MAC: Mines and Communities

Foreign mining companies threaten Zambia

Published by MAC on 2008-02-13

Foreign mining companies threaten Zambia

13th February 2008

For almost a year the Zambian government has tried to impose more equitable taxes on the country's corporate copper miners, in light of the huge profits they accrue. As majority owner of the country's largest mining company, KCM (Konkola Copper Mines), Vedanta has reaped the biggest benefits under a contract whose full details were only revealed in 2007.

The foreign companies are now threatening to sue the government for breach of contracts which clearly exploit Zambian citizens.

According to Mr Baid of Vedanta: "The new taxes will make Zambia uncompetitive, unattractive and will lead to destruction." This is a risibile statement, given the degree to which Vedanta has already threatened much of the environment, and hobbled the economy.

Foreign copper mine owners may sue Zambia in tax row

By Shapi Shacinda

13th February 2008

LUSAKA (Reuters) - A row over new Zambia mining taxes has deepened after foreign mine owners rejected the proposed fiscal regime and threatened to seek international arbitration to resolve the stand-off, officials said on Tuesday.

The foreign firms told a watchdog committee of the parliament that they were rejecting the proposed windfall profit tax at a minimum of 25 percent and an increase in mineral royalty to 3.0 percent from 0.6 percent because the government had not consulted them over the proposals.

Attorney general Mumba Malila however, told Reuters that there was no need for litigation because the new tax regime was "fair for the mining companies to continue making profits."

"We hope they will not drag the government into an expensive litigation exercise. There is no need for litigation because the new regime still allows them to make profits and they will soon see that," Malila told Reuters.

In January, the government also introduced a variable profit tax at 15 percent on taxable income above eight percent and raised corporate tax to 30 percent from 25 percent in a move that will effectively raise mining taxes to 47 percent from the previous 31.7 percent, starting from April.

First Quantum Minerals country manager for Zambia, Chisanga Puta-Chekwe, said the Canadian-based firm would seek to renegotiate its 15-year agreement on low taxes with Zambian authorities.

"We are really eager to renegotiate with the government, but if this fails, it will be difficult to avoid invoking (a clause on) international arbitration over the matter, although this is not our preferred course of action," Chekwe-Puta told Reuters.

He said the government had assured First Quantum Minerals it would not increase existing taxes or introduce new taxes during the 15-year stability period.


"The reason First Quantum raised money to invest in Zambia was because there was a guarantee that for 15 years, tax agreed upon would not go up and that there would be no new tax introduced," Puta-Chekwe said.

Chekwe-Puta said the proposed taxes would prevent First Quantum Minerals from conducting expansions at its mining units.

Managers of the major copper and cobalt mines also told the parliamentary committee that they wanted to renegotiate contracts they signed with the government, which awarded them exemptions on taxes for periods between five and 20 years.

Senior managers of Mopani Copper Mines, a joint venture of Swiss firm Glencore International AG and First Quantum Minerals, Chibuluma Mine Plc, a unit of South Africa's Metorex, Chinese-owned Chambishi Copper Mine complained over the new taxes.

Others were from Luanshya Copper Mines and Lumwana Mining Plc, owned by Australia's Equinox Minerals Ltd..

"The stand-point is the approach the government has taken (because) they told us we have to renegotiate the development agreements and up to now we are waiting to be spoken to," Frederick Bantubonse, the head of Zambia's Chamber of Mines, a think-tank on mining, told Reuters.

"This (stand-off) means that Zambia will not be credible to foreign investors and it will discourage further foreign direct investments," Bantubonse added.

Head of operations at the country's premier Konkola Copper Mines (KCM), C.PBaid, said the proposed taxes would 'jeopardise' KCM operations.

"The new taxes will make Zambia uncompetitive, unattractive and will lead to destruction. There is need for meaningful dialogue before new taxes are implemented," the state owned Zambia daily Mail quoted Baid as saying to the parliamentary committee.


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