by a maiden contribution from KCM, in which Vedanta acquired 51 per cent shares last August, and by higher metal prices and volumes.
The report further states that production of copper cathode for the three months reached 76,000 tonnes, including 29,000 from KCM, compared with 44,000 in the year-ago quarter.
A local financial expert said on Wednesday that if a very modest multiple of five years' earnings was applied, the purchase price for KCM's 51 per cent shares should have been US$600 million.
The expert also said if the sale had not taken place, at least US$210 million so far would have been banked in KCM's account in Zambia, instead of Vedanta's accounts abroad.